Now that the federal Home Buyer’s Tax Credit has expired, many thought home-buying activities would dry up. Unlike last winter, the credit has neither been expanded nor extended, and industry watchers have worried that home prices might see a “double dip” without the stimulative effect of the money.
There’s no denying the program has been successful. But the free lunch has ended and reality is staring us right in the face. Where will the housing market head from here?
I predict a continued slow recovery in prices and activity, and I have three reasons for believing it:
● The overall economy is improving. Slowly but surely, people are feeling a little better about their own financial situation, and that translates directly into spending. The more spending that occurs, the better the economy. The better the economy, the more jobs that are created. The more jobs that are out there, the more houses that sell.
That’s an oversimplification of an extremely complex situation, and we still have a long way to go, but things are definitely better than they were a year ago, and most believe better times are ahead.
Interest rates are still extremely attractive. And I’m not talking about some weird adjustable rate instrument that is tied to an offering of inter-bank rates in London. I’m referring to the all-American 30-year, fixed-rate loan that our parents had on the house in which we grew up.
Most Americans are firmly convinced that a single-family house in a good neighborhood in a growing community is a solid investment, and they are right. And if you can lock in a good price with a low fixed interest rate, you add strength to your financial position by being able to predict your housing expense into the future.
● And what about the loss of the tax credit? I don’t think it will matter.
The housing market is still soft enough to absorb the financial hit. By that I mean a savvy shopper who isn’t afraid to negotiate can expect to buy a house in this market at enough of a discount to offset the lost tax credit.
Sellers are painfully aware that price sells houses, and I expect builders to offer their own version of a “home buyer’s discount” as a way to incentivize the home-buying public. Owners of resale homes will follow suit.
Is that a cheap and crass marketing gimmick designed to fool the public into thinking they are getting a benefit that they truly are not receiving? Yes.
Will it work? Yes.
John Adams is an author, broadcaster and investor. He answers real estate questions on radio station WGKA (920 AM) Iin Atlanta. For more real estate information or to make a comment, visit www.money99.com.
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Friday, May 28, 2010
Monday, May 24, 2010
Buy and Bail
FHA and Fannie Mae “Buy and Bail” rules have been in effect for several months and this is old news to many. This information comes as a reminder.
Because values have declined in most areas making it difficult to refinance, many home owners have decided to purchase another home while their credit is still good claiming they will rent their existing home. Once their new home closes, they then allow their existing home to go into foreclosure and a new term has emerged, “Buy and Bail”.
How Does Buy and Bail Work? Buy and Bail involves lying. It typically involves drawing up a phony rental agreement and presenting this false documentation to the lender. That is mortgage fraud. The FBI defines mortgage fraud as “any material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase or insure a loan.”
Here are the steps that a home owner would follow:
First, the home owner decides that (for whatever reason), his home no longer suits his purposes.
Since the home owner cannot obtain a new mortgage loan after a short sale or foreclosure, he sets out to find a home to buy before going into default on the existing mortgage.
A purchase offer is written on the new home and the home owner/buyer submits a loan application.
The lender requests a rental agreement to show that a tenant will move into the home owners old home and make rental payments.
Home owner gets a friend to sign a rental agreement, even though the friend has not intention of moving into or renting the home owner’s old home.
The lender approves home owners new mortgage and funds the loan
The home owner never makes a payment on his old home. A Notice of Default is filed and the home goes into foreclosure, subsequently going back to the bank.
The home owner’s credit is ruined, but he doesn’t care because he has already bought a new home and has no intentions of moving for a long time.
As a result of buy and bail practices, Fannie Mae guidelines now require buyers to qualify for mortgages on both homes at loan inception, unless the existing home has plenty of equity. That’s because a home owner with plenty of equity would be foolish to walk away from it.
Fannie Mae’s Guidelines for converting a principal residence to a second home or investment property is as follows:
If a customer is purchasing a new home prior to selling their existing home they must qualify with both payments (PITI, interest, taxes and insurance). If the equity is less than 30% (market value less than amount owed) 6 months reserves are required. If equity position is 30% or greater 2 months reserves are required. Note: Only 75% of the rental income can be used, even then, for qualifying purposes. An executed 12 months lease and proof that a security deposit in the customers’ account is required.
If a customer is renting out their existing residence the borrower must also qualify with both payments. Rental income can only be used if the equity position is equal to or greater than 30%.
