Realtor Coaching & Training: Obama
Rick Sharga, RealtyTrac
Breaking News: New foreclosure filings drop…but, is this reason to celebrate…or is something else going on?
U.S. foreclosure filings rose at the slowest pace in four years in February as the government sought to reduce record bank seizures, RealtyTrac Inc. said.
A total of 308,524 properties received a notice of default, auction or seizure last month, or one in 418 households, the Irvine, California-based seller of default data said today in a statement. Filings rose 6 percent from a year earlier, the smallest increase since RealtyTrac began tracking annual changes in January 2006. They declined 2 percent from January.
The Obama administration’s main effort to keep people in their homes resulted in more than 830,000 trial loan modifications for delinquent borrowers through January, according to the Treasury Department. Still, filings were up for the 50th straight month in February on an annual basis and topped 300,000 for the 12th consecutive month, RealtyTrac said.
“This leveling of the foreclosure trend is not necessarily evidence that fewer homeowners are in distress and at risk for foreclosure, but rather that foreclosure prevention programs, legislation and other processing delays are in effect capping monthly foreclosure activity,” RealtyTrac Chief Executive Officer James J. Saccacio said in a statement.
About 116,000 mortgages have been permanently modified under the government’s program, compared with as many as 4 million targeted by December 2012. New data will be released March 15, Meg Reilly, a Treasury spokeswoman, said in an e-mail.
Winter storms may also have delayed the processing of foreclosure notices in the U.S. northeast and mid-Atlantic, RealtyTrac said.
Interesting point…many state offices were simply closed due to the weather. That will result in what appears to be fewer filings but, the reality is that we will see another surge in next months report. So, if the Obama administration wants to truly slow down the rate of foreclosure filings maybe they should simply mandate more ’snow days’ for the states county court houses! Hey, don’t laugh…that would be a heck of a lot cheaper than HAMP!
Bank Repossessions
Bank seizures are increasing the number of homes for sale. Lenders took back 78,683 properties last month, up 6 percent from February 2009 and down 15 percent from a peak in December, RealtyTrac said. More than 2 million empty homes were on the market in the fourth quarter, according to the Census Bureau.
“Government programs are helping to keep more supply from coming out,” Brian Bethune, chief financial economist at IHS Global Insight in Lexington, Massachusetts, said in an interview. “We’ve got a disjointed market where most of the housing supply is coming from foreclosures rather than building new homes.”
‘High’ Foreclosure Rate
Bethune predicted a “high” rate of foreclosures for at least the next 12 months. RealtyTrac expects record bank seizures this year, said Rick Sharga, executive vice president for marketing.
So, as an agent what should you do? Simple. Learn how to become a REO Listing agent…and make money from BPOs. Its NOT too late for you to become a REO listing agent. Banks are looking for agents to do their BPOs and list REOs NOW. Watch the FREE Agent REO Secrets Video and then Grab your FREE Agent REO Secrets book.
The cost of borrowing for home purchases will probably rise as the Federal Reserve winds down a program to purchase as much as $1.25 trillion of mortgage bonds, according to George Mokrzan, senior economist at Huntington National Bank in Columbus, Ohio. Mortgage rates fell to 4.95 percent in the week ended today from 4.97 percent, Freddie Mac said in a statement.
Default notices totaled 106,208 in February, down 3 percent from a year earlier and up 3 percent from January, RealtyTrac said. Defaults peaked at more than 142,000 in April.
Scheduled auctions totaled 123,633 last month, up 16 percent from February 2009 and down 1 percent from January. The peak was more than 144,000 in August.
Nevada, California
Nevada had the highest foreclosure rate for the 38th straight month in February, with one in 102 households receiving a filing. Arizona and Florida tied for second at one in 163 households.
California ranked fourth at one in 195 households, followed by Michigan at one in 226. Utah, Idaho, Illinois, Georgia and Maryland rounded out the 10 highest foreclosure rates.
The most filings were in California, with 68,562, down 15 percent from a year earlier. Florida was second with 54,032, up 16 percent, and Michigan was third at 20,028, a 59 percent rise.
