In a major victory for REALTORS®, Governor Brown signed into law today a C.A.R.-sponsored bill, Senate Bill 458, prohibiting a deficiency after a short sale for one-to-four residential units, regardless of whether the lender is a senior or junior lienholder. Effective immediately for transactions closing escrow from this day forward, both senior and junior lienholders cannot require a borrower to owe or pay for a deficiency in a short sale. This law also prohibits any deficiency judgment to be requested or rendered for senior or junior liens after a short sale of one-to-four residential units. Any purported waiver of this rule shall be void and against public policy.

Although a lender cannot require a borrower to pay any additional compensation in exchange for a short sale approval, the new law does not prohibit a borrower from voluntarily offering a monetary contribution to a lender in hopes of obtaining a short sale. A lender is also permitted under the new law to negotiate for a contribution from someone other than the borrower, such as other lenders, agents, relatives, and the like.
Exceptions to the new law include a lender seeking damages for a borrower’s fraud or waste; a borrower that is a corporation, LLC, limited partnership, or political subdivision of the state; a lien secured by a bond as specified; a public utility lien; and additional rules apply if a note is cross-collateralized by more than one property.

Now the real question is, how will the second lien holders negotiate towards a settlement? You should expect that they will increase their demands to close and make the negotiating process that much more challenging. Your thoughts?

You as a struggling homeowner might be thinking, I don’t have or pay mortgage insurance, and you are correct! This is lender paid Mortgage Insurance, and it will be the death of thousands of short sales this year!

Here is an example of what I’m referring too… Let’s say that you purchased a home in 2005 for $500,000 and you did an 80/20 loan ~ financing a total of 100% of the purchase price (an 80% first of $400,000 and a 20% second of $100,000). The benefit of structuring your mortgage in this manner was that you didn’t have to pay for PMI (Private Mortgage Insurance). PMI covers the lender or leverages their risk of loss on a higher loan to value if you as the borrower default. You as a borrower could typically save some money, come out with a lower monthly payment and by financing the entire purchase amount without having the M.I. you had a greater tax deduction.

Moving forward to 2011 – we are just now starting to see borrowers that are in the short sale negotiating phase being asked for very unrealistic contributions, in addition to being asked to sign 5~10 year promissory notes on these 2nd mortgages. In the past we have been able to work around the contributions, and in some cases negotiate the promissory note way down or even have it removed. Right now, that is not the case! PMI, TPI, and other Mortgage Insurance Companies are literally forcing the borrower and the 1st lender into foreclosure, and they are not happy about that.

Here is the behind the scenes challenge right now… The first lenders won’t allow the second lenders to get more than what they are paying them, or in certain cases won’t allow the buyer or borrower to pay then 2nd lender more money as the 1st lender is typically taking a larger loss – and they would then want the money. We are seeing so many sellers that simply don’t have the funds to bring in, can’t sign a promissory note, or in most cases just can’t do that because the first lender won’t allow that – the only alternative is for the seller to then go with a deed in lieu of foreclosure. The deed in lieu sounds a little better than a foreclosure right? Well most of time a deed in lieu of foreclosure is not an option because of marketing time, or because there is a 2nd mortgage on the property or other tax liens, IRS liens, etc.. and If there are, the 1st lender then has to accept financial responsibility for those liens should they accept a deed in lieu… so really the only thing left is the foreclosure.

So the million dollar question really is… How is the Mortgage Insurance Company helping the 2nd lenders secure more money or protect their losses? In most cases the are wiped out in the foreclosure making this a total loss to them, and then the insurance company would then have to write a bigger check to the investor. How is the M.I. company coming out ahead on this? Are they being subsidized? Is there money transferring hands behind the scenes that we are not privy too? Who is looking out for the innocent victim here which is the seller that is a true hardship, the borrower who has done everything right in order to make sure that they minimized damage to their credit, the property, values to the neighborhood, YOUR neighborhood?

This just isn’t right, and I would love to hear your thoughts and opinions on this… all you have to do is leave a comment below.

Something has to change and it has to change quickly!

As the federal government’s flagship mortgage-modification program comes under scrutiny for failing to meet its goal of helping three to four million troubled homeowners, state-level efforts to boost modifications appear to be picking up momentum.