If a client’s pending sale for the existing home blows up before the closing of their new purchase, or will not occur prior to the new home closing the rules are a little different but similar to the first explanation. The payments for the existing home are not required for qualifying purposes if reserves can be documented along with a copy of an executed sales contract and confirmation of all financing contingencies are provided.
FHA’s Guidelines now require buyers who are legitimately purchasing a home and converting their existing home to a rental either qualify for both loans or have 25% equity in their present home. Exception—Relocation:s: The home-buyer is relocating with a new employer, or being transferred by the current employer to an area not within reasonable and locally recognized commuting distance. A properly executed lease agreement (i.e., a lease signed by the homebuyer and the lessee) of at least one year’s duration after the loan is closed is required. FHA recommends that underwriters also obtain evidence of the security deposit and/or evidence the first month’s rent was paid to the homeowner.
About.com and Activerain.com
Because values have declined in most areas making it difficult to refinance, many home owners have decided to purchase another home while their credit is still good claiming they will rent their existing home. Once their new home closes, they then allow their existing home to go into foreclosure and a new term has emerged, “Buy and Bail”.
How Does Buy and Bail Work? Buy and Bail involves lying. It typically involves drawing up a phony rental agreement and presenting this false documentation to the lender. That is mortgage fraud. The FBI defines mortgage fraud as “any material misstatement, misrepresentation or omission relied upon by an underwriter or lender to fund, purchase or insure a loan.”
Here are the steps that a home owner would follow:
First, the home owner decides that (for whatever reason), his home no longer suits his purposes.
Since the home owner cannot obtain a new mortgage loan after a short sale or foreclosure, he sets out to find a home to buy before going into default on the existing mortgage.
A purchase offer is written on the new home and the home owner/buyer submits a loan application.
The lender requests a rental agreement to show that a tenant will move into the home owners old home and make rental payments.
Home owner gets a friend to sign a rental agreement, even though the friend has not intention of moving into or renting the home owner’s old home.
The lender approves home owners new mortgage and funds the loan
The home owner never makes a payment on his old home. A Notice of Default is filed and the home goes into foreclosure, subsequently going back to the bank.
The home owner’s credit is ruined, but he doesn’t care because he has already bought a new home and has no intentions of moving for a long time.
As a result of buy and bail practices, Fannie Mae guidelines now require buyers to qualify for mortgages on both homes at loan inception, unless the existing home has plenty of equity. That’s because a home owner with plenty of equity would be foolish to walk away from it.
Fannie Mae’s Guidelines for converting a principal residence to a second home or investment property is as follows:
If a customer is purchasing a new home prior to selling their existing home they must qualify with both payments (PITI, interest, taxes and insurance). If the equity is less than 30% (market value less than amount owed) 6 months reserves are required. If equity position is 30% or greater 2 months reserves are required. Note: Only 75% of the rental income can be used, even then, for qualifying purposes. An executed 12 months lease and proof that a security deposit in the customers’ account is required.
If a customer is renting out their existing residence the borrower must also qualify with both payments. Rental income can only be used if the equity position is equal to or greater than 30%.
If a client’s pending sale for the existing home blows up before the closing of their new purchase, or will not occur prior to the new home closing the rules are a little different but similar to the first explanation. The payments for the existing home are not required for qualifying purposes if reserves can be documented along with a copy of an executed sales contract and confirmation of all financing contingencies are provided.
FHA’s Guidelines now require buyers who are legitimately purchasing a home and converting their existing home to a rental either qualify for both loans or have 25% equity in their present home. Exception—Relocation:s: The home-buyer is relocating with a new employer, or being transferred by the current employer to an area not within reasonable and locally recognized commuting distance. A properly executed lease agreement (i.e., a lease signed by the homebuyer and the lessee) of at least one year’s duration after the loan is closed is required. FHA recommends that underwriters also obtain evidence of the security deposit and/or evidence the first month’s rent was paid to the homeowner.
About.com and Activerain.com
Monday, May 17, 2010
Shadow Market
The housing market is facing swelling ranks of homeowners who are seriously delinquent but have yet to lose their homes, and this is threatening a new wave of foreclosures that could hit just as the real estate market has begun to stabilize.
As these foreclosed properties add to the supply of homes for sale, they could undercut housing prices, which have increased modestly through December, according to the most recent figures in the S&P/Case-Shiller home prices index. That rise partly reflected a slowdown in the flow of foreclosed homes onto the market.
