Good news series 3 of 3

24 August, 2010 | Shauna Morris | No Comment

Courtesy of RISMEDIA, August 23, 2010—

The U.S. Department of Housing and Urban Development (HUD) and the U.S. Department of the Treasury has released the August edition of the Obama Administration’s Housing Scorecard (www.hud.gov/scorecard), a comprehensive report on the nation’s housing market. In July, housing prices remained level after 30 straight months of decline, while some price predictions have improved. In addition, historic low interest rates continued to promote home affordability and refinancing options for the nation’s families. However, the market remains fragile with foreclosure starts showing a slight increase and serious delinquencies continuing to work through the pipeline.

“While there has been some stabilization in the housing market, it remains clear that we have more work ahead,” said HUD Assistant Secretary Raphael Bostic. “Through the Obama Administration’s efforts over the past 16 months, we have seen increased price stabilization and improved home affordability for prospective, qualified homebuyers. At the same time, we know that we must continue to provide support to underwater borrowers, unemployed homeowners, and to the nation’s hardest hit neighborhoods.”

The August Housing Scorecard features key data on the health of the housing market including:

• Stabilizing housing prices drive improving expectations in some regions. After 30 straight months of decline, home prices have leveled off in the past year; futures indices have shifted upward since January 2009 as signs of recovery continue, although overall housing outlook measures remain mixed.

• More than twice as many modification arrangements begun compared to foreclosure completions. More than 3.15 million modification arrangements were done from April 2009 through the end of June 2010. This includes more than 1.3 million trial Home Affordable Modification Program (HAMP) modifications started, over 472,000 Federal Housing Administration (FHA) loss mitigation and early delinquency interventions, and 1.4 million proprietary modifications under HOPE Now. The number of agreements offered continues to more than double foreclosure completions for the same period (1.24 million).

• More than 4.2 million families have benefited from housing counseling since April 2009. Working with a HUD-approved housing counselor can help borrowers manage debts apart from a mortgage – car payments, credit cards and personal loans, for example – and help them avoid falling into default.

• More than 37,000 homeowners received a HAMP permanent modification in July. While the pace of program entry has slowed due to upfront documentation requirements in place since June 1, this policy change streamlines the process to help more eligible homeowners convert to a permanent modification. Homeowners in permanent modifications are experiencing a median payment reduction of 36 percent, or more than $500 per month.

“HAMP, which represents just one, targeted piece of the Administration’s larger efforts on housing, has so far offered more than a million and half responsible homeowners the chance to modify their mortgages. This program has helped to stabilize a housing market that remains fragile and has redefined the modification standard for the industry – both of which are delivering real benefits to struggling homeowners in communities across the country,” said Treasury Assistant Secretary for Financial Stability Herb Allison. “Currently servicers are working through their pending modifications, and while Making Home Affordable works for a number of homeowners, many others are offered other means of avoiding foreclosure. As careful stewards of the scarce resources of the American taxpayer, we see this as prudent progress – and we will keep working to help the Americans hardest hit by this crisis.”

Data in the scorecard show that the recovery in the housing market continues to remain fragile, with some measures suggesting recovery will take place over time. For example, foreclosure starts went up slightly in July from the previous month, but remain well below July 2009 levels.

Foreclosure completions also inched upward as the volume of serious delinquencies continues to work through the pipeline.

Each month, the Housing Scorecard incorporates key housing market indicators and highlights the impact of the Administration’s unprecedented housing recovery efforts, including assistance to homeowners through the FHA and HAMP.

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Good news series 2 of 3

24 August, 2010 | Shauna Morris | No Comment

Courtesy of RISMEDIA, August 19, 2010—

(MCT)—As director of the Joint Center for Housing Studies at Harvard, Nicolas Retsinas has had a front-row seat for the real estate market’s dramatic boom and bust. After 12 years at the center, Retsinas left the director’s job to teach housing finance at Harvard Business School. He spoke recently with New Jersey’s The Record about why buyers got mortgages they couldn’t afford, and why real estate matters so much.

