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Will You Benefit From The $25 Billion Mortgage Settlement

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Since the Obama administration has negotiated a $25 billion dollar mortgage settlement with 49 states and the 5 largest mortgage servicing banks, it is not likely to significantly help the vast majority of homeowners in crisis, and here’s why.

“The latest mortgage settlement will have little to no impact on the current real estate market. It is limited to non-government backed loans, which accounts for less than 40 percent of the existing loans. If homeowners can’t afford their homes today the majority won’t be able to afford it tomorrow even under the new settlement. Distressed homeowners need to understand all their options and the associated tax and credit implications,” explained Andee Allen of Coldwell Banker Liberty Realty.

While the five mortgage servicing banks will benefit by release from further state claims due to improperly circumventing procedures prior to moving forward on foreclosure, there is no “typical” outcome for the entire pool of homeowners that suffered the negative impact of robo-signing. Some proportion of homeowners have already lost their home to banks and should expect to receive small amounts of compensation, while others remain in their home or are “merely” underwater and may expect an improvement in loan terms.

Note that individual homeowners still retain the right to legal action despite this umbrella settlement, but their ability to pursue banks as a group, would end. And of course, by not joining together, the power of such remedy is greatly diminished.

The disbursement of the $25 billion dollars

The $25 billion is earmarked for distribution over 3 years, with incentives for giving out a larger proportion of the payout in the first year. Since we know from recent experience that there were significant problems with monitoring and enforcement by governmental authorities for oversight of previous mortgage settlement programs, it is not unreasonable to assume that similar complications will arise. (For example, Moody’s Investor Service, New York, predicted in late 2010 that only 400,000 to 1 million homeowners would be saved from foreclosure by participating in the Home Affordable Modification Program, a fraction of the 3-4 million that the U.S. government had projected would benefit.)

Nonprofits that seek to assist homeowners would do well to get in the game early, to lobby on behalf of households for what they have owing and due, and meticulously attend to what their clients receive (or don’t receive) within the legal timeframe that is set.

The lump sum payment anticipated for each “eligible homeowner” who has actually lost their home, is projected to be about $1,800-$2,000 apiece. The legislation strictly defines what comprises an “eligible homeowner.” It includes borrowers who were not offered appropriate opportunities for loss mitigation, other borrowers whose documents were automatically signedwithout the plaintiff properly producing a note as evidence that they have the right to foreclose, foreclosure victims who were on the receiving end of counterfeit and altered documents, and similar instances of fraud. Homeowners also must have lost their home between January 1, 2008 and Dec. 31, 2011, in order to qualify.

The mortgage settlement provides for $17 billion, to be set aside for principal reduction and other modifications of existing loans, in order to prevent future foreclosures. Three-fifths of this $17 billion is tied explicitly to principal reduction. This was a particular sticking point for mortgage servicers, who argued that due to investor obligations and the fact that such mortgages had already been bundled and securitized to Fannie Mae, Freddie Mac and the stock market, the reduction of principal was not pragmatic. However, in the final negotiation, this compromise would seem to represent a softening of the banks’ position, although how it plays out is anybody’s guess since it “seems that the banks can get credit for the principal reductions they offer rather than have to pay toward the actual settlement penalty.”

Homeowners whose loans greatly exceed the current appraised value of their homes—what is commonly known as being “underwater”—will be entitled to $3 billion of the settlement.

Who the $25 billion loan settlement will not help

The five banks that are participating in the mortgage settlement include Wells Fargo, Citigroup, Ally Financial, JP Morgan Chase and Bank of America. Homeowners whose mortgage servicer is not among this group, are out of luck. It is estimated that more than half of all homeowners in America have mortgages with other banks, with Fannie or Freddie Mac, or with the FHA. And in a state like California that is devastated by foreclosure, only 40% of mortgages across the state come from one of the five lenders named above.

However, California and Florida will both greatly benefit from this boon to their housing market. In fact, homeowners in California will get a chunk of change worth about $18 billion, from the mortgage settlement.

Put another way, it is estimated that the settlement may help as many as 1-2 million homeowners whose home value is below the amount they owe on the mortgage. However, one source estimates that there are 11 million homeowners that are underwater.

How would the average Joe fare if he were underwater, but did not miss any payments?

According to Deborah Jacobs of Forbes, the mortgage settlement offers people who are up to date on payments but suffer a valuation below the amount they owe, roughly $3,000 a year in savings by refinancing with the FHA.

How would the average Joe fare if he were delinquent on his mortgage?

This really depends upon how many states actually sign on to the deal, but the law does not provide a specific, minimum amount of mortgage relief by state.

How large is the number of former homeowners that qualify for the $2,000 compensation contained in the mortgage settlement?

About three-quarter of a million families were ousted from their home during the qualifying period, and meet the conditions necessary to receive compensation.

The U.S. Foreclosure Crisis, Beverly Hills-Style

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The dynamics of the residential real estate collapse are very different in elite neighborhoods

The careworn house not far from Santa Monica Boulevard resembles millions of other homes that have been foreclosed on since the calamitous U.S. housing crash four years ago.

