Dog Days of Summer Likely to See Deluge of Short Sales

Housing and finance experts are predicting the dog days of summer are likely to produce a deluge of short sales.

“We’re seeing a rush already,” Daren Blomquist of RealtyTrac told Reuters. “There was a big increase in the first quarter and we’re expecting that to continue.”

The crush of short sales comes as more and more banks opt for a portion of what they’re owed rather than have a property go into foreclosure. The Obama administration has advocated short sales as a solution for both financial institutions and sellers.

RealtyTrac data shows short sales in the first quarter of 2012 were up 25 percent compared to the year prior. The total — 109,521 — represented a three-year high. In fact, 2012 may serve as the high-water mark for short sales.

Tax Break Ending

Homeowners considering whether to pursue a short sale are also staring down the calendar. Normally sellers in a short sale see their forgiven loan amount counted as taxable income. A temporary governmental provision suspended that to help unclog the foreclosure pipeline, but the tax break comes to an end this year. Short sales can often take months, which means prospective sellers need to move soon in order to retain the tax break.

They also need to begin the process with their bank. Most sellers will take a credit hit of anywhere from 85 to 160 points and be precluded from obtaining home financing for several years. Veterans and other VA-eligible borrowers will have to wait two years before being eligible for a VA-backed mortgage.

Short Sale Market

Short sales continue to be a great deal for buyers with the credit and income to secure home financing. Prices on distressed properties are often 2o to 25 percent less than non-distressed properties, but there’s increased competition on short sales, which tend to be in better shape than foreclosures.

Buyers expecting to land a deal may need to rein in their optimism and come prepared with a serious offer.

VA Loans Still Safest Product on the Market

The Department of Veterans Affairs issued a news release this week trumpeting the continued growth of the VA Loan Guaranty program. The agency backed just under 360,000 loans last year, a 14-percent increase from FY10 and a whopping 168-percent increase since FY07.

But that wasn’t the only good news. The release also noted that VA loans have had the lowest rates of foreclosure and serious delinquency for the past 14 quarters and 11 quarters, respectively, according to the Mortgage Bankers Association National Delinquency Survey.

Those figures are even more surprising considering that about 90 percent of VA loans come with no down payment.

“The continued strong performance and high volume of VA loans are a testament to the importance of VA’s home loan program and a tribute to the skilled VA professionals who help homeowners in financial trouble keep their homes,” Secretary of Veterans Affairs, Eric K. Shinseki said in the release.

The VA works closely with borrowers and their servicers to avoid foreclosure. Veterans in jeopardy should always contact their loan servicer first, but the VA provides services and staff to help borrowers pursue options like modifications, forbearances and repayment plans. Homeowners can call 877-827-3702 to talk with a VA specialist.

“We are committed to making even more veterans and service members aware of this important benefit and delivering the assistance they deserve when financial difficulties arise,” said VA Under Secretary for Benefits Allison A. Hickey.

 

Fannie Cracks Down On Foreclosure Redemptions SEL 2010-07

In case you missed it, this was a big deal on TBWS Daily the other day.  Here is the skinny – I’ll start at the end – the foreclosure is not complete until the redemption is over.  In other words, the bank does not take possession or “own” the property until after the redemption period—because technically, if the “owner” can scrape together the money, they could still buy the home back from the bank.   

 Here’s how this generally works…First, Homeowner stops making payments

  • Bank sends “breech letter” – 60 days
  • Bank begins foreclosure process — Posts legal notices or begins Judicial process (depending on state laws) – 90 days
  • After appropriate time has passed or orders are issued, a Sheriff’s Sale occurs at the county courthouse
  • Bank typically does not get a high enough bid and buys the Sheriff’s Deed for the amount of the mortgage back to themselves – but if they did get a high enough bid, the buyer must pay cash — no mortgages at this point —  but someone must have tried or Fannie wouldn’t have said something, right?  The bank/buyer does not technically OWN the property – they own the rights to the property after the redemption is over
  • 6-18 months is a typical redemption period – the owner still owns property but for only under certain conditions (payoff and time limit).  The owner may also still occupy the property and do as they like with it
  • Only after expiration of the redemption period is the transfer of title in the property completed.  At this point, the Sheriff will remove the former owner and their belongings from the home.  The Bank now has the right to transfer the property to another individual
  • This redemption period can be accelerated in cases of abandonment by the owner – in most cases that reduces the waiting period to 30 days