The Treasury reported Monday that the government’s Home Affordable Modification Program, or HAMP, had provided permanent help to 521,630 homeowners since the program began in spring 2009.

By comparison, over the same period, banks negotiating directly with borrowers have made about two million permanent loan modifications outside the government’s program. These modifications continued to rise in recent months even as the number of HAMP modifications trailed off.

The U.S. housing market may take five or six more years to recover, TrimTabs Investment Research warned recently. Madeline Schnapp, director of macroeconomic research at TrimTabs, talks to MarketWatch’s Alistair Barr about what that means for the world’s largest economy.

Critics of HAMP say the program has made little impact on the housing market and should be ended. Last week, House Republicans introduced a bill to end the effort, calling it a “colossal failure.” The administration defends the program.

“I think we’ve got to remember that HAMP has achieved over a half-million modifications. These are people that make $50,000 a year, so to sort of write it off and say, ‘Well, it’s a failure,’ I think is not really appropriate,” said Tim Massad, an acting assistant Treasury secretary, in a hearing on Capitol Hill last week.

Read the full article here...

The Treasury Department has revamped its short sale program by easing income restrictions and documentation requirements for homeowners facing foreclosure. The changes are effective Tuesday, Feb. 1.

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Changes made under Treasury’s Home Affordable Foreclosure Alternative (HAFA) program make incentive payments more attractive for second lien holders and for borrowers completing a short sale, or deed in lieu transaction.

Travis Olsen, chief operating officer at Loan Resolution Corp., expects the changes will lead to a big jump in HAFA enrollment. “A lot more people are going to qualify for the program,” he said. “Elimination of the debt-to-income requirement along with the relaxed non-owner occupancy rule makes it easier for those who do qualify to get their short sale successfully closed.” LRC is a Scottsdale, Ariz., vendor that specializes in short sales.

Delinquent homeowners entering the program only have to prove that they used the house as their primary residence at some point in the last 12 months. Previously, it was the last 90 days. Home owners can qualify for the HAFA short sale program if they have moved across town and the property is vacant or rented to a non-borrower.

Borrowers are entitled to a $3,000 relocation incentive payment when a short sale or DIL is completed. When a deed in lieu transaction is completed, the servicer can make the incentive payment even if the borrower stays as a renter under the HAFA changes.

Servicers will have the option to pay the borrower a relocation incentive either upon a successful surrender of title or when the borrower vacates or re-purchases the property at a future date, according a TARP Inspector General report.

Treasury has retained a $6,000 cap on paying off second lien holders but removed a separate cap on paying more than 6% of the unpaid principal balance.

Olsen noted that second lien holders generally want 10% of the UPB to extinguish a home equity loan. Previously, the HAFA cap limited the payoff to $3,000 on a $50,000 HEL. Now, the servicer can pay the $5,000 to satisfy a 10% demand.

The original article can be found by clicking here…

California home sales rose in December to their highest level since May, according to a report Friday from the California Association of Realtors, as the inventory of unsold homes dwindled.

December’s sales were up 5.9 percent from November’s revised figure of 491,590 but were down 6.8 percent from the revised 558,840 of December 2009.

The unsold inventory index for existing, single-family detached homes was 5 months in December, down from 6.2 months in November but up from 3.8 months in December 2009. The index indicates the number of months needed to deplete the supply of homes on the market at the current sales rate.

Read more: California home sales hit 7-month high in December | Los Angeles Business from bizjournals – Full Story – Click Here…

Bank of America said earlier last month that it was ending its hiatus on foreclosure sales, and promised to get its act together after a series of sloppy home seizures prompted the bank to back off and re-examine its process.

“We have identified areas of our process that can be improved and while we make these improvements, it’s important that we move ahead with efforts to reduce the number of abandoned properties across the country,” said Barbara Desoer, president of Bank of America (BAC, Fortune 500) Home Loans, in a statement. “The properties can drag home values in neighborhoods and slow the eventual recovery of the housing market.”

The bank said it plans to proceed with 16,000 foreclosures this month, though it will observe a “holiday suspension” of sales and evictions from Dec. 20 to Jan. 2. Freddie Mac (FMCC) and Fannie Mae (FNMA) have announced a similar holiday freeze.

