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  1. California Association of Realtors Encourages Cooperation on Short Sales

    By on March 10, 2011

    Two days ago, I wrote about California short sales after a report emerged that said that 43% of short sales under contract in that state end up falling through.  A short sale is when an underwater homeowner sells their house for less than is owed on the mortgage.  When the sale is completed, the lender forgives the difference between the loan amount and the sale amount (taxes may be due on the forgiven debt).  In order to do this, the seller needs to get permission from lenders and servicers, and the process is often long and frustrating.  It is the length of the process as well as the difficulty in procuring lender cooperation that causes many of these sales to fall through.

    This morning, the Beth Peerce, the President of the California Association of Realtors published an open letter underlining the importance of short sales in the California market, and asking for increased cooperation in conducting short sales:

    “Unfortunately, many homeowners are unable to successfully negotiate a short sale.  According to a recent survey of 2,150 California REALTORS® who have assisted clients with a short sale, only three out of five transactions closed – even when there was an interested and qualified buyer.

    What’s the problem?  For one, no two mortgage agreements are the same, so it can be difficult to standardize short sale processes and procedures.  Many homeowners have second mortgages, which further complicate matters.  Then there’s the challenge of convincing multiple parties to take a financial loss or, in the case of loan servicers, to forego fees they otherwise might earn during the course of the foreclosure process.  Poor and slow service by many banks and servicers has only exacerbated the problem.  Horror stories abound from potential homebuyers and REALTORS® forced to wait 90 or more days for a response to a purchase offer or being required to fax short sale applications or other paperwork as many as 50 times.   These delays discourage potential homebuyers from considering a short sale purchase and undermine the process for those who short sales are intended to benefit – the hundreds of thousands of families facing foreclosure.”
    As the letter says, 640,000 Californians have lost their homes to foreclosure in the past three years, and more than a third of Californians are underwater on their mortgages, so the foreclosure problem in California will not subside anytime soon.  Encouraging short sales makes a lot of sense and would help liquidate some of the excess inventory in the state.
    Category: Mortgage Rates

  2. Short Sales Failing in California

    By on March 8, 2011

    Jonathan Lansner writes a really good column/blog in the Orange County Register (Lanser on Real Estate) that never fails to provide insight into the California real estate market.  He has a post this morning about the state of short sales in California that I thought was pretty interesting.

    According to the article:

    “California real estate agents say that lenders are unresponsive to efforts to sell under-water homes, killing four out of every 10 “short sale” transactions that go under contract, a state survey shows.”

    A short sale is when a homeowner with negative home equity is allowed to sell their house for less than what they owe on the mortgage.  The remainder of the debt is then forgiven by the lender.  So for instance, a homeowner may owe $400,000 on a home that is now only worth $300,000.  With the permission of the lender, the homeowner may be able to arrange a sale for $300,000, and the lender forgives the remaining $100,000 that is owed on the mortgage (n.b. sometimes taxes may be owed on the forgiven debt).  This can be beneficial to the lender because they often stand to take a larger loss in a foreclosure than a short sale. It is beneficial to the homeowner because it allows them to get out from under the mortgage.  Short sales generally hurt the credit of the borrower less than if the house was foreclosed.  These types of sales are particularly prevalent in markets such as California, Nevada, Arizona, Michigan, and Florida, all of which were hit particularly hard by the housing bubble.

    Continue Reading…

    Category: Mortgage Rates

  3. 400,000 Short Sales Could Occur in U.S. in 2010

    2 By on September 27, 2010

    There was an excellent article in this Sunday’s Washington Post by Dina ElBoghdady and Dan Keating about the rapid growth of short sales in 2010.  A short sale occurs when a lender allows an underwater homeowner to sell their house for less money than they owe on the mortgage.  I highly recommend reading the article which contains plenty of good information.

    According to the article, short sales have tripled since 2008.  Fannie Mae has allowed three times as many short sales in 2010 than it allowed in 2007 and 2008 combined.  We are currently on pace to see 400,000 short sales this year.  The increase in short sales can be attributed to a variety of factors (and obviously the bad economy), but chief among them is the failure of loan modification programs such as HAMP and HARP.