Illinois had the fourth-highest total filings with 17,312, Arizona had 16,718 and Texas had 12,638. The six states accounted for 61 percent of the U.S. total, RealtyTrac said.
Georgia, Ohio, Nevada and Maryland rounded out the top 10.
Filings rose 14 percent from a year earlier to 3,750 in New Jersey. They climbed 3.3 percent to 2,294 in Connecticut, and dropped 20 percent to 3,237 in New York.
Las Vegas had the highest foreclosure rate for cities with a population of more than 200,000. One in 90 households there got a filing. Cape Coral-Fort Myers, Florida, was second at one in 92.
Six metro areas in California or Arizona had decreases in filings from January, with Phoenix showing the biggest drop at almost 18 percent.
Port St. Lucie, Florida, showed a 66 percent increase, said RealtyTrac, which sells default data collected from more than 2,200 counties representing 90 percent of the U.S. population.
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Harris Real Estate University.
New Obama Treasury Department program PAYS homeowners to avoid foreclosure..and do a short sale….lets call this one…’Cash For Walkers’
Why not?
We already have..’Cash For Clunkers’ and the proposed ‘Cash For Caulkers’….maybe this new program should be called…Cash For Walkers?
Afterall, this is what happens when someone decides to take the Treasury Department up on their offer to do a short sale vs allowing the home to go into foreclosure.
We first reported on this detail of the soon enacted HAFA Program clear back in November. Watch the videos we made for you about HAFA..and why 2010 IS the year of the Short Sale.
In case you missed it…here are the details:
In an effort to end the foreclosure crisis, the Obama administration has been trying to keep defaulting owners in their homes. Now it will take a new approach: paying some of them to leave.
This latest program, which will allow owners to sell for less than they owe and will give them a little cash to speed them on their way, is one of the administration’s most aggressive attempts to grapple with a problem that has defied solutions.
More than five million households are behind on their mortgages and risk foreclosure. The government’s $75 billion mortgage modification plan has helped only a small slice of them. Consumer advocates, economists and even some banking industry representatives say much more needs to be done.
Agents, are you now 100% convinced that 2010 IS the year of the Short Sale? If not, go back and read those last few sentences again. Next, learn NOW how to become a HREU CDPD (Certified Distressed Property Designation). Watch the FREE Agent Short Sale Secrets video and download the FREE Short Sale book!
For the administration, there is also the concern that millions of foreclosures could delay or even reverse the economy’s tentative recovery — the last thing it wants in an election year.
Taking effect on April 5, the program could encourage hundreds of thousands of delinquent borrowers who have not been rescued by the loan modification program to shed their houses through a process known as a short sale, in which property is sold for less than the balance of the mortgage. Lenders will be compelled to accept that arrangement, forgiving the difference between the market price of the property and what they are owed.
Re-read that. Part of the new HAFA program is that the lenders CAN’T Go after deficiency judgments. And….they can NO LONGER request that the seller sign a promissory note…or cash at closing. Watch the videos that we created for you…you need to understand what a simply massive shift will take place April 5th once the new HAFA Guidelines are in place. Watch the videos NOW.
“We want to streamline and standardize the short sale process to make it much easier on the borrower and much easier on the lender,” said Seth Wheeler, a Treasury senior adviser.
The problem is highlighted by a routine case in Phoenix. Chris Paul, a real estate agent, has a house he is trying to sell on behalf of its owner, who owes $150,000. Mr. Paul has an offer for $48,000, but the bank holding the mortgage says it wants at least $90,000. The frustrated owner is now contemplating foreclosure.
To bring the various parties to the table — the homeowner, the lender that services the loan, the investor that owns the loan, the bank that owns the second mortgage on the property — the government intends to spread its cash around.
Under the new program, the servicing bank, as with all modifications, will get $1,000. Another $1,000 can go toward a second loan, if there is one. And for the first time the government would give money to the distressed homeowners themselves. They will get $1,500 in “relocation assistance.”
Should the incentives prove successful, the short sales program could have multiple benefits. For the investment pools that own many home loans, there is the prospect of getting more money with a sale than with a foreclosure.
For the borrowers, there is the likelihood of suffering less damage to credit ratings. And as part of the transaction, they will get the lender’s assurance that they will not later be sued for an unpaid mortgage balance.