The Bank of America action ends the “voluntary freeze” that the bank initiated in October, after a series of messy real estate mistakes. They included the foreclosure of a house that was owned outright by someone who had paid cash, without any mortgage at all, as reported by the Sun Sentinel of Florida.

In another case, the bank shut off the utilities of a Pittsburgh homeowner and seized her pet parrot, despite the fact that she was current on her payments.

“We continue to be committed to ensuring that no property is taken to foreclosure sale until our Bank of America customer is given an opportunity to be evaluated for a modification or, if ineligible for a modification, a short sale or deed in lieu solution,” said Desoer. “Foreclosure is the option of last resort.”

The bank reiterated that “more than 86% of the bank’s home loans are current on their mortgage,” which means that less than 14% of home owners are not current.

The bank also reiterated that “at the point of foreclosure sale, one-third (of the) properties it services are vacant.”

It’s a question many Americans want answered: Will the value of my home rise or fall next year? Smart minds fall in both camps — here are both sides of the coin on real estate.

One of the most closely watched sectors in 2011 will continue to be real estate – a wildly emotional and divisive topic that’s puzzled investors and economists since the housing bubble burst around 2007. Earlier this year, many observers thought the market would turn around in a big way as federal tax credits spurred home purchases and the economy added jobs following hundreds of billions of dollars of government stimulus spending.

As the end of the year approaches, the prospects of a real recovery look much dimmer. For one, it’s become clear that we won’t see a true rebound until we have job growth. With unemployment showing few signs of improvement so far, the bullish take on housing seems hard to swallow, especially when many experts say home prices still have room to fall before hitting bottom.

But a bullish take doesn’t necessarily mean that prices would significantly rise. These are unprecedented times, and even the more cheery views fall short of predicting a steady surge in home values.

Here’s a bullish and bearish look at real estate for 2011.

Bull: Buy real estate!

One of the most vocal bulls on housing for 2011 has been Bill Ackman, founder and CEO of hedge fund Pershing Square Capital Management. At the Value Investing Congress in November, Ackman made a bold presentation called “How To Make A Fortune,” highlighting why it’s the right time to invest in real estate.

Ackman laid out several reasons but some key points include: With the fall in home prices and mortgage rates still relatively low, affordability is at its highest level in decades. What’s more, while there’s clearly still a glut in the supply of unoccupied homes, it will start to decline given that the rate of home construction is at historic lows.

Some of Ackman’s points sound similar to the reasons billionaire investor Warren Buffett gave earlier this year for his prediction that the real estate slump would end by about 2011.

Of course, this doesn’t mean he thinks home prices will return to their 2007 peak. In Buffett’s annual letter to shareholders of his Berkshire Hathaway (BRKA), which owns real-estate brokerage and manufacturer Clayton Homes, he predicted that demand for homes would catch up with supply following a period where the glut of unsold property caused home construction to dramatically fall.

In 2009, housing starts (the supply side) were 554,000 – by far the lowest number in the 50 years for which Berkshire could date. “Paradoxically, this is good news,” Buffett wrote.

And with home prices falling, he said families who couldn’t afford to buy a few years ago would finally be able to afford to do so. Buffett put it this way: “Prices will remain far below ‘bubble’ levels, of course, but for every seller (or lender) hurt by this there will be a buyer who benefits.”

It’s anyone’s guess if Buffett’s position on housing will change much in his letter to shareholders next year. It also remains to be seen if Ackman will continue to trump his “How to Make a Fortune” pitch with the recent rise in mortgage rates. For now, at least, both investors see promise in housing.

Bear: What bottom?

While home prices have for the most part stopped their freefall, some economists believe they haven’t hit bottom yet.

Rick Sharga, a senior vice president at RealtyTrac, an online marketplace for foreclosure properties, recently told The Wall Street Journal that foreclosures for 2011 could top the estimated 1.2 million bank repossessions this year, which reflected an increase of 900,000 from 2009. This is partly due to the so-called “robosigning” mess that forced some lenders to stall a flurry of foreclosures.

While Sharga predicts that home prices nationally could still fall by about 5%, others say they could drop much more at about 10%.