 Fannie calls this a Title Defect for a reason – you would not get a title policy without exceptions, you do not fully OWN the property – yet.  You also do not have the right to sell or transfer the property since you do not own it.  If you did make the mistake of mortgaging a property without clear title and the seller did not have the full right to transfer, do not fret…Fannie says it will buy the mortgage after the expiration of the redemption period. 

Let your agents know.  www.MortgageCurrentcy.com has a Mortgage Talking Points for your agents.  Set up sales meeting and ask a foreclosure attorney & title rep to discuss your state’s rules!   Or use www.ConstantConnecting.com to email the talking points to your Realtors(r)

 

Seven Things Your Agent Should Know About Your Mortgage Approval

While many experienced real estate agents have a general understanding of the mortgage approval process, there are a few important details that frequently get overlooked which may cause a purchase to be delayed or denied.

New regulation, updated disclosures, appraisal guidelines, mortgage rate pricing premiums, credit score, secondary approval layering, rescission deadlines, property type, HOA insurance requirements, title and property flip rules are just a few of the daily changes that can have a serious impact on a borrower’s home loan financing.

With today’s volatile lending environment, it’s obviously important for home buyers to get a full loan approval which clearly defines all contingencies that pertain to each unique home buyer’s scenario prior to spending any time looking at new homes with an agent.

Either way, we’ve listed a few of the top things your agent should keep in mind while showing you new properties:

Caution – Agents Beware:

Property Type –

High-Rise, Condo, Town House, Single Family Residence, Dome Home or Shoe House… all have specific lending guidelines that can influence down payment, credit score and mortgage insurance requirements.

Residence Type

Need to sell one home before moving into another? Is a property considered a second home if it’s in the same city?  What if I’m buying a home for my children to live in, it is still considered an investment property?

These are just a few of several possible residence related questions that should be addressed by your agent and loan officer at the initial loan application.

Rates / Locks

Mortgage Rates are typically locked for a 30 day period, and one of the only ways to get a new rate is to switch mortgage lenders.  Rates also have certain adjustments for property / residence type, credit score and down payment which could have a big impact on monthly payments and therefore approvals.

A 1% increase in rate could literally mean the difference between an approval or denial.

Headline News / Employment

Underwriters watch the news as well.  Borrowers who work in a volatile industry during hard economic times may have to jump through a few extra hoops to prove that their employment and income is secure.

Job changes, periods of unemployment or property location in relation to the subject property are other things to consider that may cause a speed bump in the approval process.

Title / Property Flip –

A Flip is considered a property that has been purchased by an investor and quickly sold to a new buyer within a 30-90 day period.  Generally, an investor will do a little rehab work, fresh paint, landscaping…. and try to re-sell the property for a significant profit margin.

While it seems like a perfectly fair transaction, many lenders have strict guidelines in place that prevent borrowers from obtaining financing on properties that have a previous owner with less than 90 days of documented ownership.

These rules change frequently, and are specific to particular property types, so make sure your agent is aware of all the boundaries associated with your approval letter.

Homeowner’s Association Insurance

Some lenders require Condos and Town House communities to have sufficient insurance and reserves coverage pertaining to specific ratios on units that are owner occupied vs rented.

It may also take a few weeks and cost up to $300 to receive an HOA Certification, so make sure your Due-Diligence period is set accordingly in the purchase contract.

Appraisal Ordering Procedures

Appraisal ordering guidelines are changing quite frequently as regulators implement many new consumer protection laws created to prevent future foreclosure epidemics.