Garbage spews from trash bags behind the property. A smashed television leans against broken furniture. A filthy toy dog lies on its side, an ear draped across its face. The garden is overgrown. The house needs a paint job.

Yet the property on North Rexford Drive, Beverly Hills, California, is no ordinary foreclosure.

A sprawling, Spanish-style estate, fringed by majestic pine trees and located near the boutiques of Santa Monica Boulevard, its former owners were served with a default notice in 2010; they were $205,000 behind in their payments on mortgages totaling $6.9 million.

Welcome to foreclosure Beverly Hills-style.

Some 180 houses in Beverly Hills, the storied Los Angeles enclave rich with Hollywood stars and music moguls, have been foreclosed on by lenders, scheduled for auction, or served with a default notice, the highest level since the 2008 financial crash, according to a Reuters analysis of figures compiled by RealtyTrac, which tracks foreclosures nationwide.

As in the default-ravaged suburban subdivisions of Phoenix, Arizona, and Tampa, Florida, plunging realestate prices are the root of the problem in Beverly Hills.

But the dynamics of the residential real estate collapse are very different in elite neighborhoods such as this. The majority of delinquent homeowners here owe more than $1 million. Many are walking away not because they can’t pay, but because they judge it would be foolish to keep doing so.

“It’s a business decision, not an emotional one which it is for normal people,” said Deborah Bremner, owner of the Bremner Group at Coldwell Banker, which specializes in high-end properties in the Los Angeles area. “I go to cocktail parties and all people are talking about is whether it is time to walk away, although they will never be quoted in the real world.”

She said she had seen in Beverly Hills a big increase in “strategic defaults,” in which owners who can still afford to make their monthly mortgage payment choose not to because the property is now worth so much less than the giant loan used to buy it during the housing bubble.

Strategic default is an especially appealing option in California, one of only a handful of U.S. states where primary mortgages made by banks are “non-recourse” loans. That means the loan is secured solely by the property, and banks cannot go after a delinquent owner’s wages or other assets if they default.

Bremner said she helped a client buy a Beverly Hills mansion last year that the prior owner had bought for over $4 million. He decided to stop paying his $3 million mortgage – even though he could easily afford it – when the value of the property had dropped to $2.5 million.

“They were able to comfortably cover the loan,” Bremner said. “They were just no longer willing to see the value of the property drop.”

A huge “shadow inventory” is building of elite homes that are in default but have not been put on the market. Of the 180 distressed properties in Beverly Hills, only 12 are up for sale.

The backlog reflects the pent-up flood of foreclosed properties of all price ranges that are expected to hit the U.S. market this year, especially after five major banks reached a $25 billion settlement last week with the U.S. over fraudulent foreclosure practices.

‘Jumbo’ loans
Across the United States, the largest increase in foreclosures and delinquencies, compared with 2008 levels, is with “jumbo” mortgages – loans too large to be insured by Fannie Mae and Freddie Mac, the government controlled mortgage finance providers. Foreclosures on jumbo loans are up 579 percent since 2008, greater than any other form of loan, according to a report last month by Lender Processing Services, Inc.

Strategic defaults are now more likely among jumbo loan-holders than any other type of borrower, according to a report issued late last year by JPMorgan Chase & Co. Nearly 40 percent of delinquencies among non-governmental mortgages, which are mostly jumbo loans, are strategic defaults, the report said.

“Now that these homeowners with jumbo loans are finding out you can do this, more and more are doing strategic foreclosures,” said Jon Maddux the CEO of YouWalkAway.com, which advises homeowners who are “underwater,” the term for those whose loans exceed the value of their home.

Nathaniel J. Friedman, a Beverly Hills lawyer, insists he is not a strategic defaulter – that he never missed a mortgage payment in his life. But he stopped making payments on his five-bedroom, six-bathroom Beverly Hills house on Schuyler Road three years ago.

Friedman, who had mortgages totaling $3 million with the now-defunct Countrywide Home Loans, returned home one evening in January 2009 to find a letter from Countrywide freezing his $150,000 line of credit, which was linked to his second $900,000 loan. His primary loan was $2.1 million. The property is worth about $2 million today.

Friedman says he decided to stop paying out of a sense of vengeance from the moment he received that letter. He has been in negotiations for months with Bank of America, which took over Countrywide after its collapse, to modify the loan.

“I thought to hell with it,” he told Reuters. “Why should I keep feeding a dead horse if the bank has no confidence in me?”

“I was able to maneuver things my way because of the inertia of the banking sector,” Friedman said. He believes the bank will blink first, and eventually modify his loan.

 

 

Source:   Thomson Reuters, www.msnbc.msn.com/id/46411361/ns/business-real_estate/#.Tz1aT8VSSKY

A Big Step Forward for the Housing Market

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For years, the housing market has been locked in a deep freeze, as a combination of underwater mortgages, reluctant lenders, and a lack of political will have kept a huge mass of homes off the market and in limbo. But as banks are finally coming to the conclusion that it makes more sense to accept smaller losses now to move forward, rather than clinging to the fading hope that they’ll somehow recover more in the future, housing could finally get the catalyst it needs to recover.

