San Diego Short Sale and Foreclosed Homes

 
 

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WASHINGTON — The government launched a new effort Monday to speed up the time-consuming, often-frustrating process of selling your home if you owe more than it's worth.

The Obama administration will give $3,000 for moving expenses to homeowners who complete such a sale — known as a short sale — or agree to turn over the deed of the property to the lender. It's designed for homeowners who are in financial trouble but don't qualify for the administration's $75 billion mortgage modification program.

Owners will still lose their homes, but a short sale or deed in lieu of foreclosure doesn't hurt a borrower's credit score for as much time as a foreclosure.

For lenders, a home usually fetches more money in a short sale than a foreclosure. And the bank avoids expensive legal bills, cleanup fees and maintenance costs that follow a foreclosure.

"It's very traumatic and embarrassing and frustrating to go through a foreclosure," said Laurie Maggiano, policy director of the Treasury Department's homeownership preservation office. With a short sale, she said, "your financial issues are your own problem and not neighborhood conversation."

Falling home prices and lost jobs have forced many sellers into this position. For example, in Orange County short sales made up about 26 percent of the market in March, compared with 17 percent a year earlier, according to data complied by Altera Real Estate, a local brokerage.

AdvertisementIn the Minneapolis-St. Paul metro area, about 12 percent of all deals since October were short sales, up from about 8 percent a year earlier, according to the Minneapolis Area Association of Realtors.

The expanded incentives will help accelerate short sales, said Mark Zandi, chief economist at Moody's Analytics. He expects 350,000 homeowners nationwide to use the program through the end of 2012, more than double his earlier forecast.

A short sale appears to be the only way out for Brandee Chambers, 36, of Las Vegas. She got into trouble during the housing boom by taking out a risky loan against her home and using the money to buy two investment properties in Phoenix.

She later lost those two properties to foreclosure, and now she is trying to sell the home she lives in for $209,000, but the mortgage balance is $350,000.

Chambers, who owns two hair salons, says she would rather stay in her home, where she lives with her 14-year-old son. But she had no luck getting help with her loan. She said she's resigned to scaling back her lifestyle and renting out an apartment.

"I've had to accept a lot in the last year," she says.

For buyers, though, short sales can be a great opportunity.

Marco Cappelli, 49, a winemaker from Northern California, is planning to buy a short sale this month in the Sierra Nevada foothills. He and his wife are paying $214,000 for a property that had been listed at $270,000. The pair plan to fix it up, install a hot tub and rent it out to vacationers.

Along with the financial incentives, the new government program makes another key change. Mortgage companies will have to set their minimum bid before the house is listed for sale. If the offer is above that, the lender must accept it.

That's a big change from current practice. Lenders generally don't calculate how much money they are willing to accept on a short sale until they have an offer in hand, causing long delays before the sale is approved.

The new program "will give us a degree of efficiency that we have not had in the past," said Matt Vernon, Bank of America's executive in charge of short sales and foreclosed properties.

Under the new process, buyers who submit an offer to purchase a home in a short sale should get a response within two weeks, as opposed to months. If that happens as planned, it would be a big improvement. Real estate agents across the country have complained that lenders are often difficult to reach, sometimes only communicating by e-mail and infrequently at that.

"You're one of 400 properties on a screen," said Dave Bauer, a real estate agent in Danville.

Some real estate agents who specialize in short sales are optimistic. "It could be the first government program that actually helps Las Vegas," said Steve Hawks, a real estate agent there who specializes in short sales. Most borrowers in Las Vegas, he said, owe so much more on their mortgages than their properties are worth they can't qualify for a loan modification.

The Treasury Department outlined the plan in November, but doubled the original $1,500 in relocation money after realizing that many homeowners need more cash to move out. That's because landlords usually want large deposits from people whose credit records have gone sour after missing mortgage payments.

However, there are plenty of restrictions. To qualify, the home needs to be a borrower's primary residence. Homeowners either have to be behind on their mortgages or on the verge of becoming delinquent.

Currently, the program is not available for mortgages owned or guaranteed by mortgage finance companies Fannie Mae and Freddie Mac, though the two government-controlled companies will soon follow suit, said the Treasury's Maggiano.