Agents, please understand…if the homeowner does NOT do a short sale…they are still on the hook for a possible judgment! Once homeowners learn about this….do you think they will want to do a short sale? Of course. Now the only question is…will you be the agent to list and sell that short sale? Learn the new proven ways to easily list and sell short sales. Become a HREU CDPD Now for only $97! Go here now to learn more.
For communities, the plan will mean fewer empty foreclosed houses waiting to be sold by banks. By some estimates, as many as half of all foreclosed properties are ransacked by either the former owners or vandals, which depresses the value of the property further and pulls down the value of neighboring homes.
Under the new federal program, a lender will use real estate agents to determine the value of a home and thus the minimum to accept. This figure will not be shared with the owner, but if an offer comes in that is equal to or higher than this amount, the lender must take it.
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URGENT BREAKING NEWS:
Harris Real Estate University Students…and future students. THIS IS POTENTIALLY HUGE NEWS.
President Obama is considering forcing ALL lenders to stop ALL foreclosures!
His goal maybe to literally force every distressed homeowner (and their lender) to attempt a loan mod using the governments HAMP Program. We can assume that once the borrower chooses not to do a mod (or doesn’t qualify for a mod) they will then be pushed to the HAFA program. Remember, the HAFA program is all about SHORT SALES (or deeds in lieu of foreclosure).
What effect will this have on REOs? Virtually none. Why? Because of the sheer number of homes that are already in the foreclosure pipeline. Any temporary moratorium would be just that…temporary. So, REO Listing Agents…you need to prepare for a years of REO listings to come. If you would like to learn how to become a REO Listing Agent..watch this video and grab your FREE How to list REOs book.
Obviously, the Obama Administration is watching the dramatically increasing foreclosure rates….and will do something more radical to attempt to slow the rate of folks losing their homes.
Bottom line…AGENTS…please be 100% clear about this. 2010 IS the Year of the Short Sale. It NOT too late for you to learn the new ways to do short sales. Earn your HREU CDPD (Certified Distressed Property Designation). Watch the FREE Agent Short Sale Secrets video now…and download your FREE Short Sale guide book.
Believe me, we will be watching this emerging story 24/7. If any new news breaks…we will let you know.
Here is the story from Bloomberg.
The Obama administration may expand efforts to ease the housing crisis by banning all foreclosures on home loans unless they have been screened and rejected by the government’s Home Affordable Modification Program.
The proposal, reviewed by lenders last week on a White House conference call, “prohibits referral to foreclosure until borrower is evaluated and found ineligible for HAMP or reasonable contact efforts have failed,” according to a Treasury Department document outlining the plan.
“It is one of the many ideas under consideration in the administration’s ongoing housing stabilization efforts,” Treasury spokeswoman Meg Reilly said in an e-mail. “This proposal has not been approved and there are no immediate planned announcements on the issue.”
She confirmed the authenticity of the document, which hasn’t been made public.
At present, lenders can initiate foreclosure proceedings on any loan that hasn’t been submitted for HAMP eligibility. Under current HAMP rules, foreclosure litigation can proceed while borrowers are under review for the program or even in a trial modification.
The proposed changes would prohibit lenders from initiating new foreclosure actions before loan screening by HAMP and would require lenders to halt existing proceedings for borrowers once they are in a trial repayment plan.
‘Improved Protections’
The Treasury Department will soon release guidance “which will include a set of improved protections for borrowers” in HAMP, Phyllis Caldwell, chief of Treasury’s Homeownership Preservation Office, said today in testimony prepared for a House Oversight and Government Reform subcommittee. She didn’t provide details.
Earn your HREU CDPD (Certified Distressed Property Designation). Watch the FREE Agent Short Sale Secrets video now…and download your FREE Short Sale guide book.
The proposal goes further than rules adopted amid the crisis by federally controlled mortgage-finance companies Freddie Mac and Fannie Mae, which require lenders to review borrowers for a federal loan modification before a foreclosed property can be sold.