Banks and short sales
Banks have had problem mortgages on their balance sheets for years. But after stubbornly hanging on to those trouble assets, some banks are coming around and changing their tone when it comes to so-called “short sales.” In fact, not only are they allowing such transactions to happen, they’re also giving homeowners some big incentives to do so.

Short sales occur when a prospective buyer makes an offer on a home that isn’t enough to pay off the seller’s mortgage. Especially in states like California, where the lender often doesn’t have recourse to hold the homeowner liable for any shortfall, lenders have often resisted short sales. For a while, that made sense, as banks figured that short-sale offers were lowballing the true value of the home and that if they foreclosed on the property, they could resell it at its higher market price.

But lately, banks have realized that the foreclosure process is long, costly, and fraught with peril. With regulatory investigations into foreclosure practices adding to the potential problems of years-long delays and an obstacle course of legal requirements, banks are concluding that it’s better to accept the bird in hand of a short sale than to hope for a recovery that may take years to come.

Gimme some money
What’s most surprising about this about-face is the length to which some banks are going to get short sales done. JPMorgan Chase (NYSE: JPM  ) reportedly offered one homeowner $30,000 to accept a short sale on a $600,000 home, despite having a loan for nearly $200,000 more.

Real estate agents that Bloomberg interviewed said that the company offers $10,000 to $35,000 for many (but not all) of the 5,000 short sales it approves in a typical month. Wells Fargo (NYSE: WFC  ) and Bank of America (NYSE: BAC  ) have made similar offers to certain homeowners, especially in states like Florida, where foreclosure is especially onerous.

Is it the end of the bust?
What the housing market has needed all along is a market-clearing event like this. While refinancing and mortgage modifications only kicked the can down the road, allowing actual purchases and sales to occur is a step in the right direction.

A host of companies could benefit. Already, homebuilder stocks have soared as news on the housing front has gotten progressively better, and improving employment reports suggest that consumers may finally be getting back on their feet.

But other possible winners include companies with land development opportunities. For instance, Howard Hughes Corp. (NYSE: HHC  ) owns master planned communities and other real-estate holdings in 18 states, with key properties near Houston, Las Vegas, New York, and Honolulu. Having the housing market flowing again would open the door to further development. Similarly, St. Joe Company (NYSE: JOE  ) could return to profitability if itsextensive Florida land holdings find themselves back in demand, which could happen once the market starts perking up again.

Move forward
It’s always a tough decision to cut your losses and admit that you’ve made a mistake. Although it’s taken too long, it’s good news that banks have finally figured out that throwing good money after bad doesn’t make any sense. With banks finally biting the bullet and letting the housing market breathe again, a recovery should come a lot faster than it otherwise would have.

Housing is a key component of planning for retirement.

 

 

 

Source: By Dan Caplinger

http://www.fool.com/how-to-invest/personal-finance/home/2012/02/09/a-big-step-forward-for-the-housing-market.aspx

Banks Pay Homeowners to Avoid Foreclosures

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Banks, accelerating efforts to move troubled mortgages off their books, are offering as much as $35,000 or more in cash to delinquent homeowners to sell their properties for less than they owe.

Lenders have routinely delayed or blocked such transactions, known as short sales, in which they accept less from a buyer than the seller’s outstanding loan. Now banks have decided the deals are faster and less costly than foreclosures, which have slowed in response to regulatory probes of abusive practices. Banks are nudging potential sellers by pre-approving deals, streamlining the closing process, forgoing their right to pursue unpaid debt and in some cases providing large cash incentives, said Bill Fricke, senior credit officer for Moody’s Investors Service in New York.

Losses for lenders are about 15 percent lower on the sales than on foreclosures, which can take years to complete while taxes and legal, maintenance and other costs accumulate, according to Moody’s. The deals accounted for 33 percent of financially distressed transactions in November, up from 24 percent a year earlier, said CoreLogic Inc., aSanta Ana, California-based real estate information company.

Karen Farley hadn’t made a mortgage payment in a year when she got what looked like a form letter from her lender.

“You could sell your home, owe nothing more on your mortgage and get $30,000,” JPMorgan Chase & Co. (JPM) said in the Aug. 17 letter obtained by Bloomberg News.

$200,000 Short

Farley, whose home construction lending business dried up after the housing crash, said the New York-based bank agreed to let her sell her San Marcos, California, home for $592,000 — about $200,000 less than what she owes. The $30,000 will cover moving costs and the rental deposit for her next home. Farley, who is also approved for an additional $3,000 through a federal incentive program, is scheduled to close the deal Feb. 10.

“I wondered, why would they offer me something, and why wouldn’t they just give me the boot?” Farley, 65, said in a telephone interview. “Instead, I’m getting money.”

Tom Kelly, a JPMorgan spokesman, declined to comment on the company’s incentives.

“When a modification is not possible, a short sale produces a better and faster result for the homeowner, the investor and the community than a foreclosure,” he said in an e-mail.

A mountain of pending repossessions is holding back a recovery in thehousing market, where prices have fallen for six straight years, and damping economic growth. Owners of more than 14 million homes are in foreclosure, behind on their mortgages or owe more than their properties are worth, said RealtyTrac Inc., a property-data company inIrvine, California.