Were you surprised by the magnitude of the housing bust and how long it has lasted?
Nicolas Retsinas: Yes, by the severity of the housing bust but even more so, how credit just seized up.

When do you see any kind of loosening-up of the credit markets?
NR: I would suspect we’re likely to see the same dominance of the government at least through the balance of this year. One of the big issues facing public policymakers is what to do with Fannie Mae and Freddie Mac. If we want to attract private capital, not only from this country but also global capital, some part of that credit risk has to be borne by the government.

One of the biggest factors in the bust was that credit standards got too easy. Buyers who weren’t qualified got mortgages. Do you have any ideas about why this happened?
NR: In part, people were granted mortgages not on their ability to repay the mortgage, because it was clear that wasn’t going to happen. But there was an expectation that even if they couldn’t pay, the future increase in the value of the property would end up being the collateral for that loan. For a long time, that was a formula that worked. But we reached a point where even with these exotic—what turned out to be toxic—mortgage terms, they just weren’t affordable.

What has been the biggest human cost of the housing bust?
NR: The biggest human cost is the millions of people who have lost their homes. One can look back coldly and say, “Well, maybe a lot of them shouldn’t have bought a home in the first place.” But a lot of people lost their homes the old-fashioned way: they lost their jobs.

Who has benefited from the bust?
NR: Beside the investors who played with different sorts of financial products, I think the key winners probably have been first-time home buyers, who have maybe longed to buy a house but could not afford to. Now we’ve essentially transferred wealth from existing homeowners to new homeowners.

Some observers have been disappointed by the number of homeowners helped by the federal loan modification program.
NR: In defense of the government, when they designed this program 18 months ago, they based it on a premise that the principal problem in the housing market was egregious mortgage terms. And if those mortgage terms could be reset and recalibrated to more typical mortgage terms and could be afforded, through subsidy or whatever means, by the borrower, that would stem the hemorrhage of the defaulted loans and foreclosures.

As we moved into 2009, the problem was less about the subprime loans and more the traditional reason why people have problems making ends meet—which is that they lost their jobs. If you modify the loan so that your monthly payments are only 31% of your income, and your income is zero, that’s probably not going to work. The problem outran the solution.

Will home-price appreciation return anytime soon?
NR: The next couple of months will be an interesting test because we’ve had the withdrawal of the home buyer tax credit. I think we’re likely to have a sort of trawl-along-the-bottom type of recovery, a little bit lumpy for a year or so.

Congress is looking at new financial regulations. What effect are these likely to have on mortgages?
NR: I think it’ll make it more difficult to go back to the Wild, Wild West. There will be a new consumer financial agency, and I think that will be more likely to look at some of these (mortgage) products. I think that’s going to be critical. RE

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Good news series 1 of 3

24 August, 2010 | Shauna Morris | No Comment

Courtesy of RISMEDIA, August 13, 2010—

The real estate trend in firming home prices solidified in the second quarter with more metropolitan areas showing increases from a year ago, aided by a surge in home sales driven by the home buyer tax credit, according to the latest survey by the National Association of Realtors. In the second quarter, 100 out of 155 metropolitan statistical areas (MSAs) had higher median existing single-family home prices in comparison with the second quarter of 2009, including 14 with double-digit increases; two were unchanged and 53 metros showed price declines. In the first quarter of this year, 91 areas had higher prices, while only 26 MSAs experienced annual price gains in the second quarter of 2009.

The national median existing single-family price was $176,900 in the second quarter, up 1.5% from $174,200 in the same period of 2009. The median is where half sold for more and half sold for less. Distressed homes accounted for 32% of second quarter sales, down from 36% a year ago.

Lawrence Yun, NAR chief economist, said the correction in home prices appears to have ended in 2009. “All year we’ve been seeing relatively flat national home prices, which appear to be supported by market fundamentals,” he said. “Prices in some areas remain below replacement construction costs, so even with an elevated supply of existing homes on the market, we don’t expect any consequential movement in home prices for the foreseeable future. Very low inventory of newly built homes will also help to support home values.”

