If you have been reading my Los Gatos Real Estate musings you already know that since the program was announced in February, it has lowered mortgage payments on a trial basis for hundreds of thousands of people, but has largely failed to provide lasting relief. Critics increasingly argue that the program, Making Home Affordable, has raised false hopes among people who simply cannot afford their homes.

As a result, desperate homeowners have sent payments to banks in often-futile efforts to keep their homes, which some see as wasting dollars they could have saved in preparation for moving to cheaper rental residences. Some borrowers have seen their credit tarnished while falsely assuming that loan modifications involved no negative reports to credit agencies.

This fact that credit scores are affected by modifications boils my brain!  The program was meant to help!   In fact, it is hurting too many people.   How are you going to rent or lease a new home if your credit is injured?

How does renting become a component of the problem?   Selling the subject property will become the only option if the modification does not become permanent.   Where is one supposed to live?

In a rental probably.

This introduces a troubling fact of reality for troubled homeowners.  Having to sell their home.  Most will find they are going to have to apply for a short sale approval, some will be confronted with foreclosure or submitting a deed in lieu of foreclosure.   All very unattractive options and all very real.

To those of you in the midst of this debacle I would suggest you speak with a Realtor or a Property Manager as soon as possible and make inquiries as to how you may secure a property before this ridiculous negative credit reporting causes a new layer of frustration for you.

related article…

Loan modification document links

The rumor several banks have agreed to streamline short sales is true and will certainly make the spanking a light one.  How do I know?  When I inquired why my calls were not being returned, for a few days in October, contacts at BofA told me they were being trained for a new program to expedite…something.

This ‘something’ has something to do with…

• What affect Loan Modifications have on Fannie Mae
• How does streamlining  Short Sales make any sense
• What is a  Shadow Inventory?
• How does Macro Economics play a roll?

Foreclosures are Down

From RealtyTrac.…“November was the fourth straight month that U.S. foreclosure activity has declined after hitting an all-time high for our report in July, and November foreclosure activity was at the lowest level we’ve seen since February,” says James J. Saccacio, CEO of RealtyTrac. “Loan modifications and other foreclosure prevention efforts, along with the recently extended and expanded home-buyer tax credit, are keeping a lid on the most visible symptoms of the nation’s ailing housing market — foreclosures and home value depreciation.”

But!  Loan Modifications are Failing

True, the temporary loan modification program just ended…opening the door for permanent modifications.   That is if the temporary loan mod payment schedules were met by applicants,  Right?   Yes.  That is not what is happening though.   After the inexcusable delays, lost documents and lack of communication borrowers are giving up on this failed theory.   Fannie Mae (may) be looking at a nasty spanking through increased foreclosures if alternatives aren’t implemented.

Shadow Inventory Myth or Fact

Have you heard the term  ‘Shadow Inventory’ (SI)?  The belief that banks have tons of foreclosures?  Keeping them in the ‘shadows’ as inventory?   It’s true but, not the conspiracy many have theorized.  I know of several cases where people are several months past the default deadlines and still have not heard from the Sheriff (meaning they have not been officially foreclosed on in practice).  This is one way a  shadow inventory is created.

Taking into consideration that modifying loans will not help those who can’t afford their payments, unemployment numbers comes to mind,  it makes perfect sense that an expedited short sale process is the best solution.

Short Sales -  The Next Best Thing to a Spanking

Since Short Sales net more money than REOs (foreclosures) it is reasonable to expect banks to promote them by doing… something like this.

Fannie Mae insures many mortgages and subsequently gets spanked for the losses following low net REO sales.

note: Watch for legislation changes next year.   Fannie Mae holds an enormous amount of political  leverage and the mid term elections are coming!

Removing the stigma that foreclosures place on the market, through short selling,  stabilizes prices, reduces shadow inventory and improves the outlook as a whole.   Perfect!  download FHA short Sale Guidlines PDF

Macro Economics…my tiny brain version

Since you have read this far let me create a ‘big picture’ with my tiny brain.    Banks are myopic to the degree that they are in the business to make money.    Looking at Real Estate as being a single issue for the banks,  makes us myopic.

A Real Estate investment is the single largest investment a person will make. When it fails to produce dividends (equity) it affects ones entire financial situation. This is no less true for banks.

