What to do with all these foreclosures

So inventory is high with all these foreclosures and, therefore, property values are down.  So what does the government want to do about it?  According to the Wall Street Journal, they have two interesting options to help drive home values up again.

The first scenario is to sell packages of foreclosed properties in batches of hundreds or thousands to investors who would in turn agree to rent them out.  At the end of June, Fannie Mae, Freddie Mac, and the Federal Housing Administration owned about a combined 250,000 homes.  There’s about 830,000 that are still in the foreclosure process that would eventually land in their laps.  

 The second option they’re looking at is to “let investors enter joint ventures with Fannie or Freddie to invest in a pool of converted rental homes. A national property-management business would handle day-to-day landlord responsibilities. Investors would pay for rehabbing and maintaining properties and would share revenue from monthly rental income and the ultimate sale of the property.”  So they basically figure they can rent out the homes in order to keep them from being listed currently and to earn some money back.

Since there’s a lot less buyers today qualifying for loans or even willing to purchase, it’s investors who are picking up some of the inventory.

Both scenarios are interesting propositions.  I worry about the second one since that basically would make the government the landlord.  And that’s just another controlling factor that they shouldn’t be a part of.  And then on top of all the foreclosed homes they’re so slow to deal with already, how are they going to handle late rent payments or problems in the property?  They mention that a national property manager would deal with it, but that’s a huge influx of properties they will need to take over.  So can they really handle it?  I appreciate what they’re trying to do, but I don’t know if this is the best solution.

I’m definitely interested in hearing more about the first scenario, selling foreclosures in bulk.  By offering a package deal, that would also keep a lot of foreclosures off the market. 

I’d love to hear your thoughts on these scenarios and if you have other suggestions for how the government can or should be involved.  Please leave me a comment or visit me online.

 

Blagojevich forced to sell home

Former Illinois Governor Rod Blagojevich has been forced to use his Ravenswood Manor home and his Washington D.C. condo as collateral against a $450,000 bond ordered by a judge.

Lawyers mentioned during the court appearance that the Ravenswood home is for sale, although no listing yet exists on the public market.  It’s possible that the home sale will be kept private, only allowing those qualified to see it.   Guesses are that the home will be listed around $900,000.  Blagojevich purchased the home in 1999 for $505,000.  It was built in the 1920s and has 5 bedrooms, 4 bathrooms, and is 3817 square feet. 

Blagojevich was convicted in June on 17 counts of wire fraud, bribery, attempted extortion, and conspiracy after prosecutors argued he tried to sell Barack Obama’s Senate seat when he won the presidency. 

More information can be found here. Please be sure to visit me online for updated news, articles, and tips!

How the foreclosure process works

A new report from the U.S. Treasury Department shows that Chicago ranks 3rd, behind Los Angeles and New York, of cities whose homeowners needed assistance from the Obama administration’s mortgage assistance program.  These are people who are going through loan modifications to be able to stay in their homes.

While that’s good news for those struggling to make payments, it just proves the amount of people who are still losing their homes to foreclosure on a daily basis.  I thought I’d give a quick overview on the 6 phases of a foreclosure, for those of you who know somebody going through it or might be going through it yourself.  This will give you a full understanding of how the process works.

1. Missing a payment.  This happens after the first missed mortgage payment.  Your lender will usually send a letter or statement indicating that they have not received the payment.  After two payments are missed, you will likely receive a demand letter.  At this point there’s still a good chance the lender will work with you on catching up with payments.

2. Notice of default.  After 3 months without a payment, the loan is transferred to the foreclosure department.  The notice will be recorded that money is owed and you’ll typically receive another 3 months to catch up and to make the payments.  This is known as the reinstatement period.

3. Notice of trustee’s sale.  So now it’s been 180 days, or 6 months, since the first payment was missed.  This gives you an idea of how long the foreclosure process takes from beginning to end.  At this point they’ll advertise the trustee’s sale in the county the home is located in.  You’ll see this notices in your local newspaper that includes the owner’s names, property address, and sale information.  The lender has to publish this information for three weeks prior to the sale date.

4. Trustee’s sale.  This is the actual sale.  The property is sold to the highest bidder who meets all the requirements.  The lender will determine what is a fair opening bid.  If sold at this sale, the home now belongs to that purchaser who can immediately take possession and evict the previous homeowners.

5. Real estate owned.  If the home was not sold at auction, the lender now owns the home.  They’ll most likely put it up for sale with a Realtor.  Most of the time, the current owners are already gone from the home.  Sometimes these homes will be in very poor shape, left that way by the previous owners.  Other times the bank will have paid money to make changes to make the home more attractive to new buyers.  If you’re looking to purchase a home and your Realtor tells you it’s an REO or real estate owned, you will now know what that means.