Some might argue that further declines coupled with relatively low mortgage rates might just spur a flurry of home purchases, but Daryl Jones, an analysts at investment research firm Hedgeye says that’s unlikely given that credit standards at virtually all major lenders are much higher and typically require larger down payments that would actually add to costs. Jones also thinks that home prices could fall another 15% to 30%, which means homes are actually still overpriced and might not attract more buyers as Ackman argues.

And while home construction is at all-time lows, Hedgeye says the trend is probably not as promising as Buffett and Ackman might think. The supply of housing is still very high – the firm estimated in November that there’s still 11 months of supply on the market to absorb, which is close to levels seen in 2009.

With so many variables working against the housing market, the bearish takes becomes all the more convincing. But one can always hope they’re wrong.

MORTGAGE rates in 2010 were the lowest in six decades, but a recent and sustained increase may indicate that consumers can expect to pay more in the new year to buy or refinance a home.
Related

After hitting rock bottom in mid-November, fixed rates for 30-year mortgages, the most common type of home loan, have steadily risen.

With this year’s historically low rates, “there is a good chance that we have peaked, give or take a few basis points,” said HSH Associates, an independent publisher of mortgage and consumer loan information, in its most recent trends forecast. (One basis point is 0.01 percent.) According to Christopher J. Mayer, a senior vice dean and a professor of real estate, finance and economics at the Columbia University Business School, “The window of low rates could have left us.”

By Dec. 16, rates for a 30-year fixed loan rose for the fifth consecutive week, to 4.83 percent, up from 4.17 percent on Nov. 11, according to Freddie Mac, the government-controlled buyer of loans. Rates in the Northeast, which are often a tenth of a point or more above the national level, were on average the same as those across the nation. But by Thursday they had nudged downward, to 4.81 percent.

Mortgage rates typically track those of 10-year and 30-year Treasury and other government bonds. Yields, or interest rates, on those notes have been rising amid lender concerns that the White House’s deal with Congress on Dec. 7. to extend the Bush-era tax cuts and the Federal Reserve’s move in early November to buy back $600 billion in debt to stimulate economic growth will combine to fuel inflation and swell the budget deficit.

The 4.17 rate last month was the lowest since Freddie Mac began tracking rates in 1971 — as well as the lowest since World War II, according to Weiss Research, a financial analysis and publishing firm in Jupiter, Fla. The high point last year was 5.21 percent, in April.

So if you took out a 30-year fixed note for $400,000 at the recent 4.83 percent, you are paying $93 less per month than you would have in April — but nearly $157 more than you would have at the 4.17 percent benchmark.

Refinancing or buying a home is still more affordable, compared with the rates of 6 percent to 8 percent over most of this decade. (A table of historical rates is at http://www.freddiemac.com/pmms/pmms30.htm)

The Mortgage Bankers’ Association, a trade group, predicts that 30-year fixed rates will inch up to 5.1 percent by the end of 2011 and reach 5.7 percent in 2012. In a slightly more optimistic prognosis for homeowners or buyers, Frank E. Nothaft, the chief economist of Freddie Mac, wrote in an annual trend forecast on Dec. 6. that “while some rise in fixed-rates is expected, 30-year fixed-rate loans are likely to remain below 5 percent” throughout 2011.

Apart from rates, other factors may make it harder to buy or refinance a property in the coming year. Lenders of all stripes have significantly tightened their requirements and made it tougher than ever to qualify for a loan. And the real estate market is still depressed — only half of 109 housing economists polled in October by MacroMarkets, a financial technology company in Madison, N.J., expect housing prices to begin rising next year.

This year has been a boom time for refinancings — four out of every five single-family loan applications in 2010 was for a refinancing, according to Freddie Mac — and there is more demand yet to come from homeowners next year, Professor Mayer said.

If rates appear headed to rise later in 2011, it may be partly because of jitters about the effects on unemployment on the economy, said John Walsh, the president of Total Mortgage Services in Milford, Conn. Mr. Walsh said he thought the recent increase in rates was temporary. “We may come back down in the next 60 days or so,” he added.

A version of this article appeared in print on December 26, 2010, on page RE9 of the New York edition.