    Short sales have a variety of benefits for both lenders and borrowers.  For borrowers, short sales are less harmful to credit scores than foreclosures are.  For lenders short sales are less costly than foreclosures.

    Continue Reading…

    Category: Mortgage Rates

  4. Failed Home Sales in 2009 to Lead to Home Price Declines in 2010?

    By on August 16, 2010

    There is a good article by Nick Timiraos in the Wall Steet Journal today which says that almost half of the attempts to sell a home in 2009 actually resulted in sale.  The data comes courtesy of Redfin Corporation.  A survey of 500,000 homes for sale across the country showed that only 47 percent of the homes sold.

    From the article:

    “There’s just such a standoff in the market between sellers and buyers, both with unrealistic expectations, and a lot of heartbreak and wasted effort,” said Glenn Kelman, Redfin’s chief executive.  He said that buyers’ complaints of overpriced or stale listings had prompted the number crunching, which looked at properties in the counties that include Chicago, Atlanta, Seattle, Los Angeles, San Francisco, Phoenix, and Boston.”

    There are a myriad of reasons houses are not selling, most of them relating to price.  Many homeowners are underwater (owe more on their mortgage than the value of their home) or are very close to underwater, and are unable to drop the price of their home to make it competitive with the distressed/foreclosed homes on the market.

    Furthermore, it takes a very long time to conduct a short-sale (when the home is sold for less than is owed on the mortgage).  The lender has to approve a short sale, and that often takes months because of the substantial backlog of people trying to do short sales.

    So what is the takeaway from this article?  I would say that it sets the stage for further declines in home values in the coming months.  While prices have been buoyed somewhat over the last several months due to the first time home buyer tax credit, that boost appears to have ended.  Mortgage purchase applications have collapsed (despite record low mortgage rates) since the expiration of the tax credit.

    According to Moody’s, home prices could decline by as much as 20 percent if the economy goes into a double dip recession.  This seems extreme to me, but I suppose it is entirely possible that this will happen in some markets in the event of a continuing economic slowdown.

    Did you try to sell your house in 2009?  How long did it take, and did you get the price you wanted?  Did you attempt to buy a home in 2009?  Let us know about your experience in the comments section below.

    Category: Mortgage Rates

  5. FHA to Unveil Short Refinance Program

    By on August 6, 2010

    It appears that the FHA is closer to announcing a new FHA Short Refinance Program that would help borrowers who are underwater on their mortgages to refinance.  According to a story on Housing Wire today, HUD secretary Shaun Donovan addressed the National Association of Real Estate Brokers this week, and said the agency would soon be implementing such a program.

    Per the article, the FHA has insured 30 percent of purchase mortgages and 20 percent of refinance mortgages in the last 18 months.  This is obviously a huge chunk of the market, and makes the FHA especially susceptible to foreclosures caused by price declines.  FHA is the main avenue for first time home owners and those without much money for a down payment to get a mortgage.

    There are no specifics as to how this new program would work, and how this program would differ from (and be more effective than) the Home Affordable Refinance Program (HARP) which was designed to serve a similar purpose.  We will have to wait for the official statement from HUD to learn more.  Donovan promised it would be coming soon.

    Donovan was quoted in the article as saying “By lowering the barriers to principal write-down, the vast majority of the burden of writing down these loans will fall where it belongs: on lenders and investors, not on the taxpayer”. This is a refreshing statement from the government, as it would be nice to see some of the costs of the recession be laid at the feet of those institutions who took risks and effectively passed them off to taxpayers when they went bad.  We will see if they actually mean it or not.

    There had been some rumblings in the blogosphere that there would be some sort of “August Surprise” from the government, some sort of mass refinancing of Freddie and Fannie borrowers.  The idea was dismissed by the Obama Administration, and the efficacy of such an idea was blowed up by Calculated Risk’s Tom Lawler here (the post is a case study in how to take apart an argument, I recommend checking it out).

    What do you think about this plan?  Does it make sense to do something like this, or are we pushing the rock up the hill only to watch it roll back down?  Let me know in the comments section below.