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A new study by First American CoreLogic finds that it could take until late 2015 or early 2016 for the typical underwater borrower to have positive home equity, and that homeowners in some of the nation’s hardest hit markets, such as Detroit, could be underwater until as late as 2020.

First American CoreLogicClick to enlargeSo-called “underwater” homeowners who owe more than their homes are worth could be holding their breath for much of the next decade.

Of the 10 markets examined in the report, Atlanta, Dallas and Washington, D.C., are the first markets to return underwater homeowners back to positive equity in 2015, followed by Boston and California’s Inland Empire one year later. Pittsburgh, Las Vegas, Fort Myers, Fla., and Lancaster, Pa., aren’t projected to return to positive equity until 2019.

The study notes that even markets where fewer borrowers have negative equity could take a long time to recover “because the few borrowers that are upside down are deeply in negative equity and these are typically not high appreciation markets.”

The research, of course, makes certain assumptions about long-term home prices and how quickly borrowers will pay off their loans. As a baseline, the research uses market-specific forecasts for short-term growth, an annual 3% increase in long-term prices, and average loan balances that decrease through amortization at an annual rate of 3.3%.

Under best-case and worst-case scenarios, which use annual home-price appreciation of 5% and 1.5%, respectively, positive equity begins to return in 2013 and 2017.

The findings show just how paralyzing the negative equity problem could become for the economy over the next few years, as more homeowners are trapped in homes that they can’t sell or refinance. Certainly, delinquencies should slow down once jobs begin to return, and once home prices stabilize, fewer borrowers will be incented to walk away from homes when they can still afford to pay. But the long after-effects of negative equity is one reason that some housing analysts are worried about housing markets taking many years to return to normal.

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So-called “underwater” homeowners who owe more than their homes are worth could be holding their breath for much of the next decade.

A new study by First American CoreLogic finds that it could take until late 2015 or early 2016 for the typical underwater borrower to have positive home equity, and that homeowners in some of the nation’s hardest hit markets, such as Detroit, could be underwater until as late as 2020.

Of the 10 markets examined in the report, Atlanta, Dallas and Washington, D.C., are the first markets to return underwater homeowners back to positive equity in 2015, followed by Boston and California’s Inland Empire one year later. Pittsburgh, Las Vegas, Fort Myers, Fla., and Lancaster, Pa., aren’t projected to return to positive equity until 2019.

The study notes that even markets where fewer borrowers have negative equity could take a long time to recover “because the few borrowers that are upside down are deeply in negative equity and these are typically not high appreciation markets.”

The research, of course, makes certain assumptions about long-term home prices and how quickly borrowers will pay off their loans. As a baseline, the research uses market-specific forecasts for short-term growth, an annual 3% increase in long-term prices, and average loan balances that decrease through amortization at an annual rate of 3.3%.

Under best-case and worst-case scenarios, which use annual home-price appreciation of 5% and 1.5%, respectively, positive equity begins to return in 2013 and 2017.

The findings show just how paralyzing the negative equity problem could become for the economy over the next few years, as more homeowners are trapped in homes that they can’t sell or refinance. Certainly, delinquencies should slow down once jobs begin to return, and once home prices stabilize, fewer borrowers will be incented to walk away from homes when they can still afford to pay. But the long after-effects of negative equity is one reason that some housing analysts are worried about housing markets taking many years to return to normal.

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Watch this just released CNBC Video asap…more info on the ’surprise’ increase in home sales…and a great debate over HAFA.
(The HAFA debate is in the second half of the video)
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The federal agency announced Friday that it is changing how it defines foreclosed to include properties in default and abandoned to include homes with lingering code violations.

Effective immediately, HUD is classifying any property that is at least 60 days behind on the mortgage or the property owner is 90 days or more delinquent on tax payments as a “foreclosed” home.

In addition, HUD is expanding the definition of an “abandoned” property to include homes where no mortgage or tax payments have been made by the property owner for at least 90 days or a code enforcement inspection has determined that the property is not habitable and the owner has taken no corrective actions within 90 days of notification of the deficiencies.

