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Short sales soar in California, U.S.

August 19, 2010 By Jeffrey Simons Leave a Comment
Instead of taking over homes through foreclosure and then selling them, many lenders are agreeing to short sales, in which a home is sold for less than the owner owes on the mortgage. (Joe Raedle, Getty Images / July 28, 2010) 104

Real estate deals in which lenders agree to take less for a property than the balance on the mortgage have tripled since 2008, a report says By Tiffany Hsu, Los Angeles Times August 11, 2010

Instead of taking over homes through foreclosure and then selling them, many lenders are agreeing to short sales, in which a home is sold for less than the owner owes on the mortgage. (Joe Raedle, Getty Images / July 28, 2010) 104

Sales of homes for less than the amount of their outstanding mortgage debt have tripled since 2008, particularly in California and the Sunbelt, according to a report released Tuesday.

Known as short sales, the increasingly common transactions for financially troubled homeowners are projected to balloon to 400,000 in 2010, according to Core Logic, a Santa Ana company that provides services to the real estate and mortgage markets. By comparison, existing homes sold at a seasonally adjusted annual rate of 5.37 million units in June, according to the National Assn. of Realtors.

In an economy in which jobs are scarce and a quarter of homeowners owe more on their property than it’s worth, short sales are appealing to investors, banks and owners as a cheaper way out than foreclosure.

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Such sales will likely remain routine as the mortgage industry attempts to stabilize, according to the report from Core Logic.

Through short sales, lenders and struggling homeowners agree the property will be sold at a loss, allowing the seller to escape crushing debt or the stigma of default. But in the process, the sellers watch their credit scores suffer and the funds they invested in down payments and renovations disappear.

And with fluctuating home prices, lenders can be reluctant to approve short sales. The transactions can be a hassle to execute, especially when multiple loans on a home mean a slew of creditors are included in negotiations.

Also, lenders have been burned in some short sales when they agreed to a below-market sale price only to see the property resold later at a significantly higher price.

Still, even though the number of short sales is still relatively small, the increase shows that lenders now view the transactions as “a good compromise between foreclosures and trying to ride out the market,” said Richard K. Green, director of the USC Lusk Center for Real Estate.

The number of transactions has exploded to more than 160,000 in 2009 from roughly 96,000 the year before. More than a quarter of the transactions occur in California, with another quarter split between Arizona, Texas and Florida.

About 4% of short sales are then resold within 18 months, according to Core Logic. The firm studied the short sales of more than 250,000 single-family residences over the last two years.

Short sales, Green said, could actually end up boosting the job market. Unemployed homeowners who can escape underwater mortgages have an easier time moving around, expanding their job search.

“In 2008, it was impossible to do these sales,” he said. “But there’s some regulatory pressure to get stuff off the balance sheet. And lenders are less in denial now, coming to grips with the reality that the economy isn’t going to snap back.”

tiffany.hsu@latimes.com
Copyright © 2010, Los Angeles Times

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Homebuyer credit extension heads to Obama

July 3, 2010 By Jeffrey Simons

An excellent article to clarify the existing tax credit; however please watch the video from CNN Money with Meridith Whitney commenting on the state of affiars of our current real estate market… very well done!

NEW YORK (CNNMoney.com) — First-time homebuyers will have until Sept. 30 to close on their purchases and land an $8,000 tax credit under a bill passed by the Senate late Wednesday.

President Obama is expected to sign the bill, which was overwhelmingly approved by the House on Tuesday. The deadline had been June 30.

The bill doesn’t help anyone currently shopping for a home. Buyers must have signed a contract by April 30 to qualify for the tax break. At issue is when the deal must be finalized.

Qualified existing homeowners also have until Sept. 30 to close on new homes and receive a tax credit of up to $6,500.

Congress has been trying to pass the extension for the last month, but it got caught up in Washington politics. Only when it was separated from a larger jobs bill did deficit-wary lawmakers sign off on it. The extension will lower the deficit by $9 million over a decade since it is offset by certain other provisions.

An estimated 200,000 people have missed out on the tax credit because they wouldn’t have been able to close by the end of business Wednesday. Many are trying to take advantage of short sales, which are complicated deals to complete.