The rate at which J.P. Morgan Chase seized properties, for example, peaked in the middle of 2008 and fell steadily last year, according to a February investor report. But the bank expects repossessions to increase this year, nearly doubling to 45,000 by the fourth quarter.
"Some of the positive housing data may not be signaling a true turning point, as many servicers are holding back on foreclosures and the related houses are not yet being offered for sale," said Diane Westerback, a managing director at Standard & Poor's. Westerback said it could take 33 months to clear the backlog.
Data released Thursday by RealtyTrac illustrate the dynamic. While banks repossessed fewer homes in February than a month earlier, borrowers continued to fall behind on their payments, adding to the inventory of properties headed toward foreclosure that have yet to be put on the market, said Daren Blomquist, RealtyTrac's spokesman.
"Just looking at the numbers, we would expect there to be a bigger percentage of properties" repossessed by banks by now, he said.
This "shadow market" reflects the increasing lag between defaults and foreclosures. Many lenders are struggling to keep up with the overwhelming number of borrowers who can't make their payments, and they're reluctant to rush repossessed homes onto the market when prices are depressed. The borrowers in trouble now are, for the most part, people who have better credit and safer loans and have become delinquent because they've lost their jobs or are dealing with other economic setbacks, economists said.
More than 75 percent of the borrowers who are now seriously delinquent -- meaning they have missed at least three monthly payments -- have traditional prime loans, according to First American CoreLogic. Most of these borrowers have not made a mortgage payment in six months.
These borrowers are among the most difficult to help. Homeowners with economic troubles such as extended unemployment often cannot make even reduced mortgage payments. And the longer borrowers stay delinquent, the more difficult it is to fashion a mortgage relief plan for them. Some lenders are giving distressed borrowers more time to see whether they can modify the terms of their loans.
Over the past year, the number of foreclosed homes going up for sale has declined. Distressed properties made up just 38 percent of purchases in January, compared with the 49 percent peak in March 2009, according to the National Association of Realtors. That helped the inventory of homes on the market fall to a 7.8-month supply, close to the figure during normal times and down from more than 11 months in July 2008. But as prices continue to stabilize, lenders are likely to take advantage of the situation by putting more of these distressed properties on the market, economists said.
"Banks have remained in foreclosure paralysis, allowing that backlog to get larger and larger. You can't do that indefinitely," said Sandeep Bordia, head of U.S. residential credit strategy at Barclays Capital.
That impact could be muted if enough buyers emerge to snap up properties or efforts to enroll borrowers in mortgage relief programs improve. Some lenders are looking for ways to ease delinquent borrowers out of their homes without a foreclosure. For example, lenders are allowing more short sales, in which the home is sold for less than the outstanding loan balance. Citigroup is testing a program that allows delinquent borrowers to stay in their home for six months free if they leave the property in good condition, making it easier to sell afterward
As these foreclosed properties add to the supply of homes for sale, they could undercut housing prices, which have increased modestly through December, according to the most recent figures in the S&P/Case-Shiller home prices index. That rise partly reflected a slowdown in the flow of foreclosed homes onto the market.
The rate at which J.P. Morgan Chase seized properties, for example, peaked in the middle of 2008 and fell steadily last year, according to a February investor report. But the bank expects repossessions to increase this year, nearly doubling to 45,000 by the fourth quarter.
"Some of the positive housing data may not be signaling a true turning point, as many servicers are holding back on foreclosures and the related houses are not yet being offered for sale," said Diane Westerback, a managing director at Standard & Poor's. Westerback said it could take 33 months to clear the backlog.
Data released Thursday by RealtyTrac illustrate the dynamic. While banks repossessed fewer homes in February than a month earlier, borrowers continued to fall behind on their payments, adding to the inventory of properties headed toward foreclosure that have yet to be put on the market, said Daren Blomquist, RealtyTrac's spokesman.
"Just looking at the numbers, we would expect there to be a bigger percentage of properties" repossessed by banks by now, he said.
This "shadow market" reflects the increasing lag between defaults and foreclosures. Many lenders are struggling to keep up with the overwhelming number of borrowers who can't make their payments, and they're reluctant to rush repossessed homes onto the market when prices are depressed. The borrowers in trouble now are, for the most part, people who have better credit and safer loans and have become delinquent because they've lost their jobs or are dealing with other economic setbacks, economists said.