HUD officials say the new wordsmith-ing will help communities acquire, rehabilitate, and re-sell foreclosed and abandoned properties more quickly under theNeighborhood Stabilization Program (NSP) and help prevent further decline in hard-hit neighborhoods.

The changes come just as reports are surfacing that states and local municipalities have spent less than half of the $4 billion available through the NSP initiative to buy up distressed properties in their communities.

According to the Associated Press, as of March 16, only 38 percent of the grant money had been “obligated,” meaning a municipality has a formal contract at a specific address

in place to purchase a foreclosed or abandoned home. The state and local governments must commit the money to projects by September or the funding is lost, the news agency explained.

HUD says its new expanded definitions will increase the reach of NSP by allowing more properties to qualify and will remove existing barriers caused by market conditions.

“The original NSP rules…limited the impact of the Neighborhood Stabilization Program and we’ve heard that clearly from our partners on the ground,” said HUD Secretary Shaun Donovan. “The rules needed to be more flexible so our local partners can put taxpayer dollars to work quickly to stabilize neighborhoods hard-hit by foreclosure.”

HUD previously defined the term foreclosed to apply only to properties where the foreclosure process was completed. Local communities suggested this narrow definition was not a good fit for market conditions since many properties were lingering in the foreclosure process and beyond the reach of NSP.

Properties will now be eligible for NSP assistance if: the mortgage on the property is 60 or more days delinquent and the owner has been notified; the property owner is 90 days or more behind on the taxes; or foreclosure proceedings have been initiated or completed under state or local law.

The word abandoned was previously defined as a property that had been foreclosed upon and was vacant for at least 90 days. This definition effectively excluded properties abandoned by owners but where tenants were still in place, precluding local communities from assisting the properties with NSP funding or protecting the tenants’ occupancy. HUD determined this limitation was a substantial barrier to the preservation of existing affordable housing.

To address this limitation, HUD is now also classifying “abandoned” as a home where mortgage or tax payments are overdue by at least 90 days, or a home that has received a code violation that makes the property uninhabitable and no remedial action has been taken to bring it up to code for 90 days.

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It’s been 16 months since Eugene and Patricia Harrison last paid the mortgage on their Perris, Calif., home. Eleven months since the notice got slapped on their front door, warning that it would be sold at auction.

A terse letter from a lawyer came eight months ago, telling them that their lender now owned the house. Three months later, the bank told them to pay up or get out by the end of the week.

Still, they remain in the yellow ranch-style home they bought seven years ago for $128,000, with its views of the San Jacinto Mountains. They’re not planning on going anywhere.

“We’re kind of on pins and needles, but who’d want to leave when you put this kind of energy into a house?” said Eugene Harrison, gesturing toward a bucolic mural of mountains, stream and flowers the couple painted on the living room wall.

Throughout the country, people continue to default on their home loans—but lenders have backed off on forced evictions, allowing many to remain in their homes, essentially rent-free.

Several factors are driving the trend, industry experts say, including government pressure on banks to modify loans and keep people in their homes. And with a glut of inventory in places like Southern California’s Inland Empire, Nevada and Arizona, lenders are loath to depress housing prices further by dumping more properties into a weak market.

Finally, allowing borrowers to stay in their homes helps protect the bank’s investment as it negotiates with the homeowners, said Gary Kirshner, a spokesman for Chase bank, a major lender. “If the person’s in the property, there’s less chance for vandalism, and they’re probably maintaining the house,” he said.

Economists say the situation won’t last forever, but in the meantime the “amnesty” may allow at least some homeowners to regain their financial footing and avoid eviction.

In the Inland Empire, an estimated 100,000 homeowners are living rent-free, according to economist John Husing, who based that number on the difference between loan delinquencies and foreclosures. Industry experts say it’s difficult to say how many families are in that situation nationally because only banks know for sure how many customers have stopped paying entirely.

But Rick Sharga of Irvine, Calif., data tracker RealtyTrac notes that the number of loans in which the borrower hasn’t made a payment in 90 days or more but is not in foreclosure is at 5.1% nationally, a record high. And yet the number of foreclosures last year was 2.9 million, below the 3.2 million that RealtyTrac economists predicted.