Yun urged caution on interpreting price data. “The median price is influenced by the mix of homes that were sold and do not reflect pure appreciation or depreciation,” he said. “The recorded home prices in many markets were significantly depressed last year because of a large percentage of distressed homes sold at discount. Now as more normal, non-distressed home sales are occurring, the median price in many areas is showing higher values.”

Total state existing-home sales, including single-family and condo, rose 9.1% to a seasonally adjusted annual rate of 5.61 million in the second quarter from 5.14 million in the first quarter, and were 17.3% above the 4.78 million-unit pace in the second quarter of 2009.

Sales increased from the first quarter in 44 states and the District of Columbia; 47 states and D.C. had increases over year-ago sales levels.

NAR President Vicki Cox Golder, owner of a Tucson, Ariz.-based firm, said record low mortgage interest rates will help cushion a summer slowdown. “As expected, sales are slowing down now that the home buyer tax credit has expired, but record-low mortgage interest rates, along with stable and affordable home prices in most areas, provide opportunities for buyers who weren’t able to take advantage of the credit,” she said.

According to Freddie Mac, the national average commitment rate on a 30-year conventional fixed-rate mortgage was a record low 4.91% in the second quarter, down from 5.00% in the first quarter; it was 5.03% in the second quarter of 2009.

“Job creation will give home buyers more confidence, but the market over the next few months is likely to be below what we would expect for the size of our growing population,” Golder said. “With improving bank balance sheets, credit restrictions should gradually improve—Realtors are a great resource for consumer information on loan availability as well as neighborhood market conditions, which vary widely.”

In the condo sector, metro area condominium and cooperative prices—covering changes in 55 metro areas—showed the national median existing-condo price was relatively flat at $175,700 in the second quarter, down 0.5% from the second quarter of 2009. Twenty-six metros showed increases in the median condo price from a year ago; the first quarter of 2010 showed 24 metros up, while only four metros saw annual price gains in the second quarter of 2009.

Regionally, the median existing single-family home price in the Northeast declined 3.2% to $238,000 in the second quarter from a year earlier. Existing-home sales in the Northeast jumped 14.9% in the second quarter to a level of 980,000 and are 23.6% above the second quarter of 2009.

In the Midwest, the median existing single-family home price increased 1.4% to $148,500 in the second quarter from the second quarter of last year. Existing-home sales in the Midwest rose 14.5% in the second quarter to a pace of 1.30 million and are 20.9% above the same period in 2009.

In the South, the median existing single-family home price slipped 2.0% to $155,500 in the second quarter from the second quarter of 2009. Existing-home sales in the South increased 10.9% in the second quarter to an annual rate of 2.10 million and are 18.8% above a year ago.

The median existing single-family home price in the West rose 2.6% to $219,700 in the second quarter from a year ago. Existing-home sales in the West fell 2.6% in the second quarter to an annual rate of 1.23 million but are 7.6% higher than the second quarter of 2009.

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Rates are at all-times lows, but are buyers taking advantage of cheap money?

3 August, 2010 | Shauna Morris | No Comment

Courtesy of RISMEDIA, August 3, 2010—(MCT):

The 4.5% fixed-rate mortgage is here, although more than 14 months late. That magic number, or a close approximation, was reached recently, when Freddie Mac reported a 30-year rate of 4.54%. The possibility first arose in early 2009, when the government began mass-purchasing mortgages from Fannie Mae and Freddie Mac to prop up housing. Just about everyone predicted the rates would hit what builders and real estate agents call a “sweet spot” in a few months, and the housing recovery would begin, especially if consumer confidence had recovered to prerecession levels as well.

“What gets people buying again?” asked mortgage broker Peter Buchsbaum of Arlington Capital Mortgage in Horsham, Pa. “The answer is confidence—confidence in the value not falling and confidence they’ll still have a job.”