More than 75 percent of the borrowers who are now seriously delinquent -- meaning they have missed at least three monthly payments -- have traditional prime loans, according to First American CoreLogic. Most of these borrowers have not made a mortgage payment in six months.
These borrowers are among the most difficult to help. Homeowners with economic troubles such as extended unemployment often cannot make even reduced mortgage payments. And the longer borrowers stay delinquent, the more difficult it is to fashion a mortgage relief plan for them. Some lenders are giving distressed borrowers more time to see whether they can modify the terms of their loans.
Over the past year, the number of foreclosed homes going up for sale has declined. Distressed properties made up just 38 percent of purchases in January, compared with the 49 percent peak in March 2009, according to the National Association of Realtors. That helped the inventory of homes on the market fall to a 7.8-month supply, close to the figure during normal times and down from more than 11 months in July 2008. But as prices continue to stabilize, lenders are likely to take advantage of the situation by putting more of these distressed properties on the market, economists said.
"Banks have remained in foreclosure paralysis, allowing that backlog to get larger and larger. You can't do that indefinitely," said Sandeep Bordia, head of U.S. residential credit strategy at Barclays Capital.
That impact could be muted if enough buyers emerge to snap up properties or efforts to enroll borrowers in mortgage relief programs improve. Some lenders are looking for ways to ease delinquent borrowers out of their homes without a foreclosure. For example, lenders are allowing more short sales, in which the home is sold for less than the outstanding loan balance. Citigroup is testing a program that allows delinquent borrowers to stay in their home for six months free if they leave the property in good condition, making it easier to sell afterward
Monday, May 3, 2010
FORECLOSURE ESTIMATE FALLS
Banks have fewer foreclosed homes to sell than previously believed, but those holdings are likely to grow gradually over the next couple of years, a new study by Barclays Capital says.
The investment bank's latest calculations support the view that the U.S. housing market is stabilizing but that a major recovery isn't imminent and there are still risks of falling prices.
Barclays estimates banks and mortgage investors including Fannie Mae and Freddie Mac owned 480,000 homes at the end of February. Barclays has acquired more data on mortgages and refined its methods for analyzing foreclosure trends. Under the bank's previous methods, the estimate for February would have been more than 600,000.
Barclays expects the inventory generally to rise over the next 20 months, peaking at 536,000 in January 2012, and then decline gradually.
Estimating the inventory of foreclosed homes remains tricky because thousands of banks and others that own the properties disclose those holdings in varying ways, if at all. RealtyTrac Inc., another data provider and one of the few other firms that regularly make such calculations, estimates banks and mortgage investors own 758,000 foreclosed homes.
To get a sense of how many more households will lose their homes to foreclosures or related actions, Barclays tallies what it calls a shadow inventory, consisting of homeowners 90 days or more overdue on mortgage payments or already in the foreclosure process. At the end of February, 4.6 million households were in that category.
Barclays expects 1.6 million "distressed sales" of homes—mainly foreclosures or sales of homes for less than the mortgage balance due—both this year and in 2011, then a slight decline to 1.5 million in 2012. Last year, Barclays estimates, such sales totaled 1.5 million. About 30% of all home sales this year and next will be foreclosure-related, forecasts Robert Tayon, a mortgage analyst at Barclays, who says that would be only about 6% in a normal housing market.
Barclays expects U.S. home prices on average will fall another 3% to 5% over the next couple of years, adding to a decline of about 30% already recorded since 2006. That forecast assumes a gradual decrease in the unemployment rate, to 8% within the next two years, from 9.7% in March. The home-price picture would worsen if job growth sputters or banks "push homes through the foreclosure pipeline faster than expected," Mr. Tayon says.
Efforts to avert foreclosures by offering many borrowers lower payments have slowed the flow of homes into bank ownership. In some parts of the country—such as the Las Vegas area and Orange County, Calif.—that has left bargain-hunters frustrated by what they see as a shortage of bank-owned properties in attractive neighborhoods.
In the Las Vegas area, foreclosed homes accounted for 56% of sales in March, down from 73% a year earlier, according to MDA DataQuick, a research firm.
By James R. Hagerty, April 28, 2010
The investment bank's latest calculations support the view that the U.S. housing market is stabilizing but that a major recovery isn't imminent and there are still risks of falling prices.
Barclays estimates banks and mortgage investors including Fannie Mae and Freddie Mac owned 480,000 homes at the end of February. Barclays has acquired more data on mortgages and refined its methods for analyzing foreclosure trends. Under the bank's previous methods, the estimate for February would have been more than 600,000.
Barclays expects the inventory generally to rise over the next 20 months, peaking at 536,000 in January 2012, and then decline gradually.
Estimating the inventory of foreclosed homes remains tricky because thousands of banks and others that own the properties disclose those holdings in varying ways, if at all. RealtyTrac Inc., another data provider and one of the few other firms that regularly make such calculations, estimates banks and mortgage investors own 758,000 foreclosed homes.
To get a sense of how many more households will lose their homes to foreclosures or related actions, Barclays tallies what it calls a shadow inventory, consisting of homeowners 90 days or more overdue on mortgage payments or already in the foreclosure process. At the end of February, 4.6 million households were in that category.
Barclays expects 1.6 million "distressed sales" of homes—mainly foreclosures or sales of homes for less than the mortgage balance due—both this year and in 2011, then a slight decline to 1.5 million in 2012. Last year, Barclays estimates, such sales totaled 1.5 million. About 30% of all home sales this year and next will be foreclosure-related, forecasts Robert Tayon, a mortgage analyst at Barclays, who says that would be only about 6% in a normal housing market.
Barclays expects U.S. home prices on average will fall another 3% to 5% over the next couple of years, adding to a decline of about 30% already recorded since 2006. That forecast assumes a gradual decrease in the unemployment rate, to 8% within the next two years, from 9.7% in March. The home-price picture would worsen if job growth sputters or banks "push homes through the foreclosure pipeline faster than expected," Mr. Tayon says.
Efforts to avert foreclosures by offering many borrowers lower payments have slowed the flow of homes into bank ownership. In some parts of the country—such as the Las Vegas area and Orange County, Calif.—that has left bargain-hunters frustrated by what they see as a shortage of bank-owned properties in attractive neighborhoods.
In the Las Vegas area, foreclosed homes accounted for 56% of sales in March, down from 73% a year earlier, according to MDA DataQuick, a research firm.
By James R. Hagerty, April 28, 2010
Thursday, April 29, 2010
FIRST QUARTER HOME SALES
First Quarter Homes Sales indicate strong signs of recovery after posting 41 percent surge in year-over-year sales. Bolstered by an influx of affordable bank-owned properties coupled with attractively low interest rates, Washington County recorded 993 sales in the first quarter, representing an increase of 287 sales from last year’s quarterly figure. With an ample selection of low-priced distressed properties enticing buyers and driving sales upward, affordable pricing is a primary factor in the market’s renewed activity. The recent sales boost likely serves as the first indication of the market’s inevitable resurgence from the depths of the sub-prime lending crisis. From January to March, the average price of a dwelling in Washington County increased by about $11,000 to $173,673. This slight increase is an encouraging indication of recovery. SUTC Developer Services
Two-Thirds of Americans Say Now Is a Good Time to Buy a Home. A nationwide survey recently conducted by Fannie Mae has determined that 65% of today's home owners and renters still believe in the solid value of homeownership and prefer to own their own home if possible. The survey did, however, determine that potential home buyers have become more cautious since the recession in real estate markets and precipitous rise in foreclosures nationwide.
As Fannie Mae Chief Economist Doug Duncan explains it, the downturn in the housing market has led to a "rebalancing" of consumer attitudes toward homeownership, with most Americans adopting a more realistic and long-term view than the investor mentality in which property "flipping" for near-term gain was a major consideration. The survey also determined that 60% believe that purchasing a home today is harder than it was for their parents, and nearly 70% believe it will be even tougher for their children to achieve homeownership. At the same time, two-thirds of respondents said that they believe now is a good time to buy a house — nearly as many as said so back in 2003, prior to the housing boom. And 70% indicated that they think buying a home is one of the safest investments they could make, although this was down from 83% who said as much in 2003. Read more about Fannie Mae's survey on CNN.com. NAHB
Two-Thirds of Americans Say Now Is a Good Time to Buy a Home. A nationwide survey recently conducted by Fannie Mae has determined that 65% of today's home owners and renters still believe in the solid value of homeownership and prefer to own their own home if possible. The survey did, however, determine that potential home buyers have become more cautious since the recession in real estate markets and precipitous rise in foreclosures nationwide.
As Fannie Mae Chief Economist Doug Duncan explains it, the downturn in the housing market has led to a "rebalancing" of consumer attitudes toward homeownership, with most Americans adopting a more realistic and long-term view than the investor mentality in which property "flipping" for near-term gain was a major consideration. The survey also determined that 60% believe that purchasing a home today is harder than it was for their parents, and nearly 70% believe it will be even tougher for their children to achieve homeownership. At the same time, two-thirds of respondents said that they believe now is a good time to buy a house — nearly as many as said so back in 2003, prior to the housing boom. And 70% indicated that they think buying a home is one of the safest investments they could make, although this was down from 83% who said as much in 2003. Read more about Fannie Mae's survey on CNN.com. NAHB
Thursday, April 22, 2010
Home sales surge
ST. GEORGE - Washington County's residential real
estate sector is showing strong signs of recovery
after posting a 41 percent surge in year-over-year
sales during the first quarter.
Bolstered by an influx of affordable bank owned-
properties coupled with attractively low interest
rates, Washington County recorded 993 sales in the
first quarter, representing an increase of 287 sales
from last year's quarterly figure, according to data
collected by Southern Utah Title Company.
With an ample selection of low-priced distressed
properties enticing buyers and driving sales
upward, Allan Carter, the manager of developer
services for Southern Utah Title Company, said
affordable pricing is a primary factor in the market's
renewed activity.
"It's being driven entirely by distressed properties,"
Carter said. "Everybody likes a good deal."
The recent sales boost likely serves as the first
indication of the market's inevitable resurgence from
the depths of the sub-prime lending crisis, said St.
George real estate agent Jeremy Larkin, of Keller
Williams Realty.
The surge in consumer activity has proven lucrative
for Larkin's business, he said, as the Realtor's sales
have doubled since the first quarter of 2009.
Larkin described the region's housing situation as
"the tale of two markets," with prospective buyers
flocking to distressed properties and other residential units boasting impressive savings
opportunities, but little activity occurring in the o
verpriced and high-end segments of the market.
"It's as though they don't exist," Larkin said of the
overpriced homes in competition with an influx of
foreclosures and other distressed properties.
Carter said it is not uncommon to see several offers
on the same foreclosure property in Washington
County, and with increased demand for housing,
prices are on the rise.
From January to March, the average price of a
dwelling in Washington County increased by about
$11,000 to $173,673. The slight increase is an
encouraging indication of recovery, Carter said.
"Every area that we measure is getting better," he
said. "We're a long way away from finding our way
back, but we are least at a point where we can
measure the improvement."
Renewed optimism in the housing sector is not
exclusive to Washington County, with Iron County
posting a similar 45 percent year-over-year sales
increase in the first quarter, said Chris Dahlin.
president of the Iron County Board of Realtors
Iron County recorded 126 sales in the first quarter,
Dahlin said, with low prices and the federal first-
time homebuyer tax credit likely motivating buyers.
Homes priced less than $200,000 account for a
majority of the region's sales, he added.
"Home prices are continuing to drop," he said.
Foreclosures and short sales remain prevalent in
Iron County, with distressed properties representing
approximately 85 percent of the county's sales in the fourth quarter of 2009.
The county's market is rife with distressed
properties, Dahlin said, and he expects the trend to
continue at its current inflated rate for another three
to six months.
"We still have a crop of foreclosures still coming on
the market," he said. "Which means prices won't be
going up."
Dahlin said he is cautious when predicting price
changes, but he acknowledged the possibility of
continued price drops in the coming months.
The future is largely uncertain for Iron County's real
estate sector, Dahlin said, as a number of factors
could suppress the positive sales trend, including
the looming conclusion of the federal first-time
homebuyer tax credit this month and the possibility
of interest rate hikes.
"There may still be pressure for prices to come
down in the near future, especially in light of losing
the tax credit availability," he said.
BY SCOTT KERBS
Thursday, April 8, 2010
Home Affordable Foreclosure Alternatives
A new government program aimed to speed up these notoriously sluggish transactions goes into effect on April 5, increasing your chances of negotiating a distressed-property bargain.
Q: I am looking to buy my first home, and it seems like short-sales are priced much lower than regular sales. Are these prices negotiable, or are they the bottom line that lenders will accept?
A: Many lenders negotiate prices for short-sales, in which the seller is offering the home for less than is owed on the mortgage. But traditionally the only way you could find out was to submit a below-list offer and wait—often for many months—for a response. If the bank made a counter-offer, you knew you were in the ballpark; if they didn't respond at all, you were too low. By then, you may have lost all interest in buying the property.