6. Eviction.  You can usually remain in the home until it’s either sold through the trustee’s sale or as an REO.  Once it’s been sold, the sheriff will come to evict anyone still in the house.  They can remove people and their belongings that are left in the home.  If you’ve left the home on your own and there are belongings still there, once the home is sold, those belongings will most likely get thrown out.  So be aware of that.

If you know that you are going to have trouble making payments, do your best to speak to the lender beforehand to try to work out an arrangement.  It’s worth talking about a temporary or permanent relocation.  There are even companies nowadays that can help speak to the lender on your behalf.  More information can be found in this MSN article. If you have any more questions, please leave me a comment or visit me online.

Government help for those underwater on 2nd mortgage

So now homeowners that are having trouble paying their second mortgage can be eligible for possible modification.  I was a little unsure of this initially, thinking about all the people who are struggling with paying their first mortgage.  I was wondering, “Why are we worried about those with two?”  But it makes sense.  Homeowners who are trying to get modifications on their first mortgages that have two mortgages are the ones having the most trouble.  Many lenders won’t do modifications or take losses on the loans of their first mortgage unless the second lien-holder does, too.  And because second mortgages usually are for a much smaller loan amount, homeowners are able to keep up with those payments. And that’s where this plan coms into play. 

Here’s what the Obama administration is introducing.  It’s called 2MP.  Currently it’s only available to those whose second loan originated on or before January 1, 2009.  Anything originated after that is not currently eligible.  And the first mortgage needs to be modified under the Federal program.  If the lender or lien-holder on the second mortgage is also participating in that program, they have to offer to modify the second mortgage.  They’re required to defer the payment of the same proportion of the principal that was deferred on the first loan.

Right now the program is expected to help about 1.5 million homeowners.  So far Bank of America, Wells Fargo, Citigroup, and JP Morgan Chase participate.  Bank of America recently started sending letters to home equity customers introducing this possible modification.

My concern is that it’s still too difficult to work out.  I understand and appreciate what the government is trying to do.  The banks are taking their sweet time approving these modifications, making it extremely difficult for customers to get them done on their own.  With the amount of time it takes to connect to someone, fill out paperwork, and hear back, it’s almost like a part-time job.  I’ve had clients say they’ve had to submit paperwork multiple times to their lender and still haven’t heard back.  It’s worth it to lower payments if you have the time and perseverance to wait.  It also may be worth it to you to talk to a company that offers to assist with loan modifications on your behalf.

More information on this new program can be found here. And I can be found on my Web site.

Obama’s new plan to prevent foreclosures

As I had written about previously, President Obama is trying to do whatever he can to keep homeowners in their homes.  He’s unveiled a new plan to prevent and lower the amount of foreclosures across the country.  The new plan requires lenders to reduce the mortgage payments for their unemployed borrowers for three to six months.  For those having trouble paying but aren’t unemployed, he’s trying to encourage the same lenders to reduce principal payments if you pay your loan on time each month and are current and stay current.

By beginning this plan, if it could prevent a whole bunch of foreclosures at once, it could delay the dramatic decrease in prices and help to stabilize the housing market a little bit.  This way the lower prices will hit over time.  Some in opposition to this plan use that to say this will just delay the inevitable, that these homes will still go into foreclosure, it’ll just take longer.

But it is a benefit to those who lose their job and don’t want to lose their home.  To qualify, you need to live in the home, have a mortgage of less than $729,750, and receive unemployment benefits.  They’ll have to spend no more than 31% of their monthly income on their mortgage.  This plan will be available over the coming months.

What if you owe more than what your house is worth?  For many, this is when they list the house as a short sale.  Meaning, the lender will agree to sell the house for less than is currently owed on the mortgage.  Obama is trying to help people in this situation keep their homes.  It’s possible they can refinance with FHA-backed loans.

In order to qualify for one of these, you need to have a mortgage payment of $729,750 or less, show that you’re in financial trouble, and spend at least 31% of your pretax income on your monthly mortgage payment.  Lenders then can reduce the mortgage payment by about 10%.  You can’t be in default at all.  You must be current on all of your payments to qualify.   However, this plan is a completely voluntary one.  The lenders do not have to agree to do this. 

Do you think that this is a good idea or that it will just delay the inevitable?  I’d love to hear your thoughts.  Please leave me a comment below or visit me online.  More information on the program can be found here.

Energy conscious homeowners get rewarded

You may all remember the famous Cash for Clunkers program offered by the government last year.  Well, Obama wants to do for homeowners what he did for car owners and that is offer a similar program called Cash for Caulkers.  He’s proposing a bill where homeowners can earn tax credits and receive money back for purchasing energy-efficient appliances.  Up to $12,000 per home!