Unfortunately, some of the new appraisal regulations have proven to slow the home buying process down, as well as confuse lenders about the true estimate of neighborhood values.

VA, FHA and Conventional loan programs all have separate appraisal ordering policies, so make sure your agent is aware of which loan you’re approved for so that they document any anticipated delays in the purchase contract.

For example, if an appraisal takes three weeks and the average time for an approval is two weeks, then it probably isn’t smart to write a purchase contract with a four week close of escrow.

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Vets Have Options When Facing Foreclosure

The government wants to keep those who served from losing their homes.

VA loans already have the lowest foreclosure rate of any loan product going, according to the Department of Veterans Affairs. The agency has an array of avenues for veterans and active duty military to consider when facing the prospect of losing their home.

VA guidelines pave a path to helping those who served stay in their homes.

As is the case with a potential default on any other loan, the first thing to do is to call your lender and attempt to negotiate alternative payment terms or other options that will help you stay ahead of your payments.  The VA has a large number of loan counseling experts who are there to keep VA borrowers in their homes.

There are a variety of helpful programs that may assist you during tight financial times and a VA loan counselor can help you establish which ones are right for your situation.  Options include:

  • Loan forbearance: borrowers can make up their missed payments on a payment schedule.  This option basically reduces or delays your payments for a short period with the understanding that you will bring the account to a current status at the end of that period.
  • Loan modification: future payments are amended and a new payment plan is established, with the overdue balance of the loan being factored into the new schedule.Repayment regimen: extra funds are added to future payments in addition to your usual payment amount to avoid foreclosure proceedings.
  • Repayment regimens can be helpful if you’ve had a temporary financial setback and are on the way to recovery.
  • Additional time to sell the property in question without worry of foreclosure.

It’s important for borrowers to remember that foreclosure is a lose-lose proposition.  Not only does foreclosure hurt the borrower’s credit future but it also hurts lenders, who typically lose money during the foreclosure transaction.

If you fear that your VA loan is in danger of foreclosure, call the VA’s recently established hotline at 877-827-3702.  You’ll be able to speak with a representative (in one of eight regional VA loan service centers) who will be able to give you more information on the steps you can take to protect your home and the options that you have to safeguard your financial future.

Five Myths About Home Values

During periods of economic growth, when home values are typically just going up, most homeowners do not question appraisals much.

And in times of turmoil when property values are declining, home sellers and even listing agents quite often question and pick apart appraisals.

However, the actual appraisal process changed very little over the course of the housing boom and bust cycle American homeowners witnessed between 2001 – 2009.

Since the topic of home values seems to be a hot discussion, let’s address the top five appraisal myths.

Appraisal Myths / Questions:

“I just put $15K into the property, why isn’t the appraised value higher? ”

Not all improvements to the property are equal in producing added value. A local real estate investment club used to tout buying a run-down, roach-infested property cheap, and after de-bugging and adding a fresh coat of paint and carpet – *presto* – the house would appraise like the new homes up the street.

Even with cosmetic repairs, the property may still be much more comparable to the foreclosure next door than the new home a block away. Look first to the “guts” of the property, the electrical, heating & air, etc. If they are updated, then the number of beds/baths and square footage are the next biggest weight, followed by a genuine updating of cosmetic improvements.

“But my home really compares to some of the properties in the neighborhood across the way…”

For example, if a homeowner preparing a house to sell adds $150,000 in upgrades to the kitchen, built-in cabinets and flooring, it may help the property show better in an open house and in magazine advertisements.

However, the seller might still be stuck with a $450,000 appraised value like the three comparable properties on their street vs the $750,000 they were hoping to list it for.

Even though the neighborhood across the main street had similar homes in the higher price range, especially after the seller’s extensive upgrades, appraisers will always use homes from the actual neighborhood to establish value first.

So basically, the seller simply over-improved their home for their specific neighborhood.

“This appraiser included foreclosures as comps – that’s not fair”

It isn’t fair, especially if your home is well-kept and in great condition compared to the run-down foreclosures in the neighborhood.