In October 2008 Ashley and Jason Repaal packed up their rental home near Detroit and made the 250-mile trip to East Jordan, a small town in Northwest Michigan where Ms. Repaal was slated to work as a contractor for a news distribution company.

Prior to the move, they found a three-bedroom, two-story house and made an offer for $80,000. The seller accepted and even agreed to let them move in before the sale was final. But just days before the couple was scheduled to close, the bank had second thoughts. The bank learned that Mr. Repaal, 28 years old, had just left his post with the Coast Guard, planning to help with his wife’s business and stay home with couple’s son, Adam, now 4. Until Ms. Repaal, age 24, who is an independent contractor, had two years of work under her belt, the bank said it couldn’t approve the loan.

The Repaals needed a backup plan; their real-estate agent suggested renting the house with an option to buy. The Repaals would pay $750 per month in rent on a two-year lease and put down $8,000 in good faith money–which would be used for their deposit if they closed on the house within two years. “If they walked away they would be out the $8,000 deposit,” says John McNabb, an agent with Coldwell Banker Schmidt Great Lakes who worked with the couple.

Because lease-to-own deals like these are sealed with handshakes and legal contracts, they’re virtually impossible to track. Yet, as the housing downturn wears on the popularity of rent-to-own seems to be growing. Buyers who want to test-drive a house before buying or need extra time to patch up their finances, are asking agents to find sellers willing to entertain such offers. “We’re seeing more requests for them here, and I don’t have any doubt there are parts of the country where they’re happening more,” says Fritzi Barbour, a broker with Coldwell Banker Caine in Greenville, S.C.

These deals are most common in hard-hit markets where foreclosures have driven down home prices and sellers can’t or don’t want to come down anymore on the asking price. “If the house isn’t occupied it’s an opportunity to create some revenue,” says Tony Hettler, a broker with John L. Scott in Des Moines, Wash.

But while sellers seem more likely to consider lease-to-buy arrangements, most won’t advertise that point. Of the 7,293 houses recently listed in the Greenville MLS, for example, only 194 were marked as available for lease purchase.

Lease purchase agreements let you try life behind the picket fence, before you buy. Pictured: a home for sale in Hammond, La.

In fact, many agents are reluctant to recommend any such agreement, as it delays their commission. There are also risks for the homeowners and renter-buyers, says Ms. Barbour, who recommends that each party work with an attorney.

The renter-buyer could back out of the deal. For that reason, it’s important for home sellers to understand the difference between a lease option–where the renter simply has the option to buy down the road–and a lease purchase agreement, which requires that the renter put down anywhere from .5% to 2% of the sale price in earnest money or pay a monthly rent premium with a share of the rent going toward the purchase price. The sale price and timeline are also spelled out in the contract.

If the renter flakes, the homeowner gets to keep the earnest money, some consolation when it’s time to put the house back on the market. That’s assuming the seller can get the renter to move out.

Ms. Barbour recalls a case where would-be buyers relocating from Chicago asked the sellers of a relatively new $200,000 home in Greenville to consider rent-to-own. “The owner was leery but needed some cash-flow against their mortgage,” says Ms. Barbour. Under the terms of the 12-month agreement the buyers paid $5,000 in good faith money and agreed to close on the new home within five days of selling their house in Chicago. Yet, when their home in Chicago came under contract about five months later they said they were opting out of the purchase agreement but would continue to “rent” the home through the duration of their agreement. (Turns out they were building a house on the other side of town.) “The sellers were livid and wanted them to vacate the property immediately,” says Ms. Barbour. But their attorney advised them that the only way to make them leave was to sue–a time-and money-consuming process that offered little gain.

Of course, there are caveats for renter-buyers, too. They may change their mind about the house or may not see their financial situation improve as quickly as planned. Either way, if they don’t buy they’re out earnest money, unless they convince a homeowner to do a lease option with no strings attached. In that case, they need to ask themselves why the homeowner is so desperate to begin with. “You’re probably not getting the cream of the crop of houses,” Ms. Barbour adds.

Another risk: The homeowner stops paying the mortgage. If the homeowner is foreclosed on, buyers still have a claim against them, but will have to get in line behind other creditors.

Obviously, it pays to do some due diligence on the homeowner, says Pierre Debbas, a real estate attorney in New York. At a minimum, ask for proof that they’re current on their mortgage, he says, though depending on the dollars at stake it may also be worth paying for a title search.