Think about it..not only mortgages…they are battling delinquent credit cards, bad car loans, signature loans etc..  All leading to huge losses and fewer potential investors.  The banks see what is on their horizon and are working to prevent it at all ‘cost’ (or loan from the taxpayer).  Better save that for another time, so…

Fannie Mae (may) get a spanking, but it may be one of affection rather than discipline if the foreclosure fears are relieved.  This can ONLY be done through the streamlining of short sales.  Think I am wrong?  Don’t bet on it.

related articles

Only 4% get long term help

Mortgage help coming slow to many

Back taxes Plague Loan Mods

No Jobs!  No Deal!

The purchase of a fixer-upper house is often a catch-22 situation, because the bank won’t lend the money to buy the house until the repairs are complete, and the repairs can’t be done until the house has been purchased. Fixing up your new house is a costly idea in Los Gatos, San Jose and the whole Bay Area, really.

HUD’s 203(k) program can help you overcome this cost obstacle by enabling you to purchase or refinance a property plus the cost of making the repairs and improvements in one mortgage.

Dian Hymer of Inman News suggests “design your offer with a 60 day close and a 45 day finance contingency.”

The FHA-insured 203(k) loan is provided through approved lenders nationwide and is available to persons wanting to occupy the home

The 203(k) loan includes the following steps:

1. A potential homebuyer locates a fixer-upper and executes a sales contract after doing a feasibility analysis of the property with his/her real estate professional. The contract should state that the buyer is seeking a 203(k) loan and that the contract is contingent on loan approval based on additional required repairs by the FHA or the lender.
2. The homebuyer then selects an FHA-approved 203(k) lender and arranges for a detailed proposal showing the scope of work to be done, including a detailed cost estimate on each repair or improvement of the project.
3. The appraisal is performed to determine the value of the property after renovation.
4. If the borrower passes the lender’s credit-worthiness test, the loan closes for an amount that will cover the purchase or refinance cost of the property, the remodeling costs and the allowable closing costs. The amount of the loan will also include a contingency reserve of 10% to 20% of the total remodeling costs and is used to cover any extra work not included in the original proposal.
5. At closing, the seller of the property is paid off and the remaining funds are put in an escrow account to pay for the repairs and improvements during the rehabilitation period.
6. The mortgage payments and remodeling begin after the loan closes. The borrower can decide to have up to six mortgage payments (PITI) put into the cost of rehabilitation if the property is not going to be occupied during construction, but it cannot exceed the length of time it is estimated to complete the rehab.
7. Escrowed funds are released to the contractor during construction through a series of draw requests for completed work. To ensure completion of the job, 10% of each draw is held back; this money is paid after the lender determines their will be no liens on the property.

Dian Hymer of Inman News suggests “design your offer with a 60 day close and a 45 day finance contingency.”

Now,  what are you waiting for?   Call your Realtor and find a fixer..Quick!

Image by Getty Images via Daylife

Last month BofA chose to work with REOtrans, a leading transaction vendor to the mortgage industry, to advance and streamline foreclosure solutions by reducing them all together.

They are working to move the short sale idea into the mainstream RE sale arena. This is great news no matter what side of the Real Estate market you find yourself standing in.

The traditional Short Sale process has led to immense frustration and outright anger, not only here in California, but throughout the nation for all parties involved. As a Real Estate professional, having to negotiate short sales on behalf of distressed homeowners, I have learned that many people charged with Short Sale approvals agree…the short sale process, as it is implemented now, is ridiculous even archaic.

B of A has been the penultimate banking institution in the United States for decades and it goes without saying their agreement to work with REOtrans is a window into Real Estate sales for the near term.

The strategy for B of A is to streamline this otherwise frustrating process of selling a home when it is worth far less than is owed. This agreement will affect in the market in two ways, one good, immediately and one not so over time.

The good side is simple…Distressed homeowners will sell their nonperforming asset and cut their losses. Similar to a stop loss order often used by stock market investors.  In Real Estate it does exactly the same thing. Availability of affordable homes will increase demand over time.  This action will increases supply and lead to more buyer opportunities.

Uh Oh!  Another bubble?  Maybe.

Over time, The “not so good” applies to the buyer’s market (the bubble?). When the affordable opportunities become more in demand and prices start the natural course of creeping up from the bottom. Supply and Demand!  We have seen some instances where this is already happening.

BofA understands they have lost Billions in their inability to mitigate all the losses the Countrywide purchase has bestowed upon them.  Who’s fault is that anyway?

