Realtor Coaching & Training: mortgage lender
Luxury, Highend Foreclosures
We have been warning all of you that the no price segment or region of the country would go unaffected by this housing correction/ recession/ depression….whatever you want to call it. Now, the high end homes are experiencing the harsh realities of this market….
With the U.S. economy and financial markets showing signs of life, optimistic analysts are looking for a recovery in the all-important housing sector. They got some ammunition on June 2 from the National Association of Realtors, which said that its Pending Home Sales Index jumped in April by the most in more than seven years.
But housing can’t revive as long as the market is being flooded with homes that are falling into foreclosure. And far from going away, the problem is broadening. It’s not just about subprime anymore. Now, people with excellent credit who never dreamed of getting in financial trouble are being dragged down by a dangerous cycle of rising unemployment and falling home prices. That is going to prolong the foreclosure crisis and, inevitably, inhibit the recovery of the rest of the economy.
Any illusion that prime loans would emerge unscathed was shattered by a May 28 report from the Mortgage Bankers Assn. “For the first time since the rapid growth of subprime lending, prime fixed-rate loans now represent the largest share of new foreclosures,” the bankers said. The grime in prime was responsible for the worst performance on record for the U.S. mortgage sector in the first quarter: Nearly 13% of loans were delinquent or in foreclosure, the most since the bankers started keeping tabs in 1972. The problems were worst in the bubble states of California, Florida, Arizona, and Nevada.
The biggest factor in this second wave of foreclosures is the inability of distressed homeowners to sell in order to pay off their debts. Prices in bubble cities such as Los Angeles, Phoenix, and Miami are down less at the high end of the market than at the bottom, according to data from Standard & Poor’s/Case-Shiller home price indexes. But that’s cold comfort to people who haven’t managed to sell at all. According to research by the National Association of Realtors, there are enough $750,000-plus homes on the market to cover more than 40 months’ worth of demand at the current rate of sales. That’s four times the rate of oversupply in the housing market as a whole.
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Unemployment is exacerbating the problems at the top of the market. The jobless rate for adults with a bachelor’s degree or more may not sound too high at 4.4% in April given the overall April jobless rate of 8.9%. But it’s more than double the rate of 2% a year earlier. And many families in that segment of the population built their finances on the assumption of continuous full employment, so they can’t cover the mortgage when even one spouse is out of work.
Consider the plight of Stephanie and Bob Walker, who bought a $799,000, three-bedroom home in Los Angeles with a view of the Hollywood sign in 2006 but are losing it because last year Bob stopped getting computer consulting work that used to pull in about $240,000 a year. Bob eventually landed a job paying $60,000, and Stephanie found work as a $13-an-hour temp, but it wasn’t enough to cover their mortgage and credit-card debt, which was swelled by about $130,000 worth of home renovations. They listed the house last year for an “optimistic” $875,000 but didn’t get any takers. After months of price cuts and threats of foreclosure from the bank, they’re days from closing on a sale at $700,000 that will assuage their primary mortgage lender—but leave them under pressure from other creditors. “We had no expectation things would come crashing down as fast as they did,” says Stephanie. “We had no one to blame but ourselves. We didn’t have a backup plan if he lost his job.”
The economics at the top of the market aren’t as advantageous as they are at the bottom, where first-time home buyers are flocking to lower-priced homes, spurred by low interest rates, temporary tax credits, and a drop in prices that has made owning cheaper than renting in many cities. At the high end, homes are too expensive for most first-time buyers, and move-up buyers can’t purchase a home without selling property they already own. What’s more, financing is far costlier, if it’s available at all, because private investors have lost their appetite for big mortgages. Rates on “jumbo” loans—that is, those too big to be purchased by Fannie Mae (FNM) or Freddie Mac (FRE)—are roughly a percentage point higher than those for loans that conform to Fannie and Freddie’s purchase limits. (Those limits range from $417,000 to $730,000, depending on local housing costs.)
An inflation panic in the fixed-income market is the latest blow to homeowners who are trying to sell to avoid foreclosure, because it’s pushing up mortgage rates and pushing potential buyers out of the market. Rates on 30-year fixed, conforming mortgage loans jumped nearly half a percentage point, to 5.25%, in the week ended May 29 from a week earlier, according to the Mortgage Bankers Assn. Meanwhile, the market is unlikely to get much help from the Obama Administration’s foreclosure-prevention program. Although it’s somewhat more ambitious than the Bush Administration’s program, it is voluntary for lenders and is off to a slow start since its March inception.