The Senate approved the stand-alone homebuyers tax credit shortly after a failed attempt to advance a bill that combined the credit with an unemployment benefits extension.

Senate Majority Leader Harry Reid, D-Nev., said the chamber will take up the benefits bill again once a replacement for the late Senator Robert Byrd, D-W.Va., is named. – By Tami Luhby, senior writerJuly 1, 2010: 10:54 AM ET

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Want a loan modification? Get your paperwork ready. CNNMoney.com

June 7, 2010 By Jeffrey Simons

Are you or someone you know thinking about getting a loan modification? Read this article first!

Another top notch article from NEW YORK (CNNMoney.com) — Attention delinquent borrowers: If you want to get into the Obama administration’s mortgage modification program, you’d better have your paperwork ready.

New Treasury Department guidelines go into effect on June 1 that will require loan servicers to verify applicants’ income and financial hardship before placing them into trial modifications.
This will make it much tougher to get temporary relief from unaffordable mortgage payments. But if you make it into a trial modification, you’re more likely to get long-term assistance, providing you send in your check on time.

“This will allow people to have more certainty that the modification they want will materialize,” said Suzanne Boas, president of CredAbility, formerly the Consumer Credit Counseling Service of Greater Atlanta.

Of the 1.2 million people who’ve started trial modifications, fewer than 300,000 have received permanent assistance. Another 278,000 have washed out of the program either because they didn’t send in timely payments, hand in the required documents or meet the eligibility criteria.

Paperwork has caused all sorts of problems for the president’s signature foreclosure rescue program. In order to get the effort off the ground quickly, administration officials allowed servicers to place people in trial modifications before verifying that they were indeed eligible for the program.

Originally intended to last three months, the trial period was meant to give troubled borrowers a chance to prove they could make the modified payments and qualify for a so-called permanent modification, which lasts five years.

Instead, many homeowners have been stuck in trial modifications for months and months while they wrestle with servicers over the documentation requirements. The financial institutions say that borrowers aren’t sending in the needed forms; homeowners contend the servicers are losing them.

At Saxon Mortgage Services and JPMorgan Chase (JPM, Fortune 500), for instance, about three of four borrowers in the trial phase have lingered there for at least six months.

A few servicers, however, have been requiring documentation up front all along. And the impact of this practice is evident in the government’s monthly modification report. Firms such as Ocwen Financial (OCN) and HomeEq Servicing have converted 83% of eligible borrowers to permanent modifications. Others that rely on stated income to place people in trials have yet to shift half their participants to long-term adjustments.

Many loans didn’t require much documentation when they were originated, which makes gathering the paperwork during the modification process that much more difficult, said Paul Koches, executive vice president at Ocwen. But doing so helps servicers craft sustainable payment plans.

“It puts us in a better position to determine the specific terms and conditions of the modified loans that will make it more likely that they will stick,” he said.

The pace of people entering trial modifications has already slowed as servicers have started requiring the paperwork in advance. Only 47,160 trials were started in April, down from more than 72,000 in February.

“You have pinging back and forth between borrowers and servicers,” said David Sisko, who heads Deloitte & Touche’s default management practice. “Requiring upfront documentation to really start the clock is a good thing.”

Though the application process takes longer, borrowers understand that they will now have a better ideas of whether they’ll get long-term assistance, said a Chase spokesperson.

Among the documents Chase and other servicers require are hardship affidavits, two recent pay stubs, a bank statement, a tax return, proof of occupancy and a 4506T-EZ form.

“If they make the trial payments, it’s almost certain they’ll get a permanent modification because all the paperwork has been done upfront,” she said.

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If You Don’t Buy a House Now, You’re Stupid or Broke

December 9, 2009 By Jeffrey Simons

A recent article in Business Week caught my eye.  Please take a minute to read the following and let me know your thoughts.

Interest rates are at historic lows but cyclical trends suggest they will soon rise. Home buyers may never see such a chance again, writes Marc Roth

Well, you may not be stupid or broke. Maybe you already have a house and you don’t want to move. Or maybe you’re a Trappist monk and have forsworn all earthly possessions. Or whatever. But if you want to buy a house, now is the time, and if you don’t act soon, you will regret it. Here’s why: historically low interest rates.