I realized this almost 2 years ago.  A buyer found a home available that was a short sale (WaMu) and we offered $630K  and the short sale was not approved.  WaMu foreclosed on the owners and had to sell for a $180K a loss.  Terrible!

Diana Olick CNBC  Real Estate reporter exclaims…”What I have found is that the foreclosure process is so convoluted..”

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From the  California Bar Journal

State Bar prosecutors took action last month against five more lawyers under investigation for loan modification misconduct, bringing to 14 the number of attorneys who have resigned or been placed on involuntary inactive enrollment since creation of the bar’s Loan Modification Task Force in April.

“I am very pleased with the results being obtained by members of our Loan Modification Task Force,” said Interim Chief Trial Counsel Russell Weiner. “They have exceeded my expectations. Our office has been aggressively investigating and prosecuting attorneys alleged to have committed loan modification misconduct. Any attorney thinking that he or she can commit loan modification misconduct and get away with it for a significant period of time should think again.”

The Loan Modification Task Force has received more than 1,250 complaints and is investigating almost 250 lawyers. Each task force investigator oversees about 135 cases, and almost 20,000 attorney files have been removed from the offices of attorneys whose loan modification practices have been shut down.

California Bar Journal Article

The Home Mortgage Preservation Program is now Turbocharged enough to help high Los Gatos mortgages hopefully.

In May the government stepped up the pace to modify mortgages to stave off the 10–12 million potential foreclosures looming on the horizon.   This was to be done first, by allowing homeowners to qualify for modifications on a temporary basis.  650,000 homeowners are now in that process.

However, only 2000 have been approved for modifications through the program.

Request Loan Modification .PDF

Chase Loan Mod Docs .PDF

GMAC Financial Statement .PDF

“We now must refocus our efforts on the conversion phase to ensure that borrowers and servicers know what their responsibilities are in converting trial modifications to permanent ones,” said Phyllis Caldwell, the newly appointed chief for the Treasury Department’s upstart Homeownership Preservation Office, in a statement released Monday.

The MakingHomeAffordable.gov Web site will include links to all required documents and an income verification checklist, as well as explanations of how the trial and conversion processes work. The Homeowner’s HOPE Hotline, at (888) 995-HOPE, will provide direct access to housing counselors

The temporary modification idea was meant to allow the homeowner time to submit documentation the lender would review to potentially grant an approval.   This has caused much anxiety on the part of the participants as evidenced in the following quote.

“Now it’s up to the banks to do their part to convert borrowers to permanent modifications,” said Michael Barr, an assistant Treasury secretary. “Servicers to date have not done a good enough job.”

We just don’t know what penalty the participating lender is facing if they do not comply with the pressure.   Without proof of substantial numbers of permanent modifications there is a real sense that this will just be another case of hot air.

This will lead to MORE foreclosures that may well have been prevented if the homeowner had time to seek out alternatives like a short sale or deed in lieu of foreclosure.

“If we don’t see a big increase in the permanent modification numbers, then there’s something seriously wrong with this program,” said Alan White, a law professor at Valparaiso University. “I can only assume the number is appallingly low.”

The Treasury Dept. began to publish reports naming those institutions that were lagging which proved to increase the numbers of temporary modifications from 235000 to 650000 by the end of July.

It is likely there will be another attempt to list their names if the number of permanent modifications does not rise soon!  Not quite Turbocharged.

There are new guidelines, now in place, that servicers are not going to like very much.

This is directly from the HMP press release …

Top servicers will be required to submit a schedule demonstrating their plans to reach a decision on each loan for which they have documentation and to communicate either a modification agreement or denial letter to those borrowers. Treasury/Fannie Mae “account liaisons” are being assigned to these servicers and will follow up daily as necessary to monitor progress against the servicer’s plan. Daily progress will be aggregated by the end of each business day and reported to the Administration.

If you or someone you know needs to get on board, forward this link to them. http://makinghomeaffordable.gov/index.html

Here they will find…

• Links to all of the required documents and an income verification checklist to help borrowers request a modification in four easy steps;
• Comprehensive information about how the trial phase works, what borrower responsibilities are to convert to a permanent modification, and a new instructional video which provides step by step instruction for borrowers;
• A toolkit for partner organizations to directly assist their constituents.

I think this is a mess that still needs cleaning up… and I am hear to watch ‘em.

Image via Wikipedia

650,000

That number represents 20% of eligible homeowners at least 60 days behind in their payments, according to the Treasury report. This is up from 16% a month earlier.