More evidence is provided by another firm, ForeclosureRadar, which says it now takes an average of 229 days for a bank to foreclose on a home in California after sending a notice of default, up from 146 days in August 2008.

“For some reason, banks are being more lenient with homeowners who are behind on their loans,” Sharga said. “Whether it’s a strategy to try and slow down the volume of foreclosures or simply a matter of the banks being able to keep up with volume is something that banks only know for sure.”

Lenders say the trend reflects their efforts to work with borrowers to modify loans to avoid foreclosure. Bank of America “continues to exhaust every possible option to qualify customers for modification or other solutions,” spokeswoman Jumana Bauwens said.

Some lenders are making it a policy to partner with delinquent borrowers. Citibank said this month that it would let borrowers on the brink of foreclosure stay at their homes for six months, whether or not they make payments, if they turn over their property deed. Such policies may partly reflect the fact that lenders can’t keep up with all the foreclosures, some say. “The mortgage lenders are so backlogged that some people are able to slip through the cracks,” said Kathryn Davis, a real estate agent at America’s Real Estate Advocates in Corona.

That was apparently the case for the Harrisons, who were told at various times that their house had been sold, that it belonged to someone else and that it was empty. “It’s been frustrating,” said Eugene Harrison.

The Harrisons missed their first payment in October 2008, shortly after Patricia Harrison lost her job as a healthcare aide and her husband’s part-time towing work dried up. They said they applied for a loan modification but were told that they couldn’t receive one until they were three months behind on their payments. So they stopped paying.

In April 2009, they received a notice warning them that their property “may be sold at a public sale,” and in July, they were told their house was a bank-owned property.

The bank sent a notice by FedEx in October demanding $3,000, and when the Harrisons called to discuss this notice, they were told they had four days to vacate the house.

Panicked, they arranged to stay with family in New Mexico and started packing their things, filling their garage with boxes of books, camping equipment and art. But no one came to kick them out. “We were afraid to leave the house, afraid the sheriff was going to come,” said Patricia.

After contacting consumer advocates about their situation, the Harrisons decided to stay put. Soon after, two men in a white pickup truck showed up at the house and peeped in the windows, telling the Harrisons that they thought the house was abandoned. The Harrisons suspected they were planning to move in themselves and chased them away.

As they wade through the red tape, the Harrisons can’t imagine abandoning a house where they’ve left their mark in the goldenrod and potpourri rose walls, the new fixtures and stenciling in the bathrooms, the fruit trees planted in the yard.

Although the Harrisons’ future is uncertain, industry observers agree that the rent-free life can’t last forever. As home values climb, banks will find it financially advantageous to foreclose on delinquent borrowers and sell their properties.

“In many cases, particularly in California, people owe a boatload of payments, and no bank is going to forgive that,” said Guy Cecala, editor of Inside Mortgage Finance, a trade publication.

In Diamond Bar, the Fraguere family is finally moving on after living rent-free for 18 months. Job loss and other setbacks prevented them from paying their mortgage, but they say they didn’t hear anything from the bank until a real estate agent showed up at their door last month saying she was going to sell their house.

Sandy Fraguere wasn’t surprised that it had taken the bank so long to ask them to move. “I don’t think they really knew what was going on or who was there,” she said.

Next stop for the Fragueres is a hotel, where they plan to stay for two weeks until their apartment in Chino Hills is ready for them to move in. Their dogs are being boarded and their belongings stored until they can retrieve them someday. The Fragueres have started saying goodbye to their neighbors, adding yet another empty house to a block that has already seen two other families forced to pack up and leave.

(c) 2010, Los Angeles Times.

Distributed by McClatchy-Tribune Information Services.

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RISMEDIA, March 27, 2010—(MCT)—Homeowners defaulting on mortgages today may be surprised to learn years from now that they still owe thousands of dollars—and a collection agency is coming after them to get it.

That’s because lenders have been quietly selling second mortgages and home equity lines left unpaid after foreclosures and short sales. The buyers: collection agencies, which in some states have years to make a claim. If they win court judgments, these collectors could have years to pursue borrowers with repayment plans, and even garnish their wages, said Scott CoBen, a Sacramento bankruptcy attorney.