Foreclosure Holdouts

Short sales represented 9 percent of all U.S. residential transactions in November, the most recent month for which data is available, up from 2 percent in January 2008, according to Corelogic. Bank-owned foreclosures and short sales sold at a discount of 34 percent to non-distressed properties in the third quarter, according to RealtyTrac.

As lenders shift their focus to sales, they are finding that some borrowers would rather risk repossession while they wait for a loan modification, according to Guy Cecala, publisher of Inside Mortgage Finance, a trade journal. In a loan modification, the monthly payment, and sometimes principal, is reduced to help prevent seizure. Homeowners facing foreclosure may live rent-free for years before they are forced out.

“That’s why the banks have got to pay the big bucks,” Cecala said. “The real question is why is the bribe so big? Is that what it takes to get somebody out of their home?”

Multiple Banks

Banks also pay a few thousand dollars to the owners of second liens, whose loans can be wiped out by a short sale, to encourage them not to block the deals.

While JPMorgan is giving the largest incentive payments, other banks and mortgage investors are also offering them, according to interviews with 12 real estate agents in Arizona, California, Florida, New York and Washington. Lenders also provide incentives on loans they service and don’t own when the mortgage investor, such as a hedge fund, requests it.

JPMorgan, the biggest U.S. bank, approves about 5,000 short sales a month. It generally offers $10,000 to $35,000 in cash payments at settlement, real estate agents said. Not all of the sales include incentives.

Borrowers also can receive payments from the federal government’s Home Affordable Foreclosure Alternatives program, which in 2010 began offering as much as $1,500 to servicers, $2,000 to investors and $3,000 to homeowners who complete short sales.

Quicker Resolution

For banks, approving a sale for less than is owed on the home can cut a year or more off the time it takes to unload a property. From listing to sale, the transactions took about 123 days on average at the end of last year, according to the Campbell/Inside Mortgage Finance HousingPulse Tracking Survey.

Lenders spend an average of 348 days to foreclose in the U.S. and an additional 175 days to sell the property, according to RealtyTrac. In New York, a state that requires court approval for repossessions, it takes about four years to foreclose on a home and then resell it, the company said.

Lenders can often afford to forgive debt, offer the incentive and still make a profit because they purchased the loan from another bank at a discount, said Trent Chapman, a Realtor who trains brokers and attorneys to negotiate with banks for short sales.

Chapman, who also writes a blog on TheShortSaleGenius.com, said he’s heard about 50 homeowners who have received incentives from lenders including JPMorgan, Wells Fargo & Co., Citigroup Inc. and Ally Financial Inc.

Wells Fargo

“My guess is they want to get rid of bad loans,” Chapman said. “If they short sale these types of loans, they have less of a headache and have some goodwill with the homeowner.”

Wells Fargo, based in San Francisco, offers relocation assistance of as much as $20,000 for borrowers who complete short sales or agree to transfer title through a deed in lieu of foreclosure “in certain states with extended foreclosure timelines, including Florida,” Veronica Clemons, a spokeswoman, said in an e-mail.

Bank of America Corp. sent letters to 20,000 Florida homeowners as part of a pilot program, offering incentives of as much as $20,000, or 5 percent of the unpaid loan balance, Jumana Bauwens, a spokeswoman, said in an e-mail. The program expired in December and theCharlotte, North Carolina-based bank hasn’t decided whether to introduce it in other states, she said. About 15 percent of the homeowners agreed to participate in the program, she said.

Citigroup Offers

“The bank is pleased with the response,” Bauwens wrote. “The state is experiencing higher foreclosure rates than other parts of the country and is therefore seen as a viable market to gauge incremental short-sale response and completion rates when presenting homeowners with relocation assistance at closing.”

Citigroup offers $3,000 to most borrowers who qualify for its program, but the “amount may increase based on the circumstances of each individual case,” Mark Rodgers, a spokesman for the New York-based bank, said in an e-mail. “Investor programs have different guidelines for relocation incentives, which we honor.”

Susan Fitzpatrick, a spokeswoman for Detroit-based Ally, didn’t comment specifically on incentives when asked about them.

Borrowers typically can’t negotiate the incentives, which arrive by mail, Chapman, the Realtor, said.

Tap on Shoulder

“It’s not really easy to identify the guidelines because Chase doesn’t tell you, they kind of tap you on the shoulder,” he said. “When I first saw it in January 2011, I thought it was a joke or a typo. I was convinced it must say $3,000, not $30,000.”

Offering enough for the homeowner to put down a deposit on a rental apartment is reasonable, said Sean O’Toole, chief executive officer of ForeclosureRadar.com, which tracks sales of foreclosed properties. Giving tens of thousands of dollars to delinquent homeowners sends the wrong message, particularly if they got into trouble by running up home-equity loans during the housing boom, he said.

“It may make sense for people to walk away, it doesn’t make sense for them to get rewarded for doing it,” O’Toole said. “It’s not the homeowner’s fault that house prices dropped so dramatically, but they have already received months of free rent, if not cash out.”

Cecala of Inside Mortgage Finance said he wonders whether lenders are making big payments on properties with underlying title problems. Evan Berlin, managing partner of Berlin Patten, a real estate law firm in Sarasota, Florida, said representatives of a large bank told him the incentives are primarily given to borrowers when it doesn’t have the proper paperwork needed to win its foreclosure case. He declined to name the bank for publication.