Congress is currently working on drafting a bill that would be twofold.  First, homeowners would receive reimbursement for energy-efficient equipment and insulation.  Second, the government would reward small businesses and companies.

Included would be appliances such as refrigerators, washing machines, dryers, and even air conditioning, heaters, windows, and insulation.  They’re currently looking at reimbursing homeowners 50% of the purchase price PLUS installation.  So without an income cap, you could spend up to $24,000 to get $12,000 back.  Congress is still working out the kinks as to how the money would get returned.  It’s possible that it would come in the form of a tax credit (there is a current tax credit for energy-efficient appliances already, but not this much) or they might set it up where you can fill out information for a rebate and receive a check.  The government is looking at a cost of about $10 billion to fund this.

They’re trying to model it similar to New York State’s energy efficiency program.  How that program works is homeowner’s contact a contractor who is licensed to perform an energy audit from the State’s Web site of a toll free number.  The contractor arrives to determine how much energy is wasted in that specific home.  It costs the homeowner several hundred dollars.  When the contractor generates a list of what could be replaced, the cost, and how much energy could be saved, the homeowner chooses what he wants done and negotiates a price.  The contractor gets paid directly, submits paperwork to the state, and the homeowner receives about 10% back in the form of a check.

So do you think it is another program that could invite fraud?  Will homeowners take advantage of it?  Is the government wasting $10 billion that could be spent elsewhere?  I’d love to hear your thoughts.  Please leave me a comment or visit me online.

More information on the program can be found here, here, and here.

2010 real estate predictions

I hope everybody had a nice holiday.  I can’t believe that the first decade of the 2000s is already coming to a close.  We definitely had some real estate “ups,” but more recently, some mega “downs.”  I figured this would be the perfect week to talk about some of the predictions for real estate for next year, as well as what some experts predict.

CNBC is predicting a lot more foreclosures than what was previously expected.  They think that homeowners will continue to struggle with mortgage payments and the banks will end up owning the property.  While that can cause a delay in getting approval for a buyer to come in and buy the property, hopefully Obama’s new short sale reform proposal should give us timely responses. 

CNBC also doesn’t think there will be any super low interest rates for borrowers to finance a mortgage.  They’re not thinking they’ll be through the roof, either.  Most likely, they say, they’ll level off around 6%.  This is still reasonably low, considering that in the ’80s the rates were around 20% or higher.

About.com is predicting that home prices will stabilize.  They think that prices will remain steady, with a few cities having some appreciation and some more depreciation, but that prices and the market shouldn’t completely bottom out. 

Similar to CNBC, they think that mortgage refinancing will take a big dip in 2010.  With interest rates on the rise and people losing equity in their homes, it will be hard to make a refinance worthwhile to many homeowners.  However, if you are on an ARM, interest-only loan, or have a rate higher than 6.5%, it’s definitely worth talking to a broker about your refinancing options, especially if your ARM is coming due or you’re not paying any principal on a monthly basis.

Since lenders are requiring better credit scores and are very particular about financing options, it is more likely that move-up buyers will indeed move up.  A lot will stay put when they realize it will be hard to come up with a significant down payment on a new home.  This could clear the inventory out a little, if it’s not bombarded with more and more short sales and foreclosures.

What do you see happening in 2010?  Do you think housing prices will slowly work their way up?  Do you expect Obama’s short sale proposal to come into effect?  I’d love to hear your thoughts.  And if you are thinking about buying, don’t forget that the $8,000 tax credit expires April 30th.  So the first quarter of the year is your best chance to buy.  Please leave me a comment or visit me online.

Have a very safe and Happy New Year.  See you in 2010!!

Government proposal to help with short sales

If you’ve been a buyer looking to purchase a home and put an offer in on a short sale, you know that the paperwork and the wait times can be excruciating.  I’ve seen cases where buyers have had to wait months – as many as 6 – to hear from the lender about whether the short sale has been approved.  The Obama administration is working on a new proposal that would help streamline the short sale process and hopes to roll it out over the next few months.

As a reminder, a short sale is when the lender is willing to accept a less amount of money for the property than what is currently owed.  The lender needs to determine if they will make more money this way than if the home went into foreclosure by the homeowner no longer making payments and then being able to resell it.  This is what can lead to extremely long wait times. 

So what the government is proposing is quicker turnaround times.  They haven’t named a figure yet, but hopefully it will be a maximum of X number of days to get a response from the lender.  They’re also proposing uniform documents required by everyone.  No more specific paperwork for each lender that makes each short sale request different.  They’re proposing to pre-approved short sale terms.  This has the potential to mean that it will be accepted no matter what if it meets a certain percentage back to the lender or if the buyer has a certain amount of financing covered.  That’s still up in the air.