The good news is, on April 5, this frustrating system will change at least for some buyers and sellers. That's when the federal government will begin to provide financial incentives to lenders to do more short sales. The rules also help standardize the process, so your chances of negotiating a distressed-property bargain will increase.
Under the old practices, when a financially-distressed seller brought a potential buyer who was offering less than the amount owed on the loan, the bank would order an appraisal or broker's price opinion (BPO) and then decide whether the offer was acceptable. Under the new federal rules, banks will order a BPO before the property is listed for sale, and will share information on the minimum net proceeds they're willing to accept with the sellers. If they then bring in a buyer whose offer is equal to or greater than this pre-approved amount, the lender must accept it within 10 days.
Not all sellers are eligible for this program, called Home Affordable Foreclosure Alternatives (HAFA) (for the requirements see Help for America's Homeowner's Supplemental Directive 09-09). But since the process is likely to go so much smoother for those who buy and sell under HAFA, I suggest you wait a bit until the program goes into effect and concentrate on finding these "pre-approved" deals. Of course, when you do find a property you like, you may not be the only person bidding on it. To improve your chances of winning, make sure your offer is "clean," with as few contingencies as possible (though I would never forego a home inspection). Include tax and credit records, and a mortgage pre-approval letter. If you can afford to pay cash, that will put you in an even stronger bargaining position.
Still, in your eagerness to win the property, don't forget that distressed properties often come with added financial burdens. Although under HAFA, the seller is supposed to provide clear title, to protect yourself, your contract must make it clear that you will not be responsible for any of the seller's unpaid property taxes, liens or second trusts. Also, cash-strapped homeowners often stop paying taxes and homeowners' association fees during the time between when the house is listed and the deal is closed. To make sure that you're not on the hook for these expenses, Leonard P. Baron, professor of finance at San Diego State University, recommends that you ask that the bank escrow at least six months worth of taxes and HOA fees, to cover any potential shortfall.
By June Fletcher,/ The Wall Street Journal, March 19, 2010
Q: I am looking to buy my first home, and it seems like short-sales are priced much lower than regular sales. Are these prices negotiable, or are they the bottom line that lenders will accept?
A: Many lenders negotiate prices for short-sales, in which the seller is offering the home for less than is owed on the mortgage. But traditionally the only way you could find out was to submit a below-list offer and wait—often for many months—for a response. If the bank made a counter-offer, you knew you were in the ballpark; if they didn't respond at all, you were too low. By then, you may have lost all interest in buying the property.
The good news is, on April 5, this frustrating system will change at least for some buyers and sellers. That's when the federal government will begin to provide financial incentives to lenders to do more short sales. The rules also help standardize the process, so your chances of negotiating a distressed-property bargain will increase.
Under the old practices, when a financially-distressed seller brought a potential buyer who was offering less than the amount owed on the loan, the bank would order an appraisal or broker's price opinion (BPO) and then decide whether the offer was acceptable. Under the new federal rules, banks will order a BPO before the property is listed for sale, and will share information on the minimum net proceeds they're willing to accept with the sellers. If they then bring in a buyer whose offer is equal to or greater than this pre-approved amount, the lender must accept it within 10 days.
Not all sellers are eligible for this program, called Home Affordable Foreclosure Alternatives (HAFA) (for the requirements see Help for America's Homeowner's Supplemental Directive 09-09). But since the process is likely to go so much smoother for those who buy and sell under HAFA, I suggest you wait a bit until the program goes into effect and concentrate on finding these "pre-approved" deals. Of course, when you do find a property you like, you may not be the only person bidding on it. To improve your chances of winning, make sure your offer is "clean," with as few contingencies as possible (though I would never forego a home inspection). Include tax and credit records, and a mortgage pre-approval letter. If you can afford to pay cash, that will put you in an even stronger bargaining position.
Still, in your eagerness to win the property, don't forget that distressed properties often come with added financial burdens. Although under HAFA, the seller is supposed to provide clear title, to protect yourself, your contract must make it clear that you will not be responsible for any of the seller's unpaid property taxes, liens or second trusts. Also, cash-strapped homeowners often stop paying taxes and homeowners' association fees during the time between when the house is listed and the deal is closed. To make sure that you're not on the hook for these expenses, Leonard P. Baron, professor of finance at San Diego State University, recommends that you ask that the bank escrow at least six months worth of taxes and HOA fees, to cover any potential shortfall.
By June Fletcher,/ The Wall Street Journal, March 19, 2010
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