Unfortunately, if every recent sale, or nearly all sales, are foreclosures at reduced prices, then the appraiser is forced to use the recent sales and trends as comparable values.  High foreclosure rates generally depress values and show a trend of lowering prices. 

And abnormally high foreclosure rates generally depress values and show a trend of constantly lowering value.

“But I just put in a $50K pool, doesn’t that count for anything?”

Pools and professional landscaping rarely see a dollar for dollar value add on a property.  The value is going to mainly be based on comparable sales in a neighborhood.

“How can similar homes in the same neighborhood appraiser for such different values?”

This is a typical question for older neighborhoods where similar models may have drastic price differences.

Additional rooms and square footage can be the main reason for one property appraising higher than another.

Keep in mind, just because the market trend in a particular neighborhood is improving over time, the individual properties need to meet the same conditional improvements as the others in order rise with the tide.

…..

An appraiser is looking at several things when determining the value of a property: improvements, size and square footage of the living area, neighborhood amenities, location and the market trends around the area.

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Important Factors To Consider When Getting Financing On A Foreclosure, Short Sale or New Construction

Short sales, foreclosures and new construction homes all have caveats that need to be considered when pursuing financing.

If the guidelines and potential pitfalls are not properly understood, you could face delays in closing or potentially even a denied loan.

Short Sales & Foreclosures -

Short sales and foreclosures are everywhere. They often represent great value when looking to by a new home.

However, they also present a unique set of problems that homebuyers need to be aware of and plan for.

1.) Property Condition

Typically, when homeowners are facing foreclosure or looking to short sell their house, it means they lack the financial means to pay the mortgage or maintain the property.

A property in poor health can cause many financing issues for traditional financing.  FHA loans have specific rules requiring that the property is move-in-ready, unless you’re using a 203(k) Rehab Loan.

2.) Timing Challenges

Short sales typically come with awkward timeframes for purchase contract approval and loan closing.

Each bank is different, but approval can take anywhere between a week to 120 days.  As a general rule, the larger the bank the longer it takes to get short sale approval.

The lack of a set timeframe for short sale approval makes the timing of loan submission, rate locks and closing very challenging. You have your approval conditions cleared to close on time, just to find out that new appraisals, income, employment and asset verifications need to be updated by an underwriter to cover the most recent 30 days. Worst case, purchase contracts and legal documents may have to be re-submitted to a bank for an updated approval.

Either way, be prepared for a lot of redundant paperwork when purchasing a short sale property.

New Construction -

Home buyers looking to purchase new construction using FHA financing will have more hoops to jump through than those purchasing through conventional (Fannie Mae / Freddie Mac) financing.

If you want to use FHA financing to purchase new construction then you need to be aware of a number of issues that can trip you up.

First, you MUST have a certificate of occupancy (C.O.) certifying that the property is complete and move-in-ready. If you do not have this then you typically CANNOT go FHA. You’ll need a renovation loan, but a FHA 203K WILL NOT work.

You’ll need to employ the Fannie Mae HomeStyle for a property without a C.O.

In addition to the C.O. you’ll need some combination of the following documents as dictated by your lender and your unique situation:

  • Builder’s Certification
  • One Year Builder Warranty (10 YR Warranty may be required)
  • Termite Inspection (when applicable)
  • Septic Inspection (when applicable)
  • Well Test (when applicable)
  • Construction Permits

There are a number of factors which go into exactly what combination of documentation will be required to satisfy your lender and FHA, so it is best to work with an experienced loan officer when purchasing new construction with FHA financing.

If you plan on using conventional Fannie Mae / Freddie Mac financing you’ll still have hoops to jump through, just not as many as FHA. You’ll also have a higher down payment requirement and the credit qualification guidelines tend to be stricter.

Whether it be FHA financing, conventional financing or renovation financing, it’s important to have a qualified home buying team in place that can lead you through the maze of paperwork and negotiations.

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