The proposal also includes financial incentives for everyone who takes part.  This includes $1,500 back to the homeowners to help out with relocation costs and having to move.  So a benefit to having to short sale your house will help a lot of people out.  Especially if they need to rent right away and don’t have any money at their fingertips.

Mortgage servicers would earn $1,000.  Investors purchasing the home would get $1,000.  That can help with a lot of remodeling costs, if they’re needed.  Even real estate agents wouldn’t be forced to cut their commission if the bank asked them to.  We’re still waiting to see all the details related to the plan, but the news seems positive thus far.  A streamlined process and money for all involved … what’s the negative?

I’d love to hear your thoughts on this.  Please leave me a comment or visit me online.  More info can be found here.

Tax credit extended and expanded

Just last week I blogged about how the first time buyer tax credit was set to expire on November 30, 2009.  Well, a lot has happened in the past week.  Earlier in the week the House of Representatives passed an extension.  And Barack Obama signed it into law early on Friday. 

The extension now runs through June.  In order to take advantage of the tax credit up to $8,000, you will need to sign a contract by April 30, 2010 and close by June 30, 2010.  Just be careful.  If you are signing a contract to purchase a home that is going through a short sale, please beware.  A lot of banks can take longer than 60 days to approve a short sale or that closing.  So you’ll need to get everything signed prior to April 30.  April 30 is the last day you can have a contract signed and June 30 is the last possible day to close to take advantage.

8000-tax-creditAgain, how the credit works is this.  If you purchase a home for $80,000 or more, you are eligible for an $8,000 tax credit on your 2009 taxes.  Remember, you file 2009 taxes in 2010.  If it’s a home for less than $80,000, you can get a credit for up to 10% of the purchase price.  If the home is $59,000, you will receive $5,900.

Obama also extended the income limits of who is eligible.  Single buyers can now earn up to $125,000 per year in income and married couples up to $225,000 to be able to receive it.  If your income level is above those amounts, you are not eligible to receive the credit.

Obama also extended the credit to move-up buyers, not just first time buyers.  In order to qualify for this $6,500 credit, you must have owned and occupied a principal residence for at least 5 of the last 8 years.  So many more people will qualify under the new rules.  Congress and the President are hoping the economy will get stimulated a bit by this expansion.

Originally, Congress was hoping that this tax credit would start a domino-like reaction.  First time buyers would purchase homes from sellers who would then choose to purchase homes and so on.  Unfortunately, a lot of buyers turned to vacant/foreclosed/short sales, so these homes didn’t have sellers who needed to move up.  But they’re hoping that offering a tax credit to move-up buyers will start this domino effect again.

More information on the expansion can be found in this article. I also have lots of great info on my Web site.

What your congressman can do for you

If you’re having trouble communicating with your lender or bank for a refinance on your mortgage, you might have better luck with your congressman.  According to a USA Today article some congressmen are contacting banks on behalf of the homeowners in their districts.  They’re trying to negotiate on behalf of the homeowners who aren’t having luck on their own.  However, they’re most likely not getting special treatment either.

capitol_hill-751680Representative Maxine Waters is one of the representatives in California representing Los Angeles.  She says that it’s been extremely frustrating.  She’s had long hold times and been transferred back and forth between departments until she can speak to someone.  “Trying to contact the servicers is an absolute nightmare for anyone,” even a member of Congress, she said.  In two instances, she couldn’t get anywhere until she spoke to the CEO of Bank of America and Wells Fargo.  Then, they were able to help.

But what about the homeowners who wouldn’t get put through to the CEOs no matter what?  How is that fair for the rest of us?  She, like some other liberal Democrats, are hoping that the banks will absorb a lot of these losses to keep people in their homes.  However, some conservative Democrats and Republicans don’t like this approach.  The article states, “Forcing the industry to take even bigger hits could further clog credit lines or drive up interest rates for other customers. Last month, Republicans and conservative Democrats defeated a proposal by Sen. Dick Durbin, D-Ill., that would have given judges the power to lower mortgage payments for people declaring bankruptcy. President Obama had once promised to help push the measure through Congress but backed off after banks warned that it would devastate the industry.”

So we’re stuck between a rock and a hard place.  Keep more people in their homes but hurt the banking industry and the credit industry, forcing credit lines to be cut or taken away, or have more people lose their homes because of an inability to pay.  So what can we do?  Work harder to negotiate with the banks.  Don’t give up after you’re told no the first time.  Wait patiently and try to modify your loan.  See if talking to your congressman will help.  The House of Representatives’ rules does caution against getting involved in private disputes but doesn’t prohibit the representatives from doing so.

What do you think?  Is it worth it to get your congressman involved?  Leave me a comment or visit me online.