Short-Sale standards could help troubled homeowners

Bravo! Standardizing the short sale process is a fantastic move…

What’s missing from this proposal is requiring that agents be qualified to work in the Short Sale arena. These transactions are much more problematic and time consuming then a standard sale and require an entirely new skill set.

There are agents, with short sale listing who probably shouldn’t have a real estate license and yet they are representing owners in dire straits, where time is of the essence and they (the agent) are all that stands between a successful short sale and foreclosure.

When one or the other is the only option, there’s a big difference. The credit score hit alone is at least a couple hundred points higher, foreclosure verses short sale and a foreclosure stays on your record for a minimum of 7 years verses just a couple with a short sale. There are other issues as well.

If you’ve followed the content I’ve posted recently, you’ll probably agree that we need to assure that more of this “pre-foreclosure” property is successfully marketed. Perhaps the holders of these second liens will need to decide between $3,000 guarantee and the prospect of pursuing more money, over time by legal means. We all know who end up with the lion share in that scenario.

In the end, if we can cut the number of foreclosures then it’s a win. The banks do not need more property and the short sale process needs to be less of a hassle with a higher rate of success. As someone focusing more and more on short sales, parameters and timeline are welcomed.


Obama's standardized short-sale plan could help troubled homeowners

The Los Angeles Times
By Kenneth R. Harney
December 13, 2009

Reporting from Washington - If you're in trouble on your mortgage and can't get a loan modification, check out the Obama administration's standardized short-sale plan that's scheduled to roll out in the next several months.

The program, outlined Dec. 1 by the Treasury Department, is an attempt to streamline what has traditionally been a contentious, time-consuming process by requiring lenders and others to use nationally uniform documents, timelines and financial incentives.

A short sale involves a lender or investor agreeing to collect less than the balance owed on a mortgage debt out of the proceeds of a negotiated sale of the property. Often a short sale is the last alternative to foreclosure available to distressed homeowners and banks. Say you've lost your job and fallen behind on mortgage payments. With little or no income, you can't qualify for a modification program.

In this situation -- grim as it is -- your best move may be to see whether your lender will accept a short sale. Though the idea sounds straightforward, in practice it is not. First, the bank needs to be convinced that a short sale would yield it more money at the bottom line than a foreclosure would.

This usually means you need to bring in a real estate agent who knows the ropes and can pull together the key information needed by the bank: recent comparables on closed sales, local market trends and the likely selling price of your house.

You'll also need a buyer for the house -- one who'll pay a price acceptable to the bank and has financing to close the deal. If you happen to have a second mortgage or home equity credit line on the property, you'll also need to negotiate how much that lender will receive from the sale proceeds.

That can be tricky. In depressed real estate markets, the second-lien lender may be holding a note that's worthless in a foreclosure because plummeting property values have wiped out the collateral. Yet that same bank is in a pivotal position: It has the legal power to block the short sale by refusing to sign on to the deal.

Equally troublesome in short sales is the fact that banks, mortgage servicers and bond investors often have conflicting requirements for documentation and financial yields that can complicate and drag out the haggling for months.

Enter the Obama administration's new streamlining plan. Besides requiring lenders and servicers to use uniform documentation, pre-approved short-sale terms and accelerated turnaround times, the plan provides financial incentives for key players:

* Homeowners who successfully complete a short sale under the program receive $1,500 to defray relocation costs.

* Mortgage servicers can receive $1,000 per case.

* Investors get $1,000.

* Second-lien holders receive up to $3,000 from the sale proceeds.

Even real estate agents get something: The rules prohibit banks from forcing them to cut their commissions from the listing agreement as part of the final deal.

Sounds like a formula for encouraging a lot more short sales, right? The jury will be out on that for months, and most major lenders are still studying the fine print of the Obama program. But early reactions from big banks appear to be positive.

Dave Sunlin, a senior vice president for Bank of America Corp., said: "We're very pleased. We welcome any effort to reach standardization for all parties" involved in short sales.

Faith Schwartz, executive director of Hope Now -- a Washington-based group representing the country's largest banks, mortgage servicers, bond investors and consumer counseling organizations -- said the plan should bring "uniformity and standards" to a process usually characterized by "mayhem" among the negotiating parties.

Scott Brinkley, a senior vice president for First American Corp., a firm that provides market data for banks, said, "You're going to see a lot of cooperation" by lenders and investors.