Incentive Disconnect

State attorneys general across the U.S. began investigating foreclosure practices in October 2010 following allegations that the nation’s top mortgage servicers were using faulty documents to repossess homes.

Berlin said his office negotiated about 400 short sales in the past year and about a quarter included an incentive, ranging from $3,000 to $48,000. In some cases, the payments aren’t incentives at all because they’re offered after the borrower has almost completed the short sale, he said.

“The idea is that this is relocation assistance,” Berlin said. “But when you’re offering $48,000, obviously it doesn’t cost $48,000 to relocate.”

Cooperation Sought

The size of the payment may have little to do with sales price. JPMorgan gave one Phoenix homeowner $20,000 after she sold her property in June for $32,000, according to Royce Hauger, the real estate agent who represented the seller and shared a copy of the settlement sheet with Bloomberg News. The bank also agreed to forgive more than $70,000 in debt, she said.

Kelly, the JPMorgan spokesman, declined to comment on the payment.

The homeowners are getting the money in exchange for their cooperation, said Kris Pilles, a Riverhead, New York-based real estate broker who represents banks, servicers and hedge funds that own distressed housing debt.

Pilles is frequently dispatched to the homes of delinquent borrowers to explain the benefits of avoiding foreclosure, he said. His clients have paid as much as $92,500. In return, the lenders expect the seller to clean the house before showings, and trim the grass.

“Money talks,” Pilles said. “From the bank side, it’s anything to initiate a conversation with someone who may not be listening to them.”

 

 

SOURCE: By Prashant Gopal

http://www.bloomberg.com/news/2012-02-07/banks-paying-homeowners-a-bonus-to-avoid-foreclosures-mortgages.html

Expanding our efforts to help more homeowners and strengthen hard-hit communities

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Today, the Administration announced important enhancements to the Making Home Affordable Program, including the Home Affordable Modification Program (HAMP), to expand the reach of the program to help additional homeowners stay in their homes and strengthen hard-hit communities. These enhancements will provide additional relief to struggling homeowners, renters, and their neighborhoods to accelerate the housing market recovery and improve our overall economy.

The Administration is committed to a multi-pronged effort to support American homeowners to help heal our nation’s housing market. This includes providing refinancing opportunities for responsible homeowners, transitioning foreclosed properties into rental housing to help reduce the overhang of unsold homes, and providing states hardest hit by the foreclosure crisis with resources to develop targeted relief programs that work for their communities.

To date, HAMP has helped more than 900,000 struggling families permanently modify their mortgage loans, providing them with a median savings of more than $500 every month.  For these families, this savings can mean the difference between keeping their home and foreclosure.   These efforts have set the industry standard for successful modifications and have helped prompt private lenders to modify an additional 2.6 million mortgages.  In total, public and private efforts have helped more than 4.6 million Americans get mortgage aid to prevent avoidable foreclosures since HAMP was launched.

When the MHA was announced in March of 2009, it was not easy to predict what would happen to the housing market by 2012.  As we enter 2012, the housing market shows signs of recovery but is still fragile. The MHA programs have proven to be critical foreclosure prevention tools, setting new standards for the mortgage industry to follow. These enhancements will extend the reach of HAMP to a broader pool of struggling homeowners and provide more robust relief to those who participate:

  • Extending the Administration’s Mortgage Modification Program.  In order to help more families at a time when many across the nation still need relief, the Making Home Affordable Program deadline will be extended for an additional year through December 31, 2013. This date conforms to the extended deadline for the Home Affordable Refinance Program (HARP).
  • Expanding Eligibility to Reduce Additional Foreclosures and Help Stabilize Neighborhoods.  Eligibility for HAMP will be expanded so that it reaches a broader pool of distressed borrowers.  Additional borrowers will now have an opportunity to receive modification assistance through an additional evaluation process that provides the same homeowner protections and clear rules for servicers established by HAMP.  This includes:
    • Ensuring that borrowers struggling to make ends meet because of debt beyond their mortgage can participate. Many homeowners who have an affordable first mortgage payment struggle beneath the weight of other debt such as second liens and medical bills.  Recognizing that many homeowners in this situation are still struggling to make ends meet, the program is being expanded to offer another evaluation opportunity with more flexible debt-to-income criteria to expand modification assistance to borrowers with higher levels of secondary debt who otherwise meet program requirements.
    • Preventing additional foreclosures to support renters and stabilize communities. Treasury will expand eligibility to include properties that are currently occupied by a tenant as well as vacant properties which the borrower intends to rent. This will provide critical relief to both homeowners that live in their homes and those who rent their homes, while further stabilizing communities from the blight of vacant and foreclosed properties. Single family homes are an important source of affordable rental housing, and foreclosure of investor-owned homes has disproportionate negative effects on low- and moderate-income renters.
  • Increasing Incentives for Cost-Effective Mortgage Modifications that Help Borrowers Rebuild Equity in Their Homes.  Currently, HAMP includes an option for servicers to provide homeowners with modifications that include principal reduction, when a borrower owes significantly more on their mortgage than their home is worth.  While not appropriate in all circumstances, principal reduction modifications are an important tool in the overall effort to help homeowners achieve affordable and sustainable mortgages.  To further encourage investors to consider or expand use of principal reduction modifications, the Administration will:
    • Triple the incentives provided to investors who agree to reduce principal for borrowers:  To increase the amount of principal that is reduced, Treasury will triple incentives to investors, paying from 18 to 63 cents on the dollar, depending on the degree of change in the loan-to-value ratio.
    • Offer principal reduction incentives for loans insured or owned by the GSEs. HAMP borrowers who have loans owned or guaranteed by Fannie Mae or Freddie Mac (the GSEs) do not currently benefit from principal reduction loan modifications. To encourage the GSEs to offer this assistance to underwater borrowers, Treasury has notified the GSEs’ regulator, the Federal Housing Finance Agency (FHFA), that it will pay principal reduction incentives to Fannie Mae or Freddie Mac if they allow servicers to forgive principal in conjunction with a HAMP modification.