“The only relief a consumer will have is entering into a debt negotiating plan or filing for bankruptcy,” said Sylvia Alayon, a vice president with the New York-based Consumer Mortgage Audit Center. The firm provides mortgage analysis to lenders, advocacy groups and attorneys.

The phenomenon suggests an ominous, looming echo of today’s real estate meltdown. As debt collectors surely seek at least partial repayment of millions of dollars in unpaid home loans, some say renewed financial stresses on tens of thousands of local consumers could dampen economic recovery.

“I think there will be a lot of unhappy people when it hits,” said CoBen. “We saw this in the ’90s. This is not really new. Just when you think you’re back on your feet, you’re making money and the economy’s good, they hit you with this.”

Alayon said most people are so stressed out and exhausted by trying to save their homes today that they are unaware they could face another hit later. And many who are losing homes don’t get the advice necessary to prevent future fallout, say nonprofit loan counselors.

“You’ve got tens of thousands of people in California who have this hanging over their heads who don’t even know it,” said Scott Thompson, principal at for-profit Mortgage Resolution Services in Carmichael, Calif. He fears a new wave of bankruptcies might flatten people just starting to recover from losing their homes.

“So many of these are people with 750 or 800 credit scores who made a bad decision,” said Thompson. “Or they’re people who suffered income cuts. These are people, in terms of the economy, whom we need to participate.”

But an entire industry is gearing up to buy their debt at deep discounts and collect what they can, Alayon said. “It’s a big business and investors are coming out of the woodwork. It’s a very lucrative business,” she said. Real estate insiders and financial players know it as “scratch and dent.”

Regionally, no one knows for sure how much unpaid debt is on the line. CoBen said people who used their borrowings for a traditional loan on a house in which they lived generally have little to worry about. But borrowers may be vulnerable in years ahead—generally, those who defaulted not only on their first mortgage but also on a home equity loan or second mortgage.

In California, banks can’t collect from borrowers for primary, so-called “first-lien,” loans that go unpaid. When a house is foreclosed or sold through a short sale, the lender of the first loan gets the house back or the proceeds from another buyer.

But banks also made thousands of “second-lien” loans, including those used to finance 20% down payments during the housing boom. A separate category of “seconds” includes home equity loans and home equity lines of credit. Nationally, about 3.4% of those loans are currently delinquent, according to Foresight.

Owners are generally, but not always, on the hook for the second loans left over from a foreclosure or short sale. Most investor mortgages, too, leave the borrower liable for potential unpaid debt. In many short sales, experienced real estate agents or attorneys can negotiate away debt obligations for the second-lien loan. But many inexperienced borrowers don’t know that, and sign final-hour agreements giving lenders the right to pursue them later.

“Seek advice,” counseled Doug Robinson, spokesman for national nonprofit mortgage counselor NeighborWorks America. He said nonprofit counselors can help. “Often when you work with a real estate agent, they’re not really equipped to handle the repercussions. They’re set up to make the sale,” he said.

Government forces are already moving to limit potential damage to millions now struggling with home loans. A new Obama administration short sale program aims to prevent banks that hold second-lien loans from pursuing collections from homeowners after the short sale. It goes into effect April 5, 2010 and works this way: Sellers will receive notice that their servicer has steered part of the sales proceeds to secondary lien holders “in exchange for release and full satisfaction of their liens.” This release would apply only to short sales done through the administration’s Home Affordable Foreclosure Alternatives program.

In California, Democratic state Sen. Ellen Corbett recently introduced SB 1178, which would expand California’s protections for some people who refinance and take on a second mortgage.

People who refinance, but use the funds to improve their homes or to stay in their homes with a better interest rate, would be protected. Lenders could not seek court judgments to collect from these borrowers in the event of foreclosure or short sales.

“If you refinance a property and aren’t using the money for personal reasons, you shouldn’t lose your personal protections,” said California Association of Realtors lobbyist Alex Creel. He said the idea has been around for years but has become more urgent as thousands lose income and fall into mortgage trouble. The bill would apply to all foreclosures or short sales that occur after it becomes law. It doesn’t matter when the loan was made, Creel said. SB 1178 is still in the early stages of consideration. It must clear both houses of the Legislature and be signed by Gov. Arnold Schwarzenegger by Sept. 30 in order to take effect.

