HAFA Update

White House "Beefs Up" the HAFA Plan and offers "Unemployment Assistance":

In an announcement today, the White House announced some big changes / improvements to the HAFA plan. The changes are vast and in some cases a huge improvement upon the earlier HAFA version. Key points include:

• Principal Reductions for Underwater Mortgages
• FHA Refinancing for Underwater Mortgages
• Assistance for those who are Unemployed
• HAFA Enhancements
  • Servicer incentives on short sales and deeds-in-lieu from $1,000 to $1,500
  • A doubled payout to 2^nd lien holders from the previous 3% to a 6% cap
  • Servicer incentives for short sales or deeds-in-lieu have also doubled from $1,000 to $2,000
• Servicers are required to "evaluate" Borrower's who have missed "at least" two payments and servicers are not allowed to initiate foreclosure proceedings until it is determined that borrower's are ineligible for HAMP.

One of the best explanations of these updates as well as great links to HAFA related material comes from Carrie Bay of DSNews. Click here for full story.

No Positive Equity until 2020?

This morning, DSNews.com reported that First American CoreLogic's recent study shows that some areas in the U.S. have properties that are in a present negative equity scenario that will not see positive equity until 2020. Many of us knew it would be a while, but 2020? Their stats are based on data extracted from research done in many areas across the U.S.

So what does this mean for us in the real estate industry? Well, firstly, that short sales will be around in some capacity for a long time. Agents that are on the fence about short sales will need to surrender and take the plunge...or face a probable business failure. Agents that have already built up their business by getting certified and helping homeowners sell their upside down properties in the pre-foreclosure state will have a head start.

What does this mean for defaulted or soon to be defaulted homeowners? The study mentioned states that "The latest numbers from First American CoreLogic show that more than 11.3 million, or 24 percent, of all residential properties with mortgages were underwater at the end of the fourth quarter of 2009". Wow! That's almost a quarter of the mortgages in the U.S.! Furthermore, "Among the new housing initiatives announced by the administration Friday was assistance for borrowers with negative equity. In order to deter these homeowners from strategically defaulting, the Treasury will begin requiring servicers to consider principal write-downs as part of their Home Affordable Modification Program (HAMP) evaluations for borrowers whose loan balance is more than 115 percent of the property’s current value. The plan also includes a Federal Housing Administration (FHA) refinancing program for negative equity mortgages."

Ok, so we are expecting defaulted homeowners to "strategically default" on their loans due to the fact that there is no light at the end of the tunnel...equity speaking. That could create a disasterous effect on the housing market, which is already poised for future foreclosure waves in mass volume. So what is the governments answer to this potential epidemic of massive "strategic defaults"...principal write-downs (reductions) via loan modification for borrowers whose LTV is more than 115%. There is a lot of chatter about these principle write-downs and it will be very interesting to see how this plays itself out. Bank of America unveiled a plan on upside down defaulting HELOC's (that are in junior position) called "Earned Principle Write-doowns". With this program, the borrower would have to make the new modified payment for 5 years before the loan principal would be permanently reduced.

PartnerFirst members, chime in here or in the discussion/open forum area about your thoughts on these matters.

Article Link: http://www.dsnews.com/articles/print-view/how-long-will-negative-equity-last-2010-03-29

The Wisdom of Lowering a Short Sale

Recently I had the privilege of interviewing Troy Huerta, an active agent who closed 200 short sales in 2009, during one of our Partner First educational webinars. (also one of our PSC Trainers) During our discussion he commented on how in many cases he and / or his team encourage the Selling agent to go back to the Buyer, lower the price slightly, and ask for some closing costs to be paid for by the lender. The logic was that

a. The Buyer was possibly going to be more loyal if he / she could purchase it at a lower price (starting off on the right foot),

b. The additional closing costs might increase the Buyers patience and loyalty (and excitement), and the big one...

c. Most of the time, the lender will ask for a bump in the price anyways, so why not build it in to the transaction (which is a major reason for short sale failure, Buyers not willing to wait, nor increase the price based on the lenders instructions)

Since that call I have been asked if I agree with this practice and what my sentiments were. Firstly, far be it from me to discount the business practice of a highly esteemed colleague who's success speaks for itself. And secondly, let's look at the foundational principles that are likely in question.

1. Is lowering the price slightly in the Sellers best interest?

As a listing agent, our fiduciary duty and legal obligation is to act in the best interest of our client, the Seller. If Troy's vast experience serves as our ruler, and most of the time the lender does come back with a slight increase / bump in price, and that is a major cause for short sale failure...then let's look at that point. If doing something that increases the chance of short sale success is in the seller's best interest, then why would that be in question. My gut feeling is that many agents feel it is not normal, and thus must be wrong. Wrong to whom? The lender? The lender who is still going to get every bit of the amount they demand (based on their BPO)? How could it be wrong to them? It is merely a strategy that helps all parties achieve their goal...short sale success!