While the economy continues to shows signs of recovery, the broader housing market remains fragile. HAMP continues to offer homeowners some of the most sustainable assistance available and has established critical standards and protections for homeowners that we believe must continue as the housing market heals.  Extending the reach of HAMP will assist a broader pool of struggling homeowners, offer support for tenants at risk of displacement due to foreclosure, and provide more robust relief to those who participate.  Taken together, these enhancements will help the housing market recover faster from an unprecedented crisis.

 

 

 

Timothy G. Massad is Assistant Secretary for Financial Stability.

Posted in:  Making Home Affordable
http://www.treasury.gov/connect/blog/Pages/Expanding-our-efforts-to-help-more-homeowners-and-strengthen-hard-hit-communities.aspx

The Most Important Short Sale Do’s and Don’ts

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Do educate yourself. This is THE most important thing you can do.  Short sales can be complicated. You need every bit of information you can get when you jump into the short sale process.

Don’t wait until it’s too late. If you drag your feet and hide from the fact that you’ve stopped making mortgage payments, it will cost your credit rating and it will put any chances of a short sale in risk.

Do be diligent. There have been very closable short sales that fail because the homeowners either stop responding to their agents, stop returning paperwork, stop returning phone calls, stop caring, etc. It can be a difficult process, but at the end of it you will be free of the mortgage, the upside-down house and your financial future will have a better foundation.

Don’t stop taking care of your home. Yes, you will be moving, but if you stop mowing the lawn or keeping the place tidy, that unkemptness will discourage any potential buyers.

Do keep paying your HOA dues! Any unpaid HOA dues will need to be settled either before or at the close of a short sale escrow. Sometimes the buyer or the first lien mortgage bank will contribute to these outstanding bills, but not every time. And Home Owner Associations will send your defaulted HOA bill to a collection lawyer who will slap you and your property with their own outrageous charges.

Don’t rent your home out. In these economic times there are unsavory renters, many of them lost their own homes, that don’t mind giving you the first month’s rent and a security deposit, only to never pay you another payment. You lose the house to foreclosure, but they live rent free for the foreseeable future.

Do your homework when choosing a real estate agent or broker when you go to list your house for a short sale. The wrong short sale agent can ruin your chances of avoiding foreclosure.  Short sales require diligence, confidence and an unmatched work ethic. Find that short sale REALTOR that knows her stuff, knows how to work and knows exactly what the banks want to approve your short sale.

Don’t think that you need a real estate agent that knows your neighborhood to short sale your home. In a short sale transaction, it’s about the short sale negotiation and working relationship with your lender(s), not that your home’s location is special compared to the listing around the corner. Out-of-area agents easily price properties using a Comparative Market Analysis (CMA). In fact, banks regularly pay agents and real estate brokers a minimal fee, usually $50 or $75, to price out-of-area properties for them. Your local neighborhood real estate agent may not be the right person. You need a tough and knowledgeable short sale specialist.

Do expect to move soon, or not for months. When your home receives an offer that is just the start for your short sale transaction. But the bank could decide to approve your short sale right away, which means you may only have 30 to 45 days to relocate. But, the approval process could take up to three to six months! Don’t move prematurely. It makes no sense to pay rent while your home sits empty. Communicate with your agent and keep updated on where the short sale process is.

Don’t stop paying your water bills, sewer bills or trash bills! Any unpaid bills may slow down or stop the short sale process.

Do consult your tax man or even a tax attorney when considering a short sale. Even the best short sale agents are not legally allowed to advise on tax implications of your particular situation, and the best short sale real estate agents don’t. A tax accountant CPA or real estate attorney has a better understanding and the legal right to advise you on such matters.

Don’t think that you must have a real estate attorney to execute your short sale. Most times these lawyers don’t understand real estate or the short sale process as well as an experienced short sale agent does. In fact, many if not most of these lawyers offering short sales require an upfront fee to process your short sale.  real estate agents and brokers only collect commissions from the proceeds of the sale, which comes out of the bank’s pocket, not yours.

Do let your real estate agent put a yard sign in the yard. Yard signs tell buyers trolling streets looking at neighborhoods and houses that yours is a possible candidate.