Despite the progress, housing counselors say the number of people falling into foreclosure vastly exceeds the ranks getting assistance. The number of filings hit a record high of 937,840 in the third quarter, according to RealtyTrac, an online marketer of foreclosed homes. That’s a 5% increase from the second quarter and a 23% jump over the third quarter of 2008.

The $75 billion Obama plan is “lagging behind the massive number of foreclosures that continue to pile up,” said John Taylor, head of the National Community Reinvestment Coalition.

But administration officials have said that the program, which was projected to help up to 4 million homeowners, is on track.  On Track?  Which track?  Becsude, if it”s the ‘railroad’ track..we are in REAL trouble.

The above excerpt is from CNNMoney‘s reporting and I have to say I don’t believe the Loan Mod scammers are going to go away soon enough for this to get markedly different anytime soon.

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I am just not sure what it really does for Buyers.   We need Buyers to Buy the homes already on the Market.

Anyway…

First, Obama’s plan offers $200 billion to provide refinancing for some homeowners who owe more than their homes are now worth-shorthanded as being “underwater” on their mortgages. To qualify, these homeowners-5 million of them by administration estimates-must have their mortgages in the hands of Fannie Mae or Freddie Mac, the mortgage finance giants that the government seized last September.

“We have been advocating for one unified approach to help modify or refinance delinquent and underwater loans and thus we think this program will undoubtedly help servicers keep more at-risk borrowers in their homes, which is a crucial step to helping stabilize the mortgage and housing markets,” stated John A. Courson, president and CEO of the Mortgage Bankers Association (MBA).

Many of these homeowners would like to take advantage of today’s historically low interest rates and refinance but can’t, since the law prohibits refinancing if the current mortgages reflects less than 80% of the homes’ values. These homeowners now can seek to refinance if their mortgages are up to 5% higher than the present-day values of their homes. That helps some, but it won’t reach lots of homeowners in California, Florida and elsewhere whose homes are now worth substantially less than their mortgages.

Because most mortgages are bundled into securities and sold into a secondary market, it’s often difficult for homeowners to find out whether Fannie or Freddie owns their loans or whether they’ve been pooled with other loans and sold by an investment bank to other investors.

Second, Obama’s plan attacks the problem of affordability. The administration provides another $75 billion in incentives to help prevent foreclosures in cases in which the homeowners, up to 4 million of them, are about to lose their homes. The money comes from the $700 billion bailout fund approved last October.

Under this complex portion of the plan, the president offers a stream of financial incentives to mortgage servicers, who are essentially bill collectors for private investors who own pools of U.S. mortgages. Some incentives stay with the servicers while others flow through to investors.

In exchange for the incentives, a servicer would modify a mortgage so that no more than 38% of a homeowner’s monthly after-tax income was taken by the monthly mortgage payment. The government then would step in and share the cost of reworking that mortgage so that no more than 31% of the borrower’s monthly income was tied up in the payment.

This could result in some mortgages carrying interest rates as low as 2% for five years. Critics think that this mortgage subsidy interferes with the natural process of letting the marketplace find the floor on home prices.

Let’s just h.o.p.e THIS plan works~

The program has some limitations and the requirements may not be that easy to meet for some homeowners.   This is according to government officials and Hope Now, a program the Bush administration started earlier this year.  See this link for  Hope Now Program facts.

 http://www.whitehouse.gov/news/releases/2007/12/20071206-7.html

Homeowners will have to be a minimum of 3 months behind on payments, owe 90%  or more of what their home is worth and qualify.  Two caveats are the home MUST be a primary residence ( sorry investors)  and the homeowner cannot be in bankruptcy.

Borrowers would get help in several ways: The interest rate would be reduced so that borrowers would not pay more than 38 percent of their income on housing expenses. Another option is for loans to be extended from 30 years to 40 years, and for some of the principal amount to be deferred interest-free.

While lenders have beefed up their efforts to aid borrowers over the past year, their earlier efforts have not kept up with the worst housing recession in decades.

Citi announced they are prepared to do this without the government involvement.    I applaud Citi for the ethical and humane position they have taken.  More mortgage holders should follow the exemplary example of Citi Mortgage.

Do you think this will help the overall economy?   What about the Automobile Manufacturers?  Should we be expected to help them too?

Michael Roberts

MichaelRobertsHomes.com