(c) 2010, The Sacramento Bee (Sacramento, Calif.).

Distributed by McClatchy-Tribune Information Services.

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RISMEDIA, March 23, 2010—(MCT)—Facing criticism over the slow progress of its foreclosure-prevention efforts, the Obama administration has struck deals with two giant banks that would extend mortgage relief to homeowners with second mortgages.

Wells Fargo & Co. has agreed to modify home-equity loans in cases where borrowers have already qualified for relief under the U.S. Treasury’s mortgage-modification program. Wells Fargo joined Charlotte, N.C.-based Bank of America, which made a similar announcement in January. Together, the two banks account for 25% of the second-mortgage market in the United States, according to the U.S. Treasury.

Consumer advocates say a key weakness with the government’s $50 billion foreclosure-prevention program is that mortgage modifications leave second loans unchanged. Borrowers qualifying for lower mortgage payments risk default because of large payments on a home equity loan. Some homeowners owe more on a second mortgage than the first.

The U.S. Treasury, recognizing the second-mortgage problem, last summer began urging large banks to modify those loans, too. “Our goal is to provide another benefit to customers who may be in distress,” said Kevin Moss, the executive vice president in charge of Wells Fargo’s home equity group, which has a $124 billion home equity portfolio with 2.3 million customers. “The housing market is showing some positive signs of stabilizing in some markets, but there are still too many foreclosures, and too many people who are still struggling out there.”

The move by two giant banks may compel other lenders to follow suit, said Celia Chen, a housing economist at Moody’s Economy.com. Even so, she said, the modification program will do little to reduce foreclosures this year and may simply postpone them. In February 2010, about 308,000 Americans lost their homes through foreclosures, up 6% from a year earlier, according to RealtyTrac.

The Obama administration is under pressure to improve its Home Affordable Modification Program, or HAMP, which aims to slow the surge in foreclosures. The goal of the program is to lower the payment on a first mortgage to about 31% of a borrower’s gross income.

Borrowers have complained of disappearing paperwork and slow service by the banks, which have the final say over loan changes. So far, 168,708 mortgages have been permanently modified with lower payments or longer payoff periods, according to a recent Treasury Department report. That’s just a small fraction of the 3.4 million people who qualify for the program.

Extending relief to second mortgages improves the odds that borrowers will avoid default, say consumer groups. “This is a step in the right direction,” said Tara Twomey, an attorney with the National Consumer Law Center, a nonprofit advocacy group that has tracked the federal government’s mortgage-modification efforts. “It’s a recognition that people with second mortgages are struggling, too, and that ignoring seconds was problematic.”

(c) 2010, Star Tribune (Minneapolis)

Distributed by McClatchy-Tribune Information Services.

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RISMEDIA, March 20, 2010—(MCT)—The Obama administration recently reported that its mortgage modification program continued to make progress, with the number of homeowners receiving permanently reduced monthly payments in February 2010 increased by 45% to 168,708.

An additional 91,483 three-month trial modifications have been approved by the companies servicing the mortgages and were awaiting acceptance by the borrowers, the Treasury Department reported. While the numbers continue a steady increase in recent months, only about 15% of homeowners who have started trial modifications have had them made permanent.

The $75 billion Home Affordable Modification Program was launched last year to ease the foreclosure crisis by providing cash incentives to mortgage companies to lower payments for homeowners who were 60 days or more behind on their loans. The goal is to modify 3-4 million mortgages through 2012.

The program began slowly, particularly in converting temporary modifications into permanently lowered payments. In December, Obama administration officials began aggressively pushing banks and other mortgage servicers to make more of the modifications permanent. At the end of November, there were just 31,424 permanent modifications.

But as the number of permanent modifications has increased, the pace of new trial modifications under the program has slowed, according to the report. There were 835,194 active trial modifications in February, compared with 830,438 in January. The median payment for permanent modification is 36% lower than before the modification, with a savings of more than $500 each month, the Treasury Department said.

The Los Angeles-Orange County area had 5.9% of all the program’s trial and permanent modifications, second only to the New York City area’s 6.1%.

(c) 2010, Los Angeles Times.

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