But there could be a major pothole: The Obama plan tilts to consumers by requiring second-lien holders to drop all financial claims against short-selling borrowers beyond the $3,000 they take out of the deal.

Travis Hamel Olsen, chief operating officer of Loan Resolution Corp., a Scottsdale, Ariz., consulting firm, says the $3,000 payment won't be enough for many second-mortgage lenders. Today they frequently obtain additional short-sale compensation from sellers as the price of their participation -- in cash or through promissory notes -- far beyond $3,000.

"I'm concerned that that could limit participation" by second-lien holders, Olsen said.

Bottom line for homeowners who might benefit: Don't have wild expectations, but definitely ask your servicer whether it plans to participate and whether the forthcoming standardized plan for short sales might work for you.

Source: Los Angeles Times

Interest rates far from the only answer

"The miserable have no other medicine but only hope” Measure for Measure by William Shakespeare (Act III, Scene I)

My intension is not to paint a picture of doom and gloom. I remain cautiously optimistic that with conscience and care, we can weather the storm. There are, however those who are quick to say we're in recovery, the worst has past and by this time next year our real estate troubles will be a distant memory. That’s a classic example of ignoring the elephant in the room...The posted article “Low interest rates are no panacea for region's housing” describes a dynamic that exists in hard-hit Inland Southern California. Although interest rates are low there's a lack of inventory creating fierce competition and many buyers are getting frustrated. Builders cannot justify building. Statistics nationally on NOD's and REO's indicate that there should be plenty of inventory, however the manner in which these properties are released on to the market is critical. Too much, too fast and we upset the apple cart, prices freefall again and buyers pull back. It’s been said again and again that low interest, tax breaks and lower home prices have created this surge in buying, but it's not on a solid foundation. As expressed by economist Esmael Adibi (below) until we put people back to work and stimulate other aspects of the economy we're still very much at risk. At this point what's most important is managing the over 7.5 million homeowners who are either at risk or in foreclosure and the banks will ultimately determine how this unfolds. Get it right and we get through the next several months and perhaps 2010 with positive momentum. One can only hope.


Low interest rates are no panacea for region's housing

By LESLIE BERKMAN
The Press-Enterprise

Although the interest rate on a 30-year mortgage is the lowest it has been in almost four decades, it is not the medicine that will revive Inland Southern California's housing market, real estate experts said Thursday.

Mortgage rates for fixed 30-year loans in the U.S. dropped to a record low amid indications the housing market is showing signs of life. A 30-year fixed mortgage fell to 4.71 percent for the week ended Thursday, the lowest since mortgage buyer Freddie Mac began compiling the data in 1971.

The Federal Reserve is pumping $1.25 trillion into mortgage-backed securities to try to bring down mortgage rates, but that money is set to run out next spring. The goal of the program is to make home buying more affordable and prop up the housing market.

But Inland experts say a shortage of inventory is suppressing sales of existing homes. Also, the high cost of land that home builders acquired makes it impossible for most of them to construct houses that can sell cheaply enough to compete with the foreclosure-ridden resale market.

"The interest rates being as low as they are today are not promoting more sales because of the lack of homes for sale," said Wil Herring, owner of Mtg Experts in Moreno Valley.

While the rate of mortgage defaults remains high, fewer foreclosed houses are coming on the market, a trend that some experts say reflects an effort by lenders to modify mortgages for financially troubled homeowners and to control the number of foreclosed homes for sale to prop up prices.

Herring said there is "sheer frustration" among would-be first-time buyers who have to compete for the limited number of bank-owned homes, frequently having to make multiple offers and losing out to all-cash buyers.

Chapman University economist Esmael Adibi said the lower mortgage interest rate is a positive development because it makes homes more affordable and will be welcomed by someone who is currently house hunting. But he said it won't be enough to overcome the negative impact of a soft economy on home sales.

"The job outlook and overall economic condition trumps any improvement we will get on the mortgage front because if a person doesn't have a job or is not confident about his or her job, even with the improved affordability, that person will not commit to purchasing a house," Adibi said.

Alan Nevin, director of economic research for MarketPointe Realty Advisors in San Diego, a firm that advises home builders, said lower mortgage rates will do "virtually nothing for new home building because it is not sufficient to cause developers to risk breaking ground."

OVERPRICED LAND

The basic problem, Nevin said, is the cost that developers paid for land -- most likely purchased at the height of the housing boom in 2005 or 2006 -- is "almost higher than what they can sell the homes for."