Even if behind schedule, the 4.5% rate has arrived, but in an environment that buyers perceive as anything but inviting.

Consumer confidence fell again in July, and why? Jobs and sagging real estate values.

“People will start buying houses again when they feel securely employed, house prices are rising, and they can make low down payments,” Bankrate.com columnist Holden Lewis said. “I don’t see any of those conditions coming anytime soon, at least in most parts of the country,” Lewis said. “Job security is the most important factor.”

Suburban homebuilder Marshal Granor said that “when we went under 6 percent, I was amazed and excited, but 4.5 percent artificially increases affordability. If rates start to climb, it will severely dampen already-spotty sales.”

Moody’s Economy.com chief economist Mark Zandi concurs. “The key to more homebuying is more jobs,” he said. “Once job growth kicks in earnestly, household growth will ramp up, and so will demand.”

Zandi added that despite these “extraordinarily low rates,” many prospective buyers have little savings for a down payment and tattered credit scores.” The securely employed appear to be nibbling at the bait, however.

“There’s a new group of buyers just entering the market because of the low rates,” said Art Herling, regional vice president of Long & Foster Real Estate, although the weather is keeping them “from totally getting into the buying mood.”

Buchsbaum also reports “a greater influx of buyers than past summers.”

Philadelphia Realtor Fred Glick compared the economy to a driver with his “feet on both the accelerator and the brake at the same time.”

“Until the jobs are produced, the banks start lending, and the underwriting guidelines start to make sense, we’ll be caught in this conundrum,” Glick said.

What about home prices?

Although the Case-Shiller Home Price Index rose again in May, economists believe that prices nationally will drop 6-8% more through the end of the year.

May’s increase, economists say, is attributable to the federal tax credit that expired April 30, and to seasonal buying patterns that typically boost prices.

The indexes are three-month moving averages, “so May’s readings reflect transactions in 20 markets that closed in March, April and May,” IHS Global Insight economist Patrick Newport said. With the credit gone, “we expect them to rise for two months, then start to decline,” with recovery in 2011.

That means a lot of buyers will remain on the sidelines until prices level off completely. The lowest fixed interest rates in 50 years won’t be enough to draw them in.

“Many people are bottom-fishing,” Herling said.

On the other hand, “People are starting to view houses as places to live and build equity over time, not financial assets where they can make a killing,” said economist Joel L. Naroff of Holland, Pa. If that is the case, demand for housing would rise much more moderately. “Add to that the lack of equity and the difficulty in qualifying for a mortgage, and the outlook for sales is not great,” Naroff said.

Interest rates are rock-bottom because the economy is rock-bottom. As more investors shift their money out of a volatile stock market and to the safety of Treasurys, rates will drop further, at least in theory.

Assuming “the debt crisis abates and the economy doesn’t double-dip, both of which seem more than likely,” Zandi expects rates to close in on 5% by year’s end and over 6% next year.

“I wouldn’t bet my mortgage payment on rates remaining this low for a long time,” Lewis said. “If I were refinancing, I would lock now instead of floating in hopes of rates falling further. I think there’s a greater possibility of rates rising than falling.”

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Why’s it’s still a great time to buy real estate.

27 July, 2010 | Shauna Morris | No Comment

Courtesy of Today’s Real Estate Advisor, Margaret Kelly:

Here are three great reasons why it’s still a great time to buy real estate and make smart investments in a down market.

Low Home Prices
Although there is widespread agreement in the industry that the housing market has reached the bottom, home prices aren’t expected to spike upward. Instead, they’re likely to skip along the bottom into 2011. They will continue to decline in some markets and creep up in others. As long as buyers remain diligent in the home search over the coming months, possible pricing fluctuations won’t have a dramatic effect on their property options.

Low Interest Rates
Interest rates on 30-year, fixed-rate mortgages hit a five-month low of 4.93% in May, and as of early June the rates were holding steady below 5%. Financial concerns over the growing debt crisis in Europe have stemmed discussions in the U.S. of raising rates. The historically low rates will save home buyers thousands and thousands of dollars over the life of a loan, which arguably is reason enough to enter the market.