Foreclosure proceedings can still be initiated without a review, said Freddie Mac spokesman Doug Duvall. Fannie Mae spokeswoman Amy Bonitatibus said it adopted the same policy last March.
About 89 percent of outstanding residential mortgage loans are covered by the voluntary HAMP program.
About 2.82 million U.S. homeowners lost properties to foreclosure last year and 4.5 million filings are expected in 2010, RealtyTrac Inc., an Irvine, California data company, said last month.
Seven Million
Obama’s foreclosure prevention initiative, announced in February 2009 to help as many as 4 million Americans avert foreclosure, has modified 116,297 loans through steps such as lowering interest rates or lengthening repayment terms. More than 830,000 borrowers received trial repayment plans through January, according to Treasury data.
“Foreclosure processes differ among states, and the process is often confusing to homeowners already facing distress,” Caldwell said in her prepared testimony. “Treasury has been reviewing guidelines around outreach and the foreclosure process as part of its continual assessment of program effectiveness and transparency.”
Foreclosures may reach as many as 7 million mortgages, and an additional 5 million are at risk of default because borrowers owe more than the property is worth, Laurie Goodman, senior managing director at Amherst Securities Group LP in New York, said in a Feb. 17 interview.
Republican Criticism
“This is a problem of mammoth proportions,” Goodman said. “You can’t throw 12 million people out of their homes, so you need a successful modification program. My fear is that this isn’t it, but I’m highly confident that the administration will continue to iterate until they succeed.”
The Treasury proposal would require all borrowers who are 60 or more days delinquent on their mortgage to be sought out for participation in HAMP. Mortgage companies would need to try to contact the borrower at least four times by phone and twice by certified mail over 30 or more days before going to foreclosure.
Under current Treasury policy, foreclosure proceedings are only halted when a borrower receives a permanent modification plan.
Earn your HREU CDPD (Certified Distressed Property Designation). Watch the FREE Agent Short Sale Secrets video now…and download your FREE Short Sale guide book.
House Republicans criticized HAMP as a failure today, saying in a report that it is prolonging the economic crisis and harming homeowners.
“By every empirical measure, HAMP has failed,” according to the 18-page report released by Republicans on the House Oversight and Government Reform Committee. “In its current form, HAMP both hurts homeowners who might otherwise spend their trial-period mortgage payments on rent and also distorts the housing market, delaying any recovery.”
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This article cites the increasing unemployment rate as the primary culprit for the projected increase in foreclosures later this year…
We suggest that is only part of the picture.
The real drivers in the seemingly never ending foreclosures are:
1) Higher end homes unable to sell because the move up buyers can’t move up…because their homes are upside down.
2) Virtually not financing available for non FHA qualifying mortgages.
3) Massive number of ARMs adjusting and those owners can’t refinance. Why? They are upside down and no programs exist to help them…
As the biggest driver for new foreclosures in 2010:
4) Strategic Defaults. Homeowners making the economic decision to strategically default vs keeping their underwater home. With the advent of the HAFA Guidelines starting in April, expect even more homeowners to bail on their homes….HREU Students, remember…2010 IS the year of the short sale.
Source: LATimes.com
Reporting from Washington – Experts fear that a new wave of foreclosures will hit this year as prolonged unemployment makes it difficult for millions of homeowners to pay their mortgages — and many of them aren’t likely to get much help from a federal program aimed at keeping them in their houses.
Banks participating in the Home Affordable Modification Program, announced a year ago this week by President Obama, have been slow to turn temporarily reduced mortgage payments into permanent ones.
“The overarching sense is that the mortgage modification process has not worked that well,” said Bert Ely, an independent banking consultant.
Obama administration officials acknowledge that the $75-billion program, which offers banks cash incentives to reduce payments, has had growing pains, and they said they were considering revisions to make it more effective.
Still, the program is expected to show continued progress when data from January are released Wednesday after a strong push by Treasury Department officials to get banks to make more of the modifications permanent.
For example, Bank of America Corp., the nation’s largest servicer of mortgages, said Tuesday that it had increased the number of permanent mortgage modifications to 12,700 last month from 3,200 in December. BofA said an additional 13,700 permanent modifications were in their final stage.