As of today, the average 30-year fixed-rate loan with no points or fees is around 5%. That, as the graph above—which you can find on Mortgage-X.com—shows, is the lowest the rate has been in nearly 40 years.

In fact, rates are so well below historic averages that it should make all current and prospective homeowners take notice of this once-in-a-lifetime opportunity.

And it is exactly that, based on what the graph shows us. Let’s look at the point on the far left.

In 1970 the rate was approximately 7.25%. After hovering there for a couple of years, it began a trend upward, landing near 10% in late 1973. It settled at 8.5% to 9% from 1974 to the end of 1976. After the rise to 10%, that probably seemed O.K. to most home buyers.

But they weren’t happy soon thereafter. From 1977 to 1981, a period of only 60 months, the 30-year fixed rate climbed to 18%. As I mentioned in one of my previous articles, my dad was one of those unluckily stuck needing a loan at that time.
Interest Rate Lessons

And when rates started to decline after that, they took a long time to recede to previous levels. They hit 9% for a brief time in 1986 and bounced around 10% to 11% until 1990. For the next 11 years through 2001, the rates slowly ebbed and flowed downward, ranging from 7% to 9%. We’ve since spent the last nine years, until very recently, at 6% to 7%. So you can see why 5% is so remarkable.

So, what can we learn from the historical trends and numbers?

First, rates have far further to move upward than downward; for more than 30 years, 7% was the low and 18% the high. The norm was 9% in the 1970s, 10% in the mid-1980s through the early 1990s, 7% to 8% for much of the 1990s, and 6% only over the last handful of years.

Second, the last time the long-term trends reversed from low to high, it took more than 20 years (1970 to 1992) for the rate to get back to where it was, and 30 years to actually start trending below the 1970 low.

Finally, the most important lesson is to understand the actual financial impact the rate has on the cost of purchasing and paying off a home.

Every quarter-point change in interest rates is equivalent to approximately $6,000 for every $100,000 borrowed over the course of a 30-year fixed. While different in each region, for the sake of simplicity, let’s assume that the average person is putting $40,000 down and borrowing $200,000 to pay the price of a typical home nationwide. Thus, over the course of the life of the loan, each quarter-point move up in interest rates will cost that buyer $12,000.
Loan Costs

Stay with me now. We are at 5%. As you can see by the graph above, as the economy stabilizes, it is reasonable for us to see 30-year fixed rates climb to 6% within the foreseeable future and probably to a range of 7% to 8% when the economy is humming again. If every quarter of a point is worth $12,000 per $200,000 borrowed, then each point is worth almost $50,000.

Let’s put that into perspective. You have a good stable job (yes, unemployment is at 10%, but another way of looking at that figure is that most of us have good stable jobs). You would like to own a $240,000 home. However, even though home prices have steadied, you may be thinking you can get another $5,000 or $10,000 discount if you wait (never mind the $8,500 or $6,500 tax credit due to run out next spring). Or you may be waiting for the news to tell you the economy is “more stable” and it’s safe to get back in the pool. In exchange for what you may think is prudence, you will risk paying $50,000 more per point in interest rate changes between now and the time you decide you are ready to buy. And you are ignoring the fact that according to the Case-Shiller index, home prices in most regions have been trending back up for the last several months.

If you are someone who is looking to buy or upgrade in the $350,000-to-$800,000 home price range, and many people out there are, then you’re borrowing $300,000 to $600,000. At 7%, the $300,000 loan will cost just under $150,000 more over the lifetime, and the $600,000 loan an additional $300,000, if rates move up just 2% before you pull the trigger.

What I’m trying to impress upon everyone is that if you are planning on being a homeowner now and/or in the foreseeable future, or if you are looking to move your family into a bigger home, then pay more attention to the interest rates than the price of the home. If you have a steady job, good credit, and the down payment, then you really are being offered the gift of a lifetime.