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When will this second wave of foreclosures crest? David Crowe, chief economist of the National Association of Home Builders, doesn’t see the peak coming until 2011, later than most other experts predict. Foreclosures typically top out after unemployment does, and Crowe doesn’t expect that to occur until late this year. After that, Crowe says, more people will lose their homes because of upward resets on adjustable-rate mortgages. Credit Suisse says mid-2010 is the peak for scheduled resets, and resets will stay high well into 2012. While most of the subprime loans issued during the boom years have been washed out by now, there are still about half a trillion dollars’ worth of option ARMs, which allow borrowers to add unpaid interest to the principal they owe. There’s an even more alarming $2.5 trillion in “alt-A” loans, which are between prime and subprime and include a big chunk of the mortgages that required little or no proof of income or assets. Most of these loans were issued to people with relatively good credit who were buying more expensive homes.
A key unknown is how many middle- and upper-income homeowners will simply walk away from homes that are worth less than the mortgages on them. So far few have. Whitney R. Tilson, managing partner of New York investment firm T2 Partners and co-author of the book More Mortgage Meltdown, expects the ranks of walk-aways to increase, exacerbating foreclosures. But Rick Sharga, senior vice-president of RealtyTrac, a foreclosure data specialist, disagrees. “To sign a contract for a house and then walk away from it runs counter to everything we were taught,” says Sharga, who predicts foreclosures will dip slightly in 2010.
Even if foreclosures don’t rise, the rate is already so high that it will put considerable pressure on the national housing market for at least two more years, says Mark Hanson, managing director of Field Check Group, a Menlo Park (Calif.) research firm.
While forecasts differ in detail, the clear message is that foreclosure is going upscale. And that means the housing bust won’t end anytime soon.
Source: BusinessWeek.
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Number 10
I can’t make my house payments but I do have an ability to pay back all or part of the negative equity. Also, I want to preserve my credit score…is a short sale right for me?
Probably, not. In cases where the seller can pay back all or part of the negative equity (usually to the 2nd lien holder) it makes sense for them to work out a repayment plan. The lender will then release the lien and allow the home to close.
Enroll Now In Agent Short Sale Secrets.
Number 9
If I pay mortgage insurance and default on my loan, why wouldn’t that cover the deficiency amount?
The mortgage insurance is not there for your protection, just the mortgage lender’s.
Number 8
Do I have to have my home ‘Approved’ by the lender prior to offering it for sale as a short sale?
No. Technically speaking there is no such thing as being ‘Short Sale Approved’. The actual approval only happens with an accepted offer.
Number 7
I just missed a payment and I know I will miss more….how long does the foreclosure process take and is there time to do a short sale?
The foreclosure process takes differing times depending on your state. In the Midwest a foreclosure can take over a year. In California its taking 6+ months. Generally speaking a well priced short sale being processed by an educated short sale listing agent will sell and close in less than 120 days.
Enroll Now In Agent Short Sale Secrets.
Number 6
Will I still have to pay property taxes if I do a short sale?
Property taxes will always have to be paid as part of any accepted short sale. Whether it’s you or the lender depends on their policies and the specific agreement you reach while negotiating the short sale.
Number 5
I owe more than my home is worth and I can’t make the payment, do I have to somehow qualify for a short sale?
The simple answer is NO. If someone can’t make their payment and they are otherwise insolvent they qualify for a short sale. Note: insolvent simply means their total debts are great than their assets.
Number 4
Do I have to pay income taxes..I have heard that I will get a 1099. Will the loss the bank takes be treated as a taxable gain to me..the seller..is this true?
It WAS true, now it’s now. Consult your Tax Attorney or Qualified CPA. Very recently the tax law was modified and now most people who do a short sale will have no taxes due.
Number 3
How do you, my listing agent get paid..who pays you commission?
The bank will pay the commission along with all the other usual closing costs.
Enroll Now In Agent Short Sale Secrets.
Number 2
Do I have to miss a payment to do a Short Sale?
No. Late last year most major lenders started accepting short sale offers from sellers who have never missed a payment.
Number 1
I want to do a short sale and have a 2nd mortgage, does this make me ineligible?