Foreclosure was one risk the Repaals didn’t need to worry about. After renting the East Jordan home for a year and a half, the couple qualified for a loan, closed at the end of July and snagged the $8,000 first-time home-buyer credit to boot. And while they had plenty of time to second guess their decision, in the end their original choice turned out to be the right choice. “During that time we looked at a lot of houses around the same price range,” says Ms. Repaal. “The other options just weren’t that great.”

While we still aren’t seeing to many of these in Orange County, this may be a consideration for homeowners that are underwater, that can’t make the full payments… your thoughts? I would love to hear from you. – Jeff

Brace yourself for another rough year in housing: The number of foreclosures is expected by many to increase in 2011 as more troubled mortgages work their way through the pipeline.

Next year could very well be a peak year for foreclosures, says Rick Sharga, a senior vice president at RealtyTrac, an online marketplace for foreclosure properties. The market is expected to tally about 1.2 million bank repossessions in 2010, up from 900,000 in 2009, he says. “We expect we will top both of those numbers in 2011.”

That’s partially due to issues the industry has faced with foreclosure processing that began in the fall and delayed a portion of foreclosures from being completed this year, he says. In the so-called robosigning controversy, some lenders halted foreclosures after learning procedures for signing off on foreclosure documents might not be in accordance with the law.

Continued high unemployment also is expected to exacerbate the foreclosure problem in the year ahead, as will upcoming interest-rate resets on adjustable-rate mortgages that will increase monthly payments for some homeowners, Mr. Sharga says.

In the meantime, data on the volume of loan modifications from the Treasury Department indicate that fewer borrowers were being approved for permanent modifications in recent months, says Greg Hebner, chief executive of MOS Group, a loss-mitigation service provider to mortgage lenders and servicers.

What’s more, there’s a growing feeling that modifying mortgages doesn’t get to the heart of the housing crisis: “There is the perception that the answer to this involves trying to get job growth,” which will help homeowners pay their loans and enable others to buy homes, said Jay Brinkmann, chief economist for the Mortgage Bankers Association, during a recent conference call with reporters.

For the longer term, however, the outlook for the foreclosure market is better since fewer homeowners are becoming delinquent on their mortgage payments. Thirty-day delinquencies are down 11% since the height of the recession in the first part of 2009, according to Mr. Brinkmann.

And loans 60 or more days past due are expected to fall nearly 20% by the end of 2011, to about 5% of all mortgages from an expected 6.2% at the end of 2010, according to a forecast released Tuesday from credit-reporting company TransUnion. Delinquency numbers are expected to continue to improve as unemployment slowly declines. (For its numbers, TransUnion uses a random sample of 27 million records from its database.)

“It’s good progress, but we are by no means out of the woods yet,” says Steve Chaouki, group vice president in TransUnion’s financial-services business unit. In a more normal market, 60-day delinquencies would be in the 1.5% to 2% range, he says.

So how does all this bode for housing prices?

High housing inventory, along with high unemployment, will likely add up to continued depressed home prices in the year ahead in many markets, says Nichole Jordan, banking and securities industry practice leader for Grant Thornton, an accounting and business advisory firm.

“It’s going to take several years to work through the excess inventory,” she says.

Ms. Jordan and others are looking to 2012 for anything resembling a recovery in housing. Even then, it’s going to be a long journey to stabilization; it historically takes five to seven years for prices to stabilize after a deep correction, Ms. Jordan says.

“Realistically, you’re not going to see home prices appreciate next year,” says Jason Kopcak, head of whole loans at financial-services firm Cantor Fitzgerald. In fact, many in the industry are expecting prices to fall another 10% next year on a national basis, he says. RealtyTrac’s Mr. Sharga says the national decline could be around 5%. Other economists are expecting prices to remain flat.

Next year “is going to be a wash, in terms of any meaningful recovery, and we’re looking toward 2012,” said Guy Cecala, publisher of Inside Mortgage Finance, during a conference call with reporters. And that’s assuming there are no other major problems or delays to contend with, he says.

Write to Amy Hoak at amy.hoak@dowjones.com
—Read more at marketwatch.com.