Don’t make viewing appointments unavailable and hard on buyers and their agents. The more potential buyers that see your home the better chance of short selling it and avoiding foreclosure. Make that home as available to buyers as possible!

Do yourself a favor and remember that millions of Americans are going though their own short sale, or unfortunate foreclosure. This economy is dreadful, and many are experiencing financial hardships and your particular situation is nothing to be ashamed of.

Don’t apply for a home equity line of credit or any other type of credit. If you own other properties that have equity, refrain from pulling money out of any of them during a short sale approval. Your bank and any of your bank’s back-end investors will dig deep into your credit history and find this activity. This kind of action says you are just out for your own financial bottom line, and yes, they will take offense to that.

Do a quick pick up of toys, laundry and any other items lying around when a buyer’s showing appointment is scheduled. Buyers will criticize your messiness like your mother-in-law, and worse, it could affect their offer which in turn could affect your short sale!

Don’t make the mistake of thinking a foreclosure is not much worse than a short sale. It is. A foreclosure will decimate your credit; it will keep you from owning another home for years and it will be a part of your financial incompetence far more than you hope it won’t.

Do keep your hardship letter short and sweet. Explain your situation as-matter-of-factly as possible. Then your bank will look at your finances, tax filings and other documents to verify and support your story. But DO NOT include in your hardship that you bought your home for more than it’s worth. The bank does not care your home is underwater. The bank is losing money too.

Don’t strip the house of its fixtures or other potentially valuable assets. Taking the pool system, or the ceiling fans or the beloved touch-action faucets will degrade your home’s marketability, and for what? A few hundred bucks will not make the financial blow of foreclosure any softer.

Do all your paperwork and return to your real estate agent in a timely matter.  Short sales can die if the proper paperwork is not supplied. It’s a silly way to screw your short sale, but it happens all the time.

Don’t use a short sale negotiating company. They will charge you large upfront fees that they don’t have to return to you even if they do not complete the short sale. And these companies aren’t held up to the same Department of Real Estate code of ethics that real estate agents and REALTORs are. In fact, some banks will not work with them!

Do call and communicate with your bank(s) and let them know you are attempting a short sale. They have thousands of mortgages defaulting, and if they don’t know you are pursuing a short sale, your property may automatically be classified as a pre-foreclosure. Not keeping your mortgage holder informed of the status of your short sale can help expedite your house to foreclosure which will not help your short sale.

Don’t violate the bank’s At Arm’s Length requirement for the short sale. The Arm’s length agreement required from the short sale lender prevents you from “renting the house back”. To avoid any fraud or risk that can result in the bank coming back at you for the balance of your loan. Do it by the book and follow the rules. The risk is not worth it.

Do know that credit card companies may decide to pull your credit due to foreclosure. When a foreclosure shows up on your credit, it says that you are in financial distress and your credit risk increases dramatically.

Don’t think you can’t short sale if you own other properties. This is a common mistake many multiple property owners make. A bank will more than consider a short sale even if you own two or more homes.

Do clean the home and property when you move out. Remove any trash, debris and take or dispose of any of your personal property. The condition of the property before transfer can have a negative effect on the buyer and their desire to own the home, and give them a reason to back out. Cleanliness is next to Godliness, and Sold Short Sales!

Don’t assume the information about short sales you read on the internet is always correct. There are many real estate professionals, and many not-so-professional individuals, giving advice regarding short sales. Some do not have a clue how to handle a short sale, let alone give advice on the subject. Your best bet is to call and talk to any prospective short sale experts. Get a feel of their knowledge base and real estate confidence, and above all else only hire a real estate short sale agent with experience.

DO CALL 360 Realty for more information.  We are Short Sale Experts! 1-800-399-9659

 

 

 

Source:  Garrigus Real Estate Blog

Housing’s Huge Supply and Demand Imbalance

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“Pent-up demand.” That is the rallying cry of the housing bulls, as they forecast the great recovery of 2012. So many potential buyers are doubled up with family, stuck in undesirable rentals or just plain afraid to put their current home on the market, but that’s about to change, say these optimistic prognosticators.

“Inventories [of unsold homes] have been coming down, showing very healthy declines,” Ivy Zelman, CEO of Zelman and Associates told the Wall Street Journal. And Zelman is new to the bull ring, as she is famous for predicting the housing bubble in the first place.

Pent-up demand exists, no question, but it has nowhere to go right now for the vast majority of organic home buyers. When I say organic, I’m excluding investors from the mix, because that demand is high and building up cash like mad. I mean regular lower to upper middle-class Americans still struggling in today’s rough economy.

“There are relatively few borrowers that can qualify for a mortgage given today’s tight lending standards,” says Laurie Goodman, Senior Managing Director at Amherst Securities. “Aside from FHA and VA mortgage, you need 20 percent down, and that’s very, very difficult for most borrowers.”

Goodman, one of the best number crunchers I’ve come across in this field, claims there is far more distress in the housing market than some of the leading mortgage data providers portray. She counts eight to ten million more foreclosures over the next six years, because she adds borrowers currently in mortgage modifications.

“That includes borrowers who have never missed a payment before, but are deeply underwater and are apt to default because borrowers just like them are defaulting on a regular basis,” Goodman contends.