But that’s a drop in the bucket considering that BofA holds about 1 million mortgages that are at least 60 days delinquent. About 4 million homeowners nationwide are 90 days or more delinquent on their mortgages or in foreclosure proceedings, according to Moody’s Economy.com, which analyzes data from credit reporting company Equifax Inc.
Trial modifications and other delays have kept many of those mortgages out of foreclosure, but by the end of this year, 2.4 million borrowers are expected to lose their homes, said Celia Chen, a housing economist at Economy.com.
OK, Full stop! Read that number again….2.4 million short sales and foreclosures in 2010. There are expected to be less than 5 million total home sales….that is staggering.
As an agent you simply must know how to do short sales. When this much of the market is dominated by short sales…what choice do you have. Do this, watch the FREE HREU CDPD (Certified Distressed Property Designation) Agent Short Sale Secrets video…then grab the FREE Short Sale Secrets book. <———Go NOW.
That would be up from 2.1 million foreclosures and short sales last year and five times the annual numbers earlier in the decade.
It’s unclear when those distressed properties would hit the market, but their large numbers are likely to push home prices back down this year, to a bottom in the fourth quarter, Chen said. And that would make things worse for the 25% of homeowners who already owe more on their mortgages than their houses are worth.
We have been predicting that 50% of all homes in the US with mortgages would be upside by mod 2010…..and that prediction appears to be coming true.
The biggest blows will be felt in California, Florida, Nevada and other states where home prices have dropped the most and the ranks of struggling homeowners have swelled.
As of December, 11.4% of California homeowners were 90 days or more late on their loans, according to First American CoreLogic, a Santa Ana real estate data firm. That compares with a delinquency rate of 8.4% nationwide.
Despite an increasing number of foreclosure-prevention efforts, lawmakers and community advocates say they haven’t seen enough improvement.
A report last week by Moody’s Investors Service called the Obama administration modification program’s effect “underwhelming.” But administration officials said the program was on track to reduce payments for 3 million to 4 million homeowners through 2012.
As of Dec. 31, the program had helped get 787,231 home loans modified for three months and had helped make an additional 66,465 modifications permanent.
Officials noted that not all homeowners are eligible — the program is only for owner-occupied homes, and excludes a variety of mortgages, including jumbo loans. And the administration continues to make changes, including a requirement added last month that homeowners document their income before a trial modification is granted.
But the program continues to draw criticism. Banks have complained they’ve had trouble getting homeowners to provide the necessary documents. Frustrated homeowners have complained of bureaucratic runarounds from their servicers. Federal watchdog agencies have criticized the program. And last month the chairman of the House Oversight and Government Reform Committee announced an investigation.
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Seth Wheeler, Senior Advisor to the Treasury Department discussing the Obama Administration’s Home Affordable Modification Program, which isn’t working at the level needed or intended, indicated that the Obama Administration may be shifting focus from modifications to another program which simply gets troubled borrowers out of their homes as quickly and cleanly as possible.
In other words, Short Sales are the solution.
Wheeler told ASF members and guests, “Short sales, deeds in lieu are other ways to prevent foreclosures to help achieve stability [in housing],” “Modifications are only for a certain subset of distressed homeowners.” Translation: not many want to mod their loans or can mod their loans.
As you will recall last November the Treasury launched the Home Affordable Foreclosure Alternatives program which specifically targets short sales and deeds in lieu of foreclosure.
Watch the video about HAFA Now.
So, here is how it works….’troubled borrowers’ are sent to the HAMP program first. In other words, the first thing the lenders will do is offer mortgage loan modification. Next, if the borrower can’t or won’t do a loan mod…then…they are directed to the HAFA program. Here are the details of this process:
Servicers must consider possible HAMP eligible borrowers for HAFA within 30 calendar days of the date the borrower:
- Does not qualify for a Trial Period Plan;
- Does not successfully complete a Trial Period Plan;
- Is delinquent on a HAMP modification by missing at least two consecutive payments; or
- Requests a short sale or DIL. This last point is interesting. You need to be aware that when your client calls their lender and the lender attempts to ‘force’ them to their loan mod department under these new guidelines the borrower can request to go directly to the short sale department. Kind-a confusing but, you get the idea.