2. Can the Lender / Servicer demand the highest amount be offered?

My answer is "no". They are not the Seller, they are merely servicing the loan for the investor with the goal of minimizing the loss severity. They are in a passive position prior to the offer submission. Now, would they prefer that the higher offer be sent right away? Possibly, but not in all cases. Many times, even in my experience, the lender / servicer (i.e. loss mitigation) is actively assisting our team in finding creative solutions to satisfy all lien holders. As long as they receive their bottom line, what difference does it make how we got there? Remember, we do not have a legal obligation to act in the best interest of the lender / servicer, but of our client. This is not to say anything should be done underhandedly. Everything should be on the HUD-1, and full disclosure should be made to your client. But the means of achieving the desired result may require strategies such as this.

Always ask yourself, is what I am proposing to do in my clients best interest. If it is not, don't do it. If it is, make sure there are no RESPA, DRE, State, local government violations and proceed cautiously and intelligently.

Navigating through these choppy waters is not for the casual agent. We can learn a lot from our colleagues.

5955 W 8th st, Los Angeles, CA | Powered by Postlets

5955 W 8th st, Los Angeles, CA | Powered by Postlets

Foreclousures are more profitable than Loan Modification, per a new report

Mortgage companies are more likely to foreclose on homeowners than modify their loans because they make more money off foreclosures, argues a new report by a consumer advocacy group.

While homeowners, lenders and investors typically lose money on a foreclosure, mortgage servicers do not, says report author Diane E. Thompson, of counsel at the National Consumer Law Center. Servicers are the companies that manage the mortgages and collect payments.

"Servicers may even make money on a foreclosure," she writes. "And, usually, a loan modification will cost the servicer something. A servicer deciding between a foreclosure and a loan modification faces the prospect of near certain loss if the loan is modified and no penalty, but potential profit, if the home is foreclosed."

Thompson attributes this to a system of perverse incentives created by lawmakers and rulemakers in the market, like credit rating agencies and bond issuers. The private rulemakers typically dictate how a servicer can account for potential losses and profits. They hold enormous sway over securitized mortgages, which are owned by investors. More than two-thirds of mortgages issued since 2005 have been securitized, notes the report, using data from the industry publication Inside Mortgage Finance.

In those cases, the servicer is empowered to handle virtually all aspects of the mortgage, from collecting the monthly payments to initiating foreclosure proceedings. While they're obligated to do what's best for the ultimate owners of the mortgage -- the investors -- servicers have some latitude in deciding what course of action to pursue, be it a foreclosure or loan modification.

When a homeowner is delinquent on a mortgage that's been securitized, the servicer must front the late payment to the investors. When a home is foreclosed, the servicer is typically first in line to recoup losses. But if a mortgage is modified, the servicer typically loses money that isn't necessarily recoverable.

"Servicers lose no money from foreclosures because they recover all of their expenses when a loan is foreclosed, before any of the investors get paid. The rules for recovery of expenses in a modification are much less clear and somewhat less generous," she said.

That's part of the reason why the Obama administration created a $75 billion program to limit foreclosures. The money is to be distributed to servicers who successfully modify home loans, with the hope that the incentives to modify outweigh the incentives to foreclose.

Thompson's report outlines eight specific steps to reverse this trend. They include mandating that servicers attempt to modify a loan before initiating foreclosure proceedings and reforming bankruptcy laws so judges can modify distressed mortgages.

Read more at: http://www.huffingtonpost.com/2009/10/21/perverse-incentives-lead_n_328378.html

1277 S. Orange Dr, Los Angeles, CA

1277 S. Orange Dr, Los Angeles, CA | Powered by Postlets

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Residential Real Estate: Industry backs extension of $8,000 tax credit

According to a survey from the California Association of Realtors, nearly 40 percent of recent first-time homebuyers said they would not have purchased a home if the federal tax credit for first-time homebuyers was not offered, and 70 percent said it was either “very important” or “most important.”

The $8,000 credit is expiring Dec.1.

“It is clear that the federal tax credit for first-time homebuyers is working, as evidenced by the spike in home sales in recent months,” said CAR President James Liptak. “This tax credit is arguably the most successful strategy employed by the government’s efforts to stimulate the housing market.

“Because the tax credit has helped so many first-time buyers become homeowners, it is critical that Congress extends the credit beyond the Dec. 1 deadline and includes all buyers, not just first-timers,” he said.

“While affordability has improved in California over the past two years, it is still lower than affordability nationally. As a result, the tax credit is an even bigger factor in California compared with elsewhere in the country,” added Mr. Liptak. “Going forward, the credit will be even more important to the housing recovery.”

While the deadline is not until Dec. 1, buyers need to put in their offer by the end of September in order to qualify, according to the National Association of Realtors.

Sen. Johnny Isakson, R-Georgia, and Senate Majority Leader Harry Reid, D-Nevada, introduced Senate Bill 1678 extending credit to June 1, 2010.

***

Analysts are expecting another wave of foreclosures due to the readjustment of many option ARM mortgages.

An adjustable-rate mortgage is a mortgage loan where the interest rate on the note is periodically adjusted.

It can be adjusted for a variety of reasons including rates on one-year constant-maturity Treasury securities, the Cost of Funds Index and the London Interbank Offered Rate.

Adjustable rates take some of the risk from the lender to the borrower and tend to be used when unpredictable interest rates make fixed rate loans difficult to obtain.