Other Tax Benefits
The U.S. Home Buyer Tax Credit was temporary, but there are other tax benefits that buyers can continue to count on for the foreseeable future. Property taxes, mortgage interest payments and mortgage insurance premiums are qualified deductions that can help reduce many homeowners’ tax liability. For eco-conscious homeowners, purchasing energy-efficient appliances and making other green upgrades can mean a tax credit up to $1,500. For more information, be sure to visit www.irs.gov or consult a tax professional.

Don’t miss your opportunity to take advantage of the best buying conditions the market has seen in decades. There are plenty of deals to be had in our local Reno/Sparks market. We are the experts that can help you find the right deal for you!

-DMG

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Encouraging real estate news

19 July, 2010 | Shauna Morris | No Comment

Courtesy of Vince Lotito of Prime Lending:

Some analysts feel the homebuyer tax credits artificially boosted the housing market by pushing forward home sales that would have happened later. Others feel most buyers would have bought anyway. In any case, there’s now concern about a coming drop in sales. Well, June sales figures should still benefit from activity spurred on by the tax credits. And tax credit sales should even help monthly reports through September, now that buyers in contract on April 30 have been given until September 30 to close.

Nonetheless, we ought to keep an eye on monthly Pending Home Sales, which track signed contracts that turn into sales a few months out. Even though we may have a sales dip after the tax credit, the fact remains that near historic low mortgage interest rates are getting people back into the market. These rates, combined with today’s prices, have made homes more affordable than they’ve been in years, letting many buyers move up to better neighborhoods with more choices.

But buyers shouldn’t wait. The National Association of Realtors chief economist sees the median home price rising nationally 2% to 3% this year. The NAR’s CEO feels sales will pick up in the fall and that the down-cycle has run its course. The chief economist at Moody’s Economy.com also believes the housing crash is nearly over. And we all know mortgage rates won’t stay at their current levels indefinitely. In other words, this could be one of the best times to buy a home in decades.

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Fannie Mae announces changes to the ARM policy

4 May, 2010 | Shauna Morris | No Comment

Courtesy of Perry Faigin, Mutual of Omaha Bank:

MortgageOrb.com, Sunday 02 May 2010 – 22:00:02

Fannie Maehas announced new standards for the purchase and securitization of adjustable-rate mortgage (ARM) products. The company says it is changing its eligibility criteria to protect consumers from potentially dramatic payment increases and to help ensure that borrowers who hold these types of mortgages can sustain them beyond the initial interest-rate period.

“Our goal is to make sure consumers can sustain their mortgages and remain in their homes over the long term, while helping our lender partners offer a range of mortgage products for qualified borrowers,”says Marianne Sullivan, senior vice president of single-family credit policy and risk management at Fannie Mae. “These policy changes reflect our intention to continue providing liquidity to different market segments by ensuring that support for ARM products remains in appropriate circumstances.”

For ARMs with initial periods of five years or less, Fannie Mae will require that borrowers be qualified at the greater of the note rate plus 2% or the fully indexed rate (i.e., index plus margin).

Fannie Mae will continue to make available an interest-only loan product, but will change its qualification criteria. The maximum loan-to-value ratio cannot exceed 70%, the borrower’s credit score must be 720 or higher and the borrower must have a minimum of 24 months of liquid asset reserves remaining after loan closing.

Balloon mortgages, which typically offer lower initial interest rates but leave a significant balance due at maturity, will no longer be eligible, except with special approval from Fannie Mae.

All loans not meeting the new guidelines must be purchased as whole loans on or before Aug. 31, or delivered into mortgage-backed security pools with issue dates on or before Aug. 1, the agency says.

SOURCE: Fannie Mae

© 2007 Zackin Publications, All Rights Reserved

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Good news!