Here is what you need to know about HAFA. Remember, the video that we created for you last year about HAFA is HERE.
- The HAFA program offers incentives in this program “upon successful completion of the short sale” or Deed in Lieu.
- Borrower receives relocation assistance of $1500.
- Servicer incentive of $1000 to cover administrative and processing costs and investor reimbursement of $1000 for subordinate lien releases. That’s when the investor allows up to $3000 in short sale proceeds to go to subordinate lien holders.
- Participating lenders can NOT pursue a deficiency judgment post short sale (or DIL) closing. This will be the end to all the mickey-mouse lenders try to get borrowers to agree to post closing. Like, paybacks.
Bottom line, expect the HAFA program to be front and center starting this April once the new guidelines are in full effect. Its our believe that these new guidelines will usher in what we have been advocating for years…the streamlined short sale! Agents, 2010 IS the year of the short sale. Watch the FREE Harris Real Estate University Agent Short Sale Secrets CDPD video and download the FREE book NOW.
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Harris Real Estate University Students…as we predicted, strategic defaults are now moving to center stage.
As millions of homeowners find themselves underwater in their home loans many are turning to a ’strategic default’ as their solution. Agents, be prepared for what is coming next. Understand that in your market more homeowners will be considering a strategic default. Help the economy…help your community…and help the homeowners to avoid foreclosure. As you (hopefully) know by now HREU has declared 2010 the Year of the Short Sale. The banks, the government, real estate brokers (finally)…and your real estate clients will expect you to know how to do short sales. Watch the FREE Agent Short Sale Secrets video and grab your FREE Agent Short Sale Secrets book. You can enroll now to become a HREU CDPD for only $97.
In 2006, Benjamin Koellmann bought a condominium in Miami Beach. By his calculation, it will be about the year 2025 before he can sell his modest home for what he paid. Or maybe 2040.
“People like me are beginning to feel like suckers,” Mr. Koellmann said. “Why not let it go in default and rent a better place for less?”
After three years of plunging real estate values, after the bailouts of the bankers and the revival of their million-dollar bonuses, after the Obama administration’s loan modification plan raised the expectations of many but satisfied only a few, a large group of distressed homeowners is wondering the same thing.
New research suggests that when a home’s value falls below 75 percent of the amount owed on the mortgage, the owner starts to think hard about walking away, even if he or she has the money to keep paying.
In a situation without precedent in the modern era, millions of Americans are in this bleak position. Whether, or how, to help them is one of the biggest questions the Obama administration confronts as it seeks a housing policy that would contribute to the economic recovery.
“We haven’t yet found a way of dealing with this that would, we think, be practical on a large scale,” the assistant Treasury secretary for financial stability, Herbert M. Allison Jr., said in a recent briefing.
The number of Americans who owed more than their homes were worth was virtually nil when the real estate collapse began in mid-2006, but by the third quarter of 2009, an estimated 4.5 million homeowners had reached the critical threshold, with their home’s value dropping below 75 percent of the mortgage balance.
They are stretched, aggrieved and restless. With figures released last week showing that the real estate market was stalling again, their numbers are now projected to climb to a peak of 5.1 million by June — about 10 percent of all Americans with mortgages.
“We’re now at the point of maximum vulnerability,” said Sam Khater, a senior economist with First American CoreLogic, the firm that conducted the recent research. “People’s emotional attachment to their property is melting into the air.”
Suggestions that people would be wise to renege on their home loans are at least a couple of years old, but they are turning into a full-throated barrage. Bloggers were quick to note recently that landlords of an 11,000-unit residential complex in Manhattan showed no hesitation, or shame, in walking away from their deeply underwater investment.
“Since the beginning of December, I’ve advised 60 people to walk away,” said Steve Walsh, a mortgage broker in Scottsdale, Ariz. “Everyone has lost hope. They don’t qualify for modifications, and being on the hamster wheel of paying for a property that is not worth it gets so old.”
Mr. Walsh is taking his own advice, recently defaulting on a rental property he owns. “The sun will come up tomorrow,” he said.
The difference between letting your house go to foreclosure because you are out of money and purposefully defaