Mechelle Gooch // Whether you are a home buyer or seller you have certain objectives you want to achieve. Price, location, and the time it takes to reach your goals are just a few of them. As your Realtor, I strive to help you reach those goals. With the real estate market changing daily, it is important you have someone who is honest, experienced and will counsel you on the pros and cons of homes you are considering purchasing or the best options for putting your home on the market
By Nick Timiraos
How do you get borrowers to avoid walking away from homes that are deeply underwater without encouraging more to follow by writing down principal balances? One idea: Pay them to keep paying their mortgage.
The novel approach is being touted by Loan Value Group LLC, a firm selling their idea�and ready-made application�to mortgage investors nervous about the risk of strategic default, where borrowers walk away from their homes even though they can afford to pay their mortgages.� The firm says it’s signed up an undisclosed mortgage investor to test a pilot program with a few hundred borrowers.
Here’s how the program works: The mortgage investor (possibly joining with other risk holders, such as mortgage insurers or second-mortgage holders) offers a cash reward to borrowers if they agree to keep paying their mortgage. The incentive amount varies by borrower depending on income, negative equity, geography and other risk factors�those who are more likely to cause steep losses receive a bigger carrot. The “responsible homeowner reward” grows for up to five years as the borrower makes monthly mortgage payments.
The borrower can’t collect that cash payment until the mortgage is paid off (though investors could allow the reward to be used towards paying off the mortgage in a sale or refinancing if the reward amount is enough to close the transaction).
The main goal of the program is to avoid the moral hazard and upfront costs to the investor associated with writing down borrowers loans. “When you make it so a borrower doesn’t have to do anything negative to get the reward, you remove moral hazard,” says Frank Pallotta, a founder of Loan Value Group who previously led mortgage banking teams at Morgan Stanley and Credit Suisse.
The size of the reward isn’t going to make up for the borrower’s entire negative equity whole, but Mr. Pallotta says the incentive payments are designed to present enough of a “shock-and-awe number upfront” to change the borrower’s psychology. Instead of thinking about how much debt they’re getting out of by walking away, maybe some borrowers will think about the cash bonus they’ll get if they stay current and are able to recover their equity if home prices stabilize and recover.
At the same time, investors don’t have to consider writing down the principal of the loan, which can often require the investor to mark-to-market the restructured loan and recognize an immediate loss.
The program isn’t designed to help borrowers who can’t afford their mortgage, though mortgage-holders certainly could offer the program to at-risk borrowers who’ve already received a modification in their monthly payments through the government’s Home Affordable Modification Program.
To be sure, the program raises plenty of questions: will investors want to put up cash for borrowers who might pay anyway? Mr. Pallotta says the program is liable to pay for itself if it only convinces a small fraction of borrowers to avoid walking away, given the significantly higher costs of foreclosure. If strategic defaults are as serious a problem as some housing analysts and studies show, it will certainly be worth watching to see if such a program catches on with other investors.
Follow Nick on Twitter for more housing and mortgage news: twitter.com/NickTimiraos
This is an interesting idea. I will let you know if I hear it come available in our area.
I was reading an article from the Mortgage News Daily, reporting on a survey that the University of Michigan conducted about homeowners. Of the homeowners, 75% viewed home buying conditions favorably due to low interest rates and attractive home prices. The survey also showed that 9 out of 10 home owners viewed conditions for the sale of their own home as unfavorable, not because of a lack of buyers, but because of home price declines. I didn't need the survey (and I doubt anyone else did) to figure that out. With so many homeowners underwater on their mortgage, and those that want to hold on to their home price from 2005, there are not that many homeowners willing to take the plunge, even with all the buyers looking. This is one of the reasons, here in Folsom, we have a low inventory. And I believe, as do others, that this will continue for a while because it will be some time before pricing rises enough for those homeowners underwater to at least break even.
What was even more interesting in the article, was a comment from Adam Quinones "To reduce the cost of maintaining the condition of the foreclosed properties, banks have delayed the liquidation process and allowed delinquent borrowers to remain in their home. By delaying the liquidation of foreclosed properties, banks have avoided large asset value write-downs."
This (in my opinion) makes some sense as to what I am seeing. I know that when a borrower stops making their mortgage payments, the bank is sending someone by to take a look at the property and determining whether it is being lived in or abandoned. If no one is living in the home, the bank sends a letter to the borrower stating that they will have someone take care of the property and charge the borrower for it. (I think that is the blood from turnip program).
This is probably why, even after almost three years of significant distressed properties, (and the banks should have streamlined the process by now) the banks are not churning through the foreclosure process with borrowers. I think this is one more reason we will probably never see a wave from the 'shadow inventory".
« 307 California hotels in default in 2009 - Sacramento Business Journal: | Main | U.S. Department of Housing and Urban Development (HUD) »
January 15, 2010
Folsom Home Inventory
As you have been reading, the inventory of homes available for sale here in Folsom is low. I thought I would break it out in the three segments of our market. There are equity sales, which are traditional home sales. There are REO, which are foreclosed on homes. Then there are the short sales, where the owner owes more than the home is worth.
Chart 1 shows the inventory for equity sales here in Folsom. Chart 2 shows the REO inventory.
And with Chart 3 I am showing the inventory on short sales.
While pendings and sales are consistent in equity sales, and a little bumpy in REO's, take a look at short sales.
The short sales are trending up in both pendings and solds. That is telling me that more banks are coming to terms (at least for the moment) with the situation and are agreeing to the short sales.
What does this mean for buyers? If you are not concerned about the First Time Buyer's Tax Credit, and you find a short sale that fits your needs, it might be worth trying to buy.
It still requires some questions asked, such as how many loans on the property, which lenders are involved, and how upside down is the seller. But if those answers are the right ones, and you have patience, you might consider it.
And if you are considering selling, and might be in a short sale situation, more of them are getting sold and it might be time to put your home on the market.
Want to know how the market will impact your situation, give me a call!
Posted on January 15, 2010 at 01:55 PM in Current Market Conditions, Real Estate News | Permalink
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WASHINGTON - In an effort to stabilize home values and improve conditions in communities where foreclosure activity is high, HUD Secretary Shaun Donovan today announced a temporary policy that will expand access to FHA mortgage insurance and allow for the quick resale of foreclosed properties. The announcement is part of the Obama administration commitment to addressing foreclosure. Just yesterday, Secretary Donovan announced $2 billion in Neighborhood Stabilization Program grants to local communities and nonprofit housing developers to combat the effects of vacant and abandoned homes.
"As a result of the tightened credit market, FHA-insured mortgage financing is often the only means of financing available to potential homebuyers," said Donovan. "FHA has an unprecedented opportunity to fulfill its mission by helping many homebuyers find affordable housing while contributing to neighborhood stabilization."
With certain exceptions, FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days. This temporary waiver will give FHA borrowers access to a broader array of recently foreclosed properties.
"This change in policy is temporary and will have very strict conditions and guidelines to assure that predatory practices are not allowed," Donovan said.
In today's market, FHA research finds that acquiring, rehabilitating and the reselling these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of sellers to allow contracts from potential FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant over a 90-day period of time.
The policy change will permit buyers to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. This will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.
"FHA borrowers, because of the restrictions we are now lifting, have often been shut out from buying affordable properties," said FHA Commissioner David H. Stevens. "This action will enable our borrowers, especially first-time buyers, to take advantage of this opportunity."
The waiver will take effect on February 1, 2010 and is effective for one year, unless otherwise extended or withdrawn by the FHA Commissioner. To protect FHA borrowers against predatory practices of "flipping" where properties are quickly resold at inflated prices to unsuspecting borrowers, this waiver is limited to those sales meeting the following general conditions:
- All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
- In cases in which the sales price of the property is 20 percent or more above the seller's acquisition cost, the waiver will only apply if the lender meets specific conditions.
- The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.
Specific conditions and other details of this new temporary policy are in the text of the waiver, available on HUD's website.
This is great news for buyers!
A study by Atlas Hospitality Group of Irvine found 2009 to be a difficult year for hotels in California.
The number of hotels foreclosed rose 313 percent from 15 to 62 hotels from the previous year.