So… are you convinced?   What has to happen in order for you to take action right now?   Let me know what you think.

Filed Under: Short Sale Updates, first time home buyers Tagged With: , , , , , , , , , ,

Credit Suisse – December Monthly Survey

December 7, 2009 By Jeffrey Simons
credit_suisse_picture_2

Check out the latest facts and trends from Credit Suisse regarding the Los Angeles/Orange County Real Estate Market… Does this sound familiar to you?

Los Angeles, CA – Attractive Affordability Continues
to Lure Buyers
(4,559 single-family permits in 2008, 21st largest market in the country)

Buyers still in the market following the tax credit extension. Buyer traffic remained
above agents’ expectations in November, as our buyer traffic index inched up to 59 from
57 in October (readings above 50 indicate traffic above expectations). Agents said there
was little change in traffic levels this month after the tax credit was extended early on, as
buyers continued to focus on the affordability created by low prices, low rates and the
credit. One agent noted, “The tax credit extension has put some people back in the market
who thought they couldn’t find what they wanted before. Most of the first-time buyers think
they should get a foreclosure or short sale for less than the asking price, but banks are
being firmer on prices.” Other agents said the extension of the credit also gave buyers
more confidence that they are getting in at or near the bottom of the market, especially as
inventory levels come down, although they do note buyers remain very value focused.
Lower inventories and solid demand lead to sequentially higher prices. Home prices
increased sequentially in November, as our home price index improved to 61 from 52 in
October (readings above 50 indicate higher prices over the past 30 days). Agents said
prices were helped by the strong demand trends, which led to a further drawdown in
inventories. Our home listings index improved to 84 in November from 71 in October, with
readings above 50 indicating lower inventory levels. We’re hopeful that these positive
trends can continue, but remain worried about the growing backlog of foreclosures that
have yet to hit the market.

Comments from real estate agents:
■ “There are too many cash buyers (investors) and real buyers are getting
frustrated.”
■ “Buyers are looking for bargains and trying to take advantage of the tax credit.”
KB Home, Standard Pacific and MDC have the most exposure. Approximately 3% of
sales for Hovnanian, KB Home and Standard Pacific come from L.A., the most among the
large builders.

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WHAT TO EXPECT WHEN BUYING A DISTRESSED PROPERTY

December 5, 2009 By Jeffrey Simons

Being an Informed Buyer Will Reduce the Stress and Surprises of Your Home Search and Purchase

SEARCHING

1) Homes may be listed as Active, but they may have many offers or they may already be Sold.

2) Homes may be a Short Sale, even if it is not clearly identified.

3) Most home features may not be listed, or may not be correct.

4) The home may be in an Association, even if it is not disclosed; there may be Mello-Roos Tax, even if it is not disclosed; the home may be on leased land, even if not disclosed.

MAKING OFFERS

1) There may already be many other offers and the property may sell above the list price.

2) The listing Agent may have dozens of distressed listings in many areas, and they may know little about any particular home or area.

3) A Bank Owned Home may have an Asset Manager handling hundreds of homes, so a response could take from 1 day to 1 week or more.

4) A Short Sale Could take 2 to 5 months to get an approval, and up to 80% will never get approved. Any updates or responses could take weeks to months. After waiting months, the approved price returned by the bank could be much higher than the list price.

ACCEPTED OFFERS

1) Until it closes escrow, even with a signed, accepted offer, the bank or owner can decide not to sell and any money spent by the buyer for inspections, appraisals, etc will not be refunded.

2) The condition of the property is unknown to the owner and the agents. The buyer takes complete responsibility to pay for and conduct as many inspections that they desire, including but not limited to the physical condition, the association, permits, taxes, etc.

3) Most banks will put in their contracts that the home is sold ‘AS IS’, and they will refuse most repair requests that you make after inspection. Many will NOT even do Termite Repairs.

4) Most banks will put into their contracts that if the buyer closes late, the buyer will pay a daily fee for each day late; this could be from $50 to $250 a day or more.

5) The bank will insist on choosing the Title and Escrow Company, these may be slow, overworked and sometimes inexperienced people working on too many files at the same time.