28 April, 2010 | Shauna Morris | No Comment

The Reno/Sparks Association of Realtors came out with some good news about our market Tuesday morning. They analyzed median home price, number of units sold, percentage of original price received at sale among other key statistics from our area that help gauge the health of our market.

Click here for the Reno March 2010 Monthly Market Report

In short, things are looking up! The median home price is $175,500, which is an increase over both January and February of this year. The number of homes sold also had a big spike in March of this year which is a great indicator to help determine the absorption rate of properties and if the available inventory is headed back to a healthy level, which it is.

Possibly one of the most interesting statistics is the Sold-to-Asking Price-Ratio. This ratio shows how much of the original list price was achieved in the final sale. Even as far back as March of 2009, this ratio has not been lower than 96%. As of March 2010 this ratio jumped up to 97.9%, meaning sellers are getting near, at or over their asking price at closing.

This is critical for buyers to understand that the days of “wiggle room” are over. It’s time for buyers to write serious offers and be prepared to pay asking price for a home they really love. From my perspective, this can be attributed to the large number of short sales being purchased. Short sale banks are not accepting low offers and more often than not are countering at a higher price based on the value they receive through an appraisal.

I am an optimist. If these numbers continue on this path, we could see some great progress this year in our local market place. We still have a ways to go before we are really out of the woods, but the light at the end of the will get brighter every month.

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New goverment rescue plan for foreclosed and underwater homes

31 March, 2010 | David Morris | No Comment

Over the last seven days the papers have been full of new ideas to help the troubled home market. Anyone that is interested in the economy, job growth and unemployment must be concerned with the health of the housing market.  Until housing is back on a solid footing the US economy will be wobbly at best, and at worst it will have a second recession.  Bank of America’s proposed plan to help 45,000 homeowners is laudable but about as effective as using a squirt gun on a home fire.  What is important about Bank of America’s plan is that after three years of blindness they have cracked the door open to the unpleasant, smelly reality of the housing crisis and offered a solution to it. 

Banks and investment banks played with the US economy and profited mightily at the expense of America on the whole.  Regardless if you were conservative and never played in the housing boom, you were used by the banking industry and are now worse off for it. 

On Saturday the Reno Gazette-Journal ran a front page story “Rescue may miss many who need it”. First, let me say in essence that the paper is correct.  Bank of America is recognizing that 45,000 very sick homeowners are going to lose their homes.  The real issue is that those 45,000 are the nearly dead and it is the 16 million homes underwater that need to be focused on and until all banks step up to the plate, housing is flying south for a very long and bitter winter. 

I want to acknowledge just how difficult acting on the problem really is.  The banks have woven a web of curious networks between insurers, investors, servicers and others with protections, profits and liabilities that can be hard to understand.  Despite the problems we are facing, some are profiting from the chaos, not least the very assorted banks and investment banks that brought on the disaster to the American people.

On one hand the commonly held belief, still held by many, is to let the cleansing process work itself out.  Many homeowners that never bought during the boom, or have free and clear homes, are heard to shout this sentiment out and cast all that are in trouble as dilatants that have received their just rewards for not being smart like them.   Without a question in 2006-2007 tens of thousands of people lost their homes that should never have ever received a loan.  But now we are talking about 2010.   We are talking about people that bought homes in 2007, after the “bubble burst”, fully qualified for a home, put 20% cash down and today are underwater!  We are also talking about homeowners that purchased homes in 2001, well before the much talked about “bubble” and put 20% cash down and today have homes that are underwater.  Our market has rolled back well beyond the stupidity of 2003-2006, back to 1998-1999 values.

In the Saturday RGJ article titled “Rescue may miss many who need it”, University of Nevada, Reno economist Tom Cargill said of the new Obama plan “it’s a terrible waste of taxpayers’ money. It uses taxpayers’ money to support bad decisions made by people to buy homes they can’t afford.” Personally, I highly disagree.