The increase in hotels in default rose even more, from 53 in 2008 to 307 in 2009 — a 479 percent increase.
More than 80 percent of the hotels that have defaulted on their loans got those loans in 2006 and 2007.
The survey found El Dorado County ended the year with three foreclosed hotels and Placer County having one foreclosed property.
Hotels in default were found in all local counties, with 14 hotels representing 438 rooms in El Dorado County, two hotels representing 182 rooms in Placer County, 13 hotels representing 1,660 rooms in Sacramento County and one hotel representing Yolo County.
Los Angeles County has the most hotels in California in default with 33 properties representing 5,832 rooms. The largest single hotel property in default in California is also in Los Angeles, the 469-room Marriott Hotel in downtown.
Atlas is an Irvine-based hotel brokerage.
Not just home owners having a tough time of it!
As Christmas nears, the Folsom Police Department’s Toy Drive needs the community’s help.
Katie Pearce, whose husband was once a Folsom Police officer, is overseeing the drive. The problem is, she said, donations are down this year and the number of people registering for toys have gone up.
“Typically, we’ve helped out 600 or so local families. This year, however,” she said, “we’re now dealing with nearly 800 families.”
Tammy Thompson, with Twin Lakes Food Bank, has been working with Pearce on the toy drive. “We’re seeing an influx of families, for the first time, having to ask the food bank for help and registering with the toy drive for presents.”
Both women say that it is due to economics.
“Some people have been laid off. Others have had their hours slashed (or) put on furloughs. Businesses have shut down. We’ve all heard about it,” Thompson explained, “and now we’re seeing it here in our own community.”
Now, a lot of people who’ve found themselves in tight financial situations for the first time in their lives, Pearce said, are wondering how they make it through the holidays.
“I’m hoping that we can help them out,” Pearce said, “by making sure their kids have a good Christmas.”
In order for that to happen, Pearce and Thompson hopes that the community pulls together and helps local families in need.
Pearce said that people can help by donating toys. “We really need toys for boys and girls, ages 6 to 12. We’ve got plenty of stuffed animals and other toys – but we really need something for the (older) group.”
People can also make cash donations, Thompson said. “Then, we go out and do the shopping.”
The toy drive closes on Dec. 18. Pearce said that on Dec. 19, volunteers begin work on the food and gift baskets, destined to be distributed to local families on Dec. 21.
Those wishing to make donations or drop off toys can do so by going to one of the following locations: the police department on Natoma Street, the Twin Lakes Food Bank on 327 Montrose Drive, the Senior Center or the Folsom Aquatic Center. For further information, call 316-2782.
“Folsom is a giving community. I hope that some will help out this holiday season,” Thompson said.
“Let’s all work together and make this a special Christmas for these kids,” Pearce said.
Posted to: MND NewsWire
Friday, December 11, 2009 1:43 PM
From Reuters:
In a win for the banking industry, the U.S. House of Representatives voted on Friday to reject a measure that would have allowed bankruptcy judges to change the terms of mortgages for distressed homeowners.
Known as "mortgage cramdown," the measure was defeated in a 188-241 decision as a proposed amendment to a broader financial reform bill expected to win House passage later on Friday. The House had approved a mortgage "cramdown" measure in March over the objections of Republicans and bank lobbyists, but it died in the Senate. Under present law, bankruptcy courts may reduce many forms of debt for struggling borrowers -- including for a boat, car, vacation home or family farm -- but not a primary residence. Cramdown would help stem the home foreclosure wave continuing across the United States, its advocates said. But opponents said it would raise costs for everyone and divert capital from the mortgage debt market.Posted to: MND NewsWire
Thursday, December 10, 2009 4:52 PM
The Treasury Department released data Thursday on activity in its Making Home Affordable (HAMP) program during the month of November. As expected from earlier comments made by Treasury officials, borrowers continued to enter the program under trial modifications, but the rate of permanent modifications remains well below expectations.
Cumulative figures for the program by the end of November show participating servicers had sent a total of 3,137,548 requests for financial information to borrowers thought eligible for the foreclosure prevention program and had extended 1,032,827 invitations to participate in a trial modification program, up from 920,000 in October.
There are currently 728,408 borrowers actively participating in loan modifications, however, only 4.3 percent of those modifications, or 31,382, have been converted to permanent status.
The HAMP program involves 78 servicers who manage approximately 85 percent of eligible mortgage debt in the country. These servicers are paid an incentive by the Treasury Department for enrolling troubled borrowers in the program and completing loan modifications. The workouts must lower borrower payments to a maximum of 31 percent of the borrowers' monthly income. It is estimated that homeowners who are enrolled in the program have saved an average of $550 per month on their mortgage payments.
GMAC has been the most successful servicer in converting trials to permanent modification status with 7,111 completions. J.P. Morgan Chase and Ocwen Financial have each converted around 4,300 loans. Some servicers have completed no conversions and one or two have not enrolled even one borrower in trial programs.
The number of trial modifications in November rose nearly 11 percent over October's figure of almost 660,000 but 30,650 of the modifications started in the seven months since the program got off the ground are no longer active. This is roughly the same number as have moved into permanent status.
In a written report to the House Financial Services Committee earlier this week, Assistant Treasury Secretary Herbert Allison warned that performance figures would be disappointing. He said that, while most borrowers in trial programs are current on their payments, servicers blame the lack of conversions on missing documentation from borrowers while the borrowers and mortgage counselors assisting them are complaining that servicers are mishandling and losing data that is submitted He told the committee that Treasury is moving to improve the conversion figures by working more closely with servicers, withholding incentive payments until conversions are complete, and improving the HAMP website to make it easier for borrowers to comply with program requirements.
Bank of America: 2/3 of Borrowers May Lose Government Mods
Published: Monday, 7 Dec 2009 | 4:09 PM ETText Size
By: Diana Olick
CNBC Real Estate ReporterTomorrow the House Financial Services Committee, under the leadership of Chmn. Barney Frank, will grill mortgage servicers as members examine the "response to the mortgage foreclosure crisis." This is all about how banks are converting all those trial modifications under the government's Home Affordable Modification Program into permanent modifications.
Today, as a little precursor, the servicers were called over to Treasury for some browbeating and sandwiches, sorry, "to discuss the urgent need to convert eligible homeowners in trial modifications to permanent modifications," according to a Treasury spokesperson.
After the meeting, I sat down with Jack Schakett, of Bank of America
[BAC Loading... ()
]. He used to be chief of operations at Countrywide, which B of A inhaled after the crash of the banking system as we know it. Now Mr. Schakett is "credit loss mitigation strategies executive" at B of A.
Mr. Schakett told me that of the 65 thousand trial modifications set to expire Dec. 31st with B of A, a full two thirds of the borrowers, while current on their payments, have not submitted the full documentation required to turn a trial mod permanent under the HAMP guidelines.
"We don't really know the major reason why the customers are not returning the documentation," Schakett claims. Well I can tell you why (and I'm sure he knows this too). The trial modification process only requires oral verification of income to begin, but to go permanent, you need to prove your income, submit your tax returns, and basically come clean with all your finances. I'm guessing a lot of folks who took out their initial loans with false or non-existent documentation, aren't eager to let the government know that.
I put that question to Mr. Schakett, who didn't dismiss it, but said it was simply too early to make that conclusion. Last week B of A sent out 50 thousand "notices of incompletes," specifying exactly which documents the borrowers needed to submit to fulfill the modification requirements.
"We did it in express mail envelopes with return express mails with a time frame to stress our sense of urgency of what it requires to get this done because we don't want these customers to loose an MHA modification if we can help it," Schakett told me. He says the response will be very telling.
He also told me that Treasury is now considering upping the ante on the trial modifications, requiring much more documentation up front, so that banks won't have all these trial mods going with borrowers who inevitably won't reach permanent modification status.
Let me just say that I get a lot of email from borrowers, telling me that the banks are holding up their paperwork, losing faxes, messing up modifications and leaving those borrowers in the lurch. I don't dispute that, but I can't fully dismiss the banks when they tell me that 2/3 of the borrowers won't submit the paperwork. I also happen to know that a huge percentage of borrowers being offered modifications are rejecting them. They don't want to pay. Many are already gone.
- Questions? Comments? ");
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