    Category: Mortgage Rates

  6. HAFA Causes Cancellations of California Foreclosures

    1 By on July 20, 2010

    There was a pretty interesting article last week in REO Insider by Jon Prior that discussed the effect that Home Affordable Foreclosures Alternatives (HAFA) program is having on the foreclosure market in California.

    It seems that an increasing number of foreclosures in California are being cancelled, and the reasons for this spate of cancellations can be attributed largely to programs such as HAFA, which is intended to encourage lenders to allow short sales as opposed to foreclosures.

    HAFA encourages short sales by providing cash incentives to lenders who allow short sales, especially those who hold subordinate mortgages, which can effectively cause the short sale process to grind to a halt.

    According to the article, 22,000 foreclosures sales were cancelled in June in California alone.  Many of these cancellations can be attributed to a rise in short sales.  In southern California alone short sales are up nearly 75 percent in 2010.  It appears that many lenders would prefer a short sale to a foreclosure, especially once the HAFA incentives are taken into consideration.

    It remains to be seen whether this trend will continue, or if this is some sort of temporary aberration, but this could be evidence that the HAFA program is having a net positive effect in some places, which is more than we can say for other foreclosure prevention initiatives.

    Category: General

  7. Short Sales Skyrocket in Southern California

    2 By on July 7, 2010

    Some pretty stunning numbers about the Southern California housing market yesterday, courtesy of Jonathan Lansner and Jeff Collins of the Orange County Register.  Short sale transactions are up 74 percent in Southern California this year (Orange, Riverside, San Bernadino, and Los Angeles counties).

    While short sales tend to hurt property values*, increased short sales are likely a good development for an area like Southern California that saw a massive inflation in housing prices during the bubble years.  The increase in short sales serves several constructive purposes:

    • It removes housing inventory from the market, which is a key to some sort housing recovery.
    • It allows underwater home owners to shed onerous debt on houses which will take years to get back to their peak values, if they ever do.
    • The decrease in prices allows many of those who were priced out of the market in the mid-2000s the opportunity to purchase a home.

    *The most recent Case-Shiller home price index showed that the Los Angeles and San Diego markets both had 0.7 percent increases in home prices from March to April 2010.  Much of this could be due to the California Home Buyer Tax Credit goosing demand for homes.

    According to the article, there have been nearly 13,000 short sales in Southern California in the first half of 2010. As the Home Affordable Foreclosure Alternatives (HAFA) program ramps up, we can probably expect to see increased numbers of short sales across the country.  HAFA is a government program that is designed to encourage short sales.

    The high amount of short sales leads one to question if it makes more sense for a bank to accept less money than it is owed on a mortgage in a short sale versus negotiating a principle write-down with severely underwater homeowners in order to keep them in their homes.  Either way the lender is taking a loss.  What do you think about the increase in short sales?  Let us know in the comments section.

    Total mortgage is a licensed mortgage broker and lender in California.  Our California mortgage rates are among the best in the industry.

    Category: General

  8. Short Sales, Foreclosures, Attractive to Foreign Investors and House Flippers

    1 By on April 1, 2010

    mortgage-rates-10While the pace of foreclosures dropped last month, there is still a massive supply of distressed and foreclosed properties that are on the market or are due to hit the market soon.  While it is unclear exactly how many such properties exist, most agree that the number is staggering.  Although new housing starts are down, it will still take some time for the excess supply to be absorbed.  Only when the supply is reduced will the housing market truly rebound. Trends show that two unexpected groups are among those stepping into the breach to purchase these properties: foreign investors and home flippers, taking advantage of bargain prices and low mortgage rates.

    Take for instance the California housing market which was one of the hardest hit by the housing bubble.  Prices rose exponentially in the mid-2000s, only to collapse when the growth became unsustainable.  In 2009 foreclosure sales made up 50% of all homes sold in California.  Although housing prices in California rose in the last Case-Shiller house price report, they are still far below peak levels.  In California there has been a noticeable increase in the number of properties purchased by foreigners, primarily from China and India.