Nevin said recently he studied the Hemet-San Jacinto area and discovered that most of the sales offices in housing developments were closed because the builders couldn't compete with the resale market. He said significant home building will not occur until the banks resell land in the failed projects at discounted prices to a new group of builders.

"I suspect over the course of 2010 you will begin to see new homes being built in small quantities but not by the guys who built them before," Nevin said.

Bloomberg News and The Associated Press contributed to this report.

Source: The Press-Enterprise Online

October home sales rise 10.1% from September

Obviously this is based on National sales and South Bay in general; the beach cities, Palos Verdes Peninsula and surrounding communities are affected to varying degrees as well, however we are somewhat different when compared to the country as a whole. For instance median home value in Torrance alone is $492k, more than twice the national average. You can nearly double that again for Rancho Palos Verdes. There are currently 24 financially “distressed” properties (Short Sale, REO, NOD) listed on the MLS on the Palos Verdes Peninsula and 102 in the western extreme of the area from El Segundo south to the peninsula. RD

October home sales rise 10.1% from September

From the Associated Press
November 23, 2009 7:40 a.m.

WASHINGTON -- Home sales far exceeded expectations last month, surging to the highest level in 21/2 years as first-time buyers rushed to take advantage of an expiring tax credit.

The National Association of Realtors said today that home resales rose 10.1 percent to a seasonally adjusted annual rate of 6.1 million in October, from a downwardly revised pace of 5.54 million in September.

The tax credit of up to $8,000 for first-time owners was originally set to run out on Nov. 30, but Congress renewed it earlier this month and broadened its reach. People who have owned their current homes for at least five years can now claim a tax credit of up to $6,500 for a home purchase. To qualify, buyers must sign a purchase agreement by April 30.

The Realtors report on October home sales reflect offers made before buyers knew the tax credit would be extended. "There was a lot of rush and hurry to complete sales" before the deadline, said Lawrence Yun, the trade group's chief economist.

But sales are likely to drop over the winter as buyers hibernate for a few months without the looming tax credit deadline.

The new deadline means that "we're going to see some good activity coming out of the spring," said Pat Lashinsky, chief executive of online real estate brokerage ZipRealty Inc.

Sales, which were nearly 24 percent above last year's level, had been expected to rise to an annual pace of 5.65 million, according to economists surveyed by Thomson Reuters.

The median sales price was $173,100, down 7.1 percent from a year earlier and off 1.6 percent from September.

In addition to lower prices, mortgage rates have been hovering around 5 percent since the spring, largely because of government intervention. That has helped restore housing affordability in large swaths of the country.

The inventory of unsold homes on the market fell about 4 percent to 3.6 million. That's a 7 month supply at the current sales pace, and close to a healthy stock of about six months.

Nationwide sales are up nearly 37 percent from their bottom in January, but are still off about 16 percent from the peak in autumn 2005.

Over the summer, the housing market started to rebound from the worst downturn in decades, aided by aggressive federal intervention to lower mortgage rates and bring more buyers into the market.

But experts forecast that prices will fall again. Most say they will hit a new low next spring, perhaps falling another 5 to 10 percent, as more foreclosures get pushed onto the market.

A record-high 14 percent of homeowners with a mortgage were either behind on payments or in foreclosure at the end of September, the Mortgage Bankers Association said last week. The worst damage is still concentrated in the states hardest hit from the start: Florida, Nevada, California and Arizona. Together, they accounted for 43 percent of new foreclosures.

Source: The Los Angeles Times

Fannie, Freddie, & FHA conforming loan limit extension law signed

President Obama late Friday signed a congressional resolution to extend through 2010 the current conforming loan limits of $417,000 for most areas in the U.S. and $729,750 for high-cost areas, including many in California. The resolution was part of a broader piece of budgetary legislation that will prevent a government shutdown.

Both C.A.R. and NAR have long advocated making permanent higher conforming loan limits. As a result of C.A.R.'s and NAR's efforts, a provision of the Housing and Economic Recovery Act of 2008 included temporarily raising the conforming loan limits. Last week's actions effectively extend the higher conforming loan limits for Fannie, Freddie, and FHA loans through 2010.

The conforming loan limit determines the maximum size of a mortgage that Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac, and the Federal Housing Administration (FHA) can buy or "guarantee." Non-conforming or "jumbo loans" typically carry higher mortgage interest rates than conforming loans, increasing monthly payments and hampering the ability of families in California to purchase homes by making them less affordable.

Source: NAR