We are looking at homeowners that now realize that they are $200,0000-$500,000 upside down in their homes. These were all qualified buyers, who all put down 20% or more and are underwater.  Mr. Cargill, please tell these tens of thousands of Nevada homeowners tough luck and that they made bad decisions.  Please tell them to forget that they owe more money than most and to go out and become consumers again and run up their credit cards and spend money so the economy can grow and the banks can profit and they just need to suck it up and in 7-12 years, if they are lucky, their homes just might, maybe have some equity in them.

What needs to be done?  I suggest the radical notion of the following:  protect the principal, protect the investors, encourage homeowners to pay off their principal loan balances.  First, work with all homeowners that have homes underwater and who are current on their payments.  Move all loans to a .5% interest based on a 15 year amortized loan.  Years 1-5 are at .5%, years 6-8 are at 4%, years 9+ are at 6%.

Example:  A $300,000 loan @ 5.5%/30 years has a P.I. payment of $1,703 per month.  .5% has a payment of $1,730 per month.  The point here is that many homeowners are short selling as much as they realize that it will easily be 10 years before they have equity but can make the payment.  With a 15 year loan not only do we have free and clear homes in 15 years in a mere 5-7 years, the loans will have been paid down so much that with no appreciation whatsoever in the housing market the homeowner will have equity. 

For those homeowners that are not current they can be offered 20, 25, 30 year loans.  In the same example the loan payment would drop over $800 per month on a 30 year loan.  If that does not save the homeowner then per Mr. Cargill they truly overbought or their income has been cut so much that foreclosure is their only option. 

 Drastic?  Not really.  Homeowners take homes off the market, principal is preserved, fewer homes for sale, better chance for stabilization.  Better stabilization and growth, better tax income for the city, better confidence in an individual’s personal financial position, the more likely they are to spend money. The more money they spend the more taxable income to the state, the more confidence homeowners have about themselves, the more likely to buy services, the more services they buy, the more companies can expand and hire. The more people that have jobs the better the economy and so on.

What about the federal government and the bailout money?  Well obviously .5% for 5 years is a bit painful for the banks so that money goes to give the banks/investors a 2% additional return for years 1-5.  When a seller sells in years 1-5 they pay to the federal government a percentage of the profits, if any, as a form of repayment.

Investors get their principal, banks stop write- downs, banks stop paying tens of thousands of employees to handle bad debt, banks save hundreds of millions of dollars on foreclosure costs and write-offs, homes come off the market and prices stabilize.

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Short sales, foreclosures, traditional sales

24 March, 2010 | David Morris | No Comment

Last week the Wall Street Journal ran an article on short sales.  The article is well meaning but I feel is poorly informed.  I have added the article in its complete form below with my notes in brackets:

“Q: I am looking to buy my first home, and it seems like short-sales are priced much lower than regular sales. Are these prices negotiable, or are they the bottom line that lenders will accept?

A:Many lenders negotiate prices for short-sales [The lien holder is NOT the owner and cannot negotiate the price of the home],  in which the seller is offering the home for less than is owed on the mortgage. But traditionally the only way you could find out was to submit a below-list offer and wait—often for many months—for a response. If the bank made a counter-offer, you knew you were in the ballpark; if they didn’t respond at all, you were too low [The author missed the point.  The bank is NOT the seller and does not "counter the buyers offer". The short sale process is first and foremost to confirm that the lien holders will approve of a short sale for the seller.  That in fact the seller is approved to do a short sale.  Then the lien holders negotiate with the seller on terms acceptable to the lien holders/investors on what they will accept.  The lien holders are looking only at the costs of the sale or the HUD-1 settlement sheet]. By then, you may have lost all interest in buying the property.  [Lien holders are looking at what is best for them.  Is a foreclosure more profitable?  Is the offer within acceptable range to approve of a short sale for the investors without the expense and risk of a foreclosure?  It is all about the net.  Lien holders do not respond to offers per se, they respond to the owner of the home and a low offer only creates a barrier whereby the foreclosure route is the best way for the lien holders to go, thus a decline of the short sale.]