    China is experiencing a housing bubble of its own. Home prices in Shanghai, Beijing, and most other Chinese cities have gone sky-high, fueled by demand and double digit economic growth. As the Chinese middle class becomes more affluent, buying a house at a bargain price in The United States becomes more feasible, and especially makes sense for parents who are looking to house their children who are attending college in the United States. The number of foreign-born students at American universities is increasing.  Nearly 700,000 students at American colleges were foreign, up 8% from last year.  These students and their families make up a large number of foreign investors in American real estate.  There has also been an influx of European and Middle Eastern investors purchasing homes in undervalued East Coast markets such as Florida and the Carolinas, either as an investment or a vacation property.

    In addition to foreign investors, the number of people who are flipping houses has also increased dramatically. As property values across the country have collapsed, many houses have actually become undervalued.  Investors are purchasing bargain properties and either renting them out or renovating them and selling them at a profit.  While house flippers helped to drive the speculative housing bubble in the later half of the last decade, these flippers are benefiting the market by purchasing these distressed properties.

    The increasing number of people investing in the housing market is a promising sign of confidence in the viability of the real estate market.  While there are still many hurdles (such as unemployment) for the housing market to clear, recent developments are more and more positive.

    What do you think about the opportunities presented by market conditions? Join the discussion below.

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    Category: Mortgage Rates

  9. HAFA Provides Foreclosure Alternatives

    By on March 8, 2010

    foreclosure-alternative

    Like a stone thrown into a pond, the subprime mortgage crisis has caused ripples that have effected almost every sector of the U.S. economy. Many homeowners now owe more on their mortgage than their home is worth. As many as five million borrowers are delinquent on their mortgages. The one-two punch of declining home values and staggering unemployment has caused the foreclosure rate to skyrocket, further depressing home values and creating a vortex that threatens to suck down the inchoate economic recovery.

    The Obama Administration has a plan to solve this problem. Starting in April, the government will begin the Home Affordable Foreclosure Alternatives (HAFA) program. The program will provide incentives to borrowers and lien-holders to encourage short sales and debt forgiveness so that the economy can fully recover.  HAFA will allow those who cannot keep their house under the Home Affordable Refinance Program (HAMP) to more easily pursue a short sale and avoid foreclosure.

    A short sale is when a house which is underwater, and generally at risk of foreclosure, is sold for less than the remaining amount on its mortgage. The lender then forgives the remaining debt and the former homeowner can start anew.  Frequently this process is stymied by a second mortgage holder on a home. Rep. Barney Frank, Chairman of the House Financial Services Committee recently sent a letter to four of the largest American banks stating that “second-lien mortgages are now a principal obstacle to many modifications, and that the problem has reached a critical stage and requires immediate attention. Frank also explained that many of the second liens have no real value, as the first liens are underwater, and the chances for any return on the second lien is negligible. The majority of second lien holders are banks.

    There are two main reasons banks are reluctant to write off second mortgages.  The first is that writing them off en masse would be hugely detrimental to their capital and bottom line. The second is that while foreclosure eliminates the first lien on a home, the borrower may still be obligated to pay off the second mortgage debt. If the borrower is broke, banks usually do not bother to pursue the debt but they retain the option to do so.

    Under HAFA, holders of second-lien mortgages would receive up to 3% of the unpaid loan balance, up to a maximum of $3,000, for giving up all claims in the event of a short sale. Additionally, the borrower would get $1500 for relocation assistance, and servicers would get $1000 to cover administrative and processing costs, and first lien holders would get $1000 for allowing $3000 in short sale proceeds to be paid to subordinate lien holders. These subordinate lien holders must agree not to pursue deficiency judgments. Borrowers would be fully released from future liability for mortgage debt.

    There are several benefits to these short sales. The investors that own home loans generally get more money out of a short sale than in the case of foreclosure. Foreclosed houses are often in poor condition which hurts the value of the house as well as that of the surrounding properties. Borrowers who participate in a short sale have less damage to their credit rating than in a foreclosure and are relieved of their debt burden.  Lastly communities avoid the blight of foreclosed and abandoned homes.

    A solution to the foreclosure problem would be a major step in the healing of our economy and helpful to all homeowners, underwater or not. For help with all your mortgage needs contact our experts at 877-868-2503.

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    Category: General, Stimulus

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