THE ESCROW

1) The escrow experience for most buyers, agents & lenders may be the most frustrating part.

2) Things that normally take hours may take days.

3) Things that normally take days may take weeks.

4) The buyer, agent and lender can call escrow repeatedly, and things may not speed up.

5) The buyer, agent and lender can visit the escrow office, and things may not speed up.

6) The same information may often need to be given to escrow multiple times.

7) We may deal with many people at the escrow company, and they may not be sure of anything.

8) DO NOT plan on a specific closing date, no matter how efficient the lender and agent are, the escrow company may slow things down at every stage and the seller may have a final review.

9) At the end of this slow, frustrating escrow, they will still charge you the full regular escrow fee.

10) Upon Close you may only get 1 key, possibly not a Garage Door Opener, or mail box key & No association key for the pool, etc. You may need to buy keys and change locks.

Most of the escrows will eventually close, so try not to let the system that some banks have put into place to sell their properties dampen your excitement for your new home!

Jeffrey Simons ~ Broker Associate – Prudential California Realty 714.746.8103 Jeff@Jeffreysimons.com

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More good news for consumers… Tax Credit extended!

November 5, 2009 By Jeffrey Simons
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Realegal®

More good news for consumers, our members, and the housing market recovery. Following the Senate’s favorable vote yesterday, the U.S. House of Representatives just voted 403 to 12 to extend the home buyer tax credit, expanding the parameters to include existing homeowners and not just first-time buyers. As you may know, C.A.R. and our partners at NAR have worked for months urging Congress and the Senate to extend and expand this crucial piece of legislation. We expect President Obama to sign the legislation in short order.

As it now stands, the federal tax credit will be extended through April 30, 2010, with a 60-day extension if a binding contract is in place prior to the deadline. First-time home buyers will continue to be eligible for a tax credit of up to $8,000, while existing homeowners will be eligible for a reduced credit of up to $6,500. To qualify for the $6,500 credit, existing homeowners must have lived in their current residences for at least five years. The bill also increases the qualifying income limits from $75,000 for single tax filers and $150,000 for joint filers to $125,000 and $225,000, respectively. The purchase price of the home is capped at $800,000 in both instances.

Under additional provisions included in the bill, taxpayers can claim the credit on purchases completed in 2010 on their 2009 income tax returns. The legislation maintains the provision that home buyers do not have to repay the credit provided the home remains their primary residence for 36 months after purchase, and waives this requirement for active duty military personnel who move due to a military order.

Nationwide, more than 1.4 million first-time home buyers were given the opportunity to become homeowners as a result of the Federal Tax Credit for First-time Home Buyers. We expect that number to increase dramatically in the months ahead with this new legislation in place. Thank you to our members who called, wrote, and e-mailed their congressional representatives and voiced their support for the home buyer tax credit. Your voices were heard – today’s vote is a direct result of OUR actions and involvement.

CALIFORNIA ASSOCIATION OF REALTORS®

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NO NEW 21-DAY TURNAROUND REQUIREMENT FOR SHORT SALE APPROVALS

October 8, 2009 By Jeffrey Simons

Brought to you by the CALIFORNIA ASSOCIATION OF REALTORS®

Realegal®

NO NEW 21-DAY TURNAROUND REQUIREMENT FOR SHORT SALE APPROVALS

Recently enacted Senate Bill 306 does not require lenders to review short sale requests from sellers and their agents within 21 days.  The new California law, which addresses certain escrow procedures, has been mischaracterized by some practitioners as landmark legislation calling for a 21-day turnaround for short sale approvals.

The new law inserts a short payoff amount request into the existing payoff demand law which generally requires a lender to respond to a request for a payoff demand statement within 21 days from when it is requested, typically by escrow.  The new law essentially requires, after a short sale has already been approved, for the lender to respond to a request for a short-pay demand statement within 21 days.  The lender’s response to escrow can be a short-pay demand statement or even, depending on the circumstances, a written statement electing not to proceed with the proposed transaction.