She notes that household formation has been running very low of late, just 5-800,000 a year. A normal level is 1.1 to 1.2 million units a year.

“Even if we go back to 1.2 million units a year, and even if 50 percent of those are home buyers, which I think is a very, very high number [the rest being renters], that won’t be sufficient to clean up the huge overhang of supply we’re going to have over the next four to six years,” she calculates.

Why is 50 percent high? She calculates on:

“The homeownership rate for the U.S. as a whole is 66 percent. If you take out the borrowers who haven’t made a mortgage payment in a year it is 62 percent. The Center for Joint Studies at Harvard estimates that out of the 1.2 million units per annum household formation over the next decade, 70 percent will be minorities, who have lower home ownership rates. In this context, 50 percent seems generous.”

Her conclusion, and the one I’ve been promoting for over a year now, is that the only way to re-balance supply and demand is to get investors into the market in force to buy up these properties and meet the huge rental the demand that will continue for several years. As we reported last week, hedge funds are busy working on deals, but government needs to help. Fannie Mae and Freddie Mac are currently sitting on a huge supply of foreclosed properties and facing even more down the pike.

The Federal Housing Finance Agency (Fannie and Freddie’s conservator), along with the U.S. Treasury Department, need to get moving on their so-far inchoate plan to sell these REOs in bulk to investors, and in doing so, make sure said investors are provided with financial incentives to make it worth their while. As Goodman notes, these investors will be buying single family homes, not multi-family apartment buildings (which have identical units), so they need to build out property management organizations to handle repairs, manage tenants and keep the properties rented.

“I fully expect that they will end up implementing something at some point this year,” adds Goodman, “because there is simply no choice.”

 

 

 

Published: Tuesday, 3 Jan 2012 By: Diana Olick CNBC Real Estate Reporter

Top Real Estate Market News of 2011

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(MoneyWatch)  COMMENTARY The holidays are over, the decorations have been taken down and New Year’s Eve has come and gone. We’re onto a new chapter of the real estate story, and everyone is hoping it’s better than the last one. There were some positive signs last year, but overall the market remained oversaturated and underperforming.

Before we get too far into 2012, let’s take a look back at some of the top real estate market news of 2011:

January 2011. The biggest news at the beginning of 2011 was what happened in 2010: It was a record year for foreclosures. RealtyTrac’s 2010 Year-End U.S. Foreclosure Report showed roughly 1 million homes – that’s one in every 45 – were foreclosed on in 2010.

March 2011. CoreLogic released data indicating U.S. homeowners had a massive $750 billion in negative equity. The top five states for underwater mortgages included Nevada, Arizona, Michigan, California and Florida. These states still continue to struggle, with high foreclosure rates resulting in lower home sale prices across the board.

April 2011. The Office of the Comptroller of the Currency (OCC) announced it would proceed with mandatory enforcement actions against eight mortgage servicers including Citibank, HSBC, JP Morgan Chase, MetLife Bank, PNC, U.S. Bank, Wells Fargo and Bank of America.

The measures required banks to engage an independent auditing firm to review foreclosure actions, and to prove to these auditors they complied with federal and state laws during proceedings. Some of these banks – such as Bank of America – are still fighting legal battles in court over foreclosure proceedings.

June 2011. Bank of America’s mortgage legal issues intensified when New York Attorney General Eric Schneiderman launched a formal probe into the bank’s mortgage securitization practices. The probe was part of a larger investigation to determine whether mortgage companies followed New York state law when creating and selling mortgage backed securities, but it had major fallout for Bank of America in particular.

July 2011. The fun continued for Bank of America when the Federal Trade Commission (FTC) announced it would return nearly $108 million to more than 450,000 homeowners who were overcharged by Countrywide Financial, a unit of Bank of America. Though the settlement was part of an investigation that began before Bank of America acquired Countrywide, it raised more red flags for consumers.

October 2011. Mortgage interest rates fell to new lows through the fall of 2011, but reached a record low in October with rates under 4 percent for the first time in history. Even with those rates, would-be homebuyers found it difficult to jump into the mortgage market due to the tight credit market. Federal Reserve Chairman Ben Bernanke was less than enthused about the low rates, saying the recovery was close to “faltering.”

November 2011. Remember those enforcement actions the OCC called for back in April, which included foreclosure reviews? The Independent Foreclosure Review finally started in November, giving homeowners the opportunity to request a review of how the lender conducted the foreclosure of their primary residence. Homeowners interested in a review can still apply until April 2012, but be prepared to wait a few months for the results of the review.

December 2011. Bank of America came under more fire towards the close of 2011, once again due to problems with Countrywide Financial.

In late December, federal officials announced a $335 million settlement stemming from an investigation into Countrywide’s lending procedures. The lawsuit alleged Countrywide discriminated against African American and Hispanic borrowers, charging them more than similarly qualified white buyers and steering them towards subprime loans based solely on their race or national origin.

With the low housing prices, long market times and legal issues which plagued the housing market last year, it’s probably a good thing we can put the 2011 real estate market behind us. Here’s hoping 2012 brings a robust housing market and new opportunities for economic growth.

 

 

 

By Ilyce Glink