The good news is, on April 5, this frustrating system will change at least for some buyers and sellers. That’s when the federal government will begin to provide financial incentives to lenders to do more short sales. The rules also help standardize the process, so your chances of negotiating a distressed property bargain will increase.  [No, in fact we really do not know what to expect but the author is still thinking that a short sale and a foreclosed home are one and the same.  It is my opinion that in fact the author is right in the fact that more "bargain" sales are on the way but not for what is being said.  In reading the new directive it appears that the banks may well use the short sale process to circumvent the expenses of a foreclosure.  Only time will tell on this.  Until a home is foreclosed on the banks do not own the home and the owner is the seller.  Sellers today are finding that to approve of a short sale they must agree to financial terms on some form of loan payment.  That does not happen when a home is foreclosed, though the banks have the legal right to pursue the owner for lost monies, but that is another subject.]

Under the old practices, when a financially-distressed seller brought a potential buyer who was offering less than the amount owed on the loan, the bank would order an appraisal or broker’s price opinion (BPO) and then decide whether the offer was acceptable [Correct, the banks are looking at fair market value, as a buyer looking for a "bargain" this is where they go wrong.  Fair market value is what the home is worth].  Under the new federal rules, banks will order a BPO before the property is listed for sale, and will share information on the minimum net proceeds they’re willing to accept with the sellers. If they then bring in a buyer whose offer is equal to or greater than this pre-approved amount, the lender must accept it within 10 days.  [This is correct, but actually seeing the lenders adhere to such a time line will be interesting to see.  The new process if done correctly (something I have been asking for for two years) would be huge.  By placing a home on the market that can close in a near normal fashion, we can slow down and even stop the falling prices, therefore the question on bargains we hope will also be coming to an end as well.]

Not all sellers are eligible for this program, called Home Affordable Foreclosure Alternatives (HAFA) (for the requirements see Help for America’s Homeowner’s Supplemental Directive 09-09). But since the process is likely to go so much smoother for those who buy and sell under HAFA, I suggest you wait a bit until the program goes into effect and concentrate on finding these “pre-approved” deals.  [Agreed.  In fact, based on what I know now many homes will fall outside of this program.]

Of course, when you do find a property you like, you may not be the only person bidding on it. [The days are long gone where only one buyer bids on a home.  Today any buyer writing a low offer is pretty certain to fail, unless they are trying to buy a home that NO ONE else wants and that is also another story for another time.] To improve your chances of winning, make sure your offer is “clean,” with as few contingencies as possible (though I would never fore go a home inspection). Include tax and credit records, and a mortgage pre-approval letter. If you can afford to pay cash, that will put you in an even stronger bargaining position [This is not different than any offer, at any time, these are in fact standard items that any offer should include].  Still, in your eagerness to win the property, don’t forget that distressed properties often come with added financial burdens. Although under HAFA, the seller is supposed to provide clear title, to protect yourself your, your contract must make it clear that you will not be responsible for any of the seller’s unpaid property taxes, liens or second trusts.  [Here we go again, the author is confusing short sales and foreclosed homes, what she says is true on foreclosed homes but on short sales the home is still owned by the owner and in most states the law says that the owner is still responsible for full disclosures] . Also, cash-strapped homeowners often stop paying taxes and homeowners’ association fees during the time between when the house is listed and the deal is closed. To make sure that you’re not on the hook for these expenses, Leonard P. Baron, professor of finance at San Diego State University, recommends that you ask that the bank escrow at least six months worth of taxes and HOA fees, to cover any potential shortfall.  [We call this clear title and in areas that useescrow and title companies all recorded liens must be paid or the escrow cannot close.  Again the difference here is short sales versus foreclosures.]

 June Fletcher at fletcher.june@gmail.com”

  It went on to explain how to get a good deal and how the new government guidelines will address how short sales need to be handled from April on.  The general ignorance of the article was amazing and the lack of knowledge underscores the gap in understanding.  Later today we are going to post 60 graphs giving a update on what is happening in the Reno & Sparks Markets with the three dominate types of sales, short, foreclosed, traditional.

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