Another provision of SB 306 may also cause confusion.  In practice, a lender may approve a short sale subject to its review of a closing statement prepared by escrow, but the lender does not review that closing statement promptly.  Under the new law, if a lender fails to approve the closing statement within four days, the closing statement shall be deemed approved, but only if it is “not clearly contrary to the terms of the short-pay agreement or the short-pay demand statement provided to the escrowholder.”  The new law does not bind a lender to a short payoff amount in an offer that the lender has not approved.

Senate Bill 306 contains other technical changes in real estate related laws, such as, but not limited to, the following:

  • Expanding the existing requirement for a lender to contact certain borrowers to explore options for avoiding foreclosure at least 30 days before filing a notice of default, to include not only owner-occupied residences, but also owner-occupied residential property with two-to-four dwelling units.
  • Extending the existing requirement for a lender to record a notice of sale from 14 to 20 days before a trustee’s sale.  This provision does not change existing law requiring a lender to wait at least 20 days after mailing a notice of sale before conducting a trustee’s sale.

This new law comes into effect on January 1, 2010.  The full text of Senate Bill 306 is available at http://www.leginfo.ca.gov/pub/09-10/bill/sen/sb_0301-0350/sb_306_bill_20090806_chaptered.pdf.
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Changes coming… Senate Bill 306.

October 1, 2009 By Jeffrey Simons

As you may or may not already know… senate bill 306 was just signed by our govener.  Based on the recent changes this is what you should expect:

Senate Bill 306, signed into law this September, changes some of the rules for California real estate short sales . Much of the excitement around this legislation is a revision to Civil Code section 2943 that provides, when an owner/borrower submits to the lender a “short sale request,” the lender is required to accept or decline it within 21 days.

This excitement overlooks what is required by the statute to trigger the lender’s duty to respond quickly. The statute describes a short sale request as a written request that includes;

A. A copy of an existing contract to purchase the property for an amount certain;

B. A copy of the short-pay agreement in the possession of the entitled person.

C. Information related to the release of any other liens on the property, if
any. Item B, the “short pay agreement,” is further defined as an agreement in writing in which the beneficiary agrees to release its lien on a property in return for payment of an amount less than the secured obligation.

It appears that the procedure is as follows:

1. The prospective seller must first have in hand an agreement with the lender
agreeing, in advance, to a short sale. But there is no deadline for the lender to
provide the agreement, nor discussion of whether the agreement specifies how much the lender will accept. On its face, the statute allows the lender to provide the agreement, but not accept a short sale if it is for less that one dollar below the total owed.

2. The owner/borrower the gets a bona fide purchase offer, and makes a short-pay request.

3. The lender then has 21 days to respond, setting forth whether they accept
the existing offer, or specifying the price and terms they would agree to a short sale.

I’m not sure how this will really benefit the consumer as the only adverse effect to the lender is a minimal fine, and there are challenges as to when the time frames truly begin… If you ever worked with a short sale, they don’t always receive everything you send them, packages get lost or placed in the wrong department, etc… however I’m hopeful that this is a step in the right direction…  your thoughts?

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Loan Modification Attorneys Under Investigation!

September 29, 2009 By Jeffrey Simons
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Brought to you by the CALIFORNIA ASSOCIATION OF REALTORS®

LOAN MODIFICATION ATTORNEYS UNDER INVESTIGATION The State Bar of California has recently launched numerous investigations against attorneys for misconduct related to loan modifications. In a rare move, the State Bar has released the names of 16 attorneys under investigation, by opting to waive investigation confidentiality in favor of public protection. These attorneys have allegedly taken fees for promised services, but failed to perform those services or even communicate with their clients who face the possible loss of their homes. Their non-attorney staff may also be under investigation for unlawfully practicing law.

Not all attorneys engaged in loan modifications are unscrupulous. However, this announcement from the State Bar serves as a good reminder for REALTORS® and their clients to be careful when dealing with attorneys and others for loan modifications. Scam artists may intentionally associate or affiliate themselves with attorneys in an attempt to lend credence to their fraudulent schemes.

The list of attorneys currently under investigation is available at http://calbar.ca.gov/state/calbar/calbar_generic.jsp?cid=10144&n=96395. C.A.R. provides REALTORS

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