No. Both of your lenders will need to be satisfied in some way to complete the short sale. If your first lender will be paid off by the sale, then you just negotiate the terms with the second lender. Most short sales do involve 1st and 2nd lien holder.
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Most major lenders are freezing withdrawals from Home Equity Lines of Credit (HELOCs) – and I don’t want you to be caught off guard by this development. If you were planning on using your HELOC for spring home improvements or college tuition chances are the money has been–or will be–shut off.
You should be aware that the lender retains the right to suspend or reduce the line of credit available if your property value falls below the appraised value used to originate the loan. Lenders are actively assessing properties and then suspending access for account holders who have seen a downward slide in their home value. Many of our students who do BPOs are reporting to us a dramatic increase in BPO requests from lenders for this reason.
From Countrywide..sent to borrowers before Countrywide Froze Helocs:
‘Important message about your loan: At Countrywide Home Loans we are committed to helping customers sustain homeownership. As part of the commitment, and in keeping with its sound risk-management and responsible lending practices, Countrywide Home Loan is reviewing and analyzing home equity lines of credit in its servicing portfolio.
As you know, home values in many areas of the country have declined. We believe that the decline in the value of your property, from its original appraised value at the time your loan was made is significant. In accordance with the terms of your Home Equity Credit Line Agreement and Disclosure Statement (Agreement), we have elected to suspend further draws against your account as of the Effective Date above.’
On Friday, the Los Angeles Times reported that Countrywide notified many homeowners they’ve lost their right to borrow against their credit lines:
‘ Tens of thousands of homeowners with home equity lines of credit are getting a rude surprise: They’ve been told by their lender that they can no longer take money out on their credit lines because sinking home prices have left them with little or no equity.
Among the lenders taking such action is Countrywide Financial Corp., which sent 122,000 letters to customers last week telling them they could no longer borrow against their credit lines. In some cases, according to the company, the borrowers are now “upside down” — the total debt on the home exceeds the market value of the property.
Calabasas-based Countrywide, the nation’s largest mortgage lender, says it uses computer modeling that factors in changes in home prices to determine which customers will have their money tap shut off. ’
Will we see a Chase HELOC freeze, or a Bank of America HELOC Freeze? What will that do to the economy?
If there was any question that consumers were feeling the pinch before…just wait until they are told that their homes are worth LESS than what they owe. Or in the word of Coutrywide…’Significantly Less” Think that will have an effect on the economy..think this will make consumers feel more confident about housing?
Free Instant Free Download of Tim and Julie Harris’s 7 Part Agent Short Sale Secrets Crash Course www.AgentShortSaleSecrets.com. Instant Free Download.
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I’m a mortgage lender. One of the spokes in my wheel is to spend a few hours a week visiting Real Estate offices to get in front of new people. I meet people on a regular basis, and I can see who’s working and who’s not.
Last Friday, I did my tour. I hit 17 Real Estate Offices in the north Columbus suburbs. Only one of them, an independent brokerage, had more than 5 people working. I heard the sound of ringing phones in everyone’s empty office, and only the receptionist was there.
Not a good way to rev up for the new year and the new market, is it? Yet, on the other hand, between Thursday and Friday, I got a half dozen calls from people that were looking for options–having trouble making their mortgage payments. These are prime prospects that probably ALSO called a Realtor to see if they could sell there house…only finding someone that is actually working might be impossible!
That means a HUGE opportunity for the agents that are working, findable, and available. In the 2 minutes I was at a local Coldwell banker office, the receptionists took 2 sign calls with nobody to transfer them to because none of the 70 agents pictured on the wall was there. ANY agent that was present and ready to work had the chance to help someone. The standard isn’t that hard
Right now–in January–clients are looking to figure out their housing situation and to get rid of the uncertainty. If only 2% of the people are working, be part of that 2%. Be available to people that need to get some work done! There is an ENORMOUS opportunity to win the game right now. I couldn’t help ANY of the 6 people that called me because they were behind, or their values were off. I betcha there are TONS of people RIGHT NOW looking to get out of their homes, and it’s time for great agent to help out!
Chris Johnson runs the Ten Day Team at First Ohio Home Finance. He closes 100% of his conventional loans in Ten Calendar Days. Interested in having a client closed in ten days? email: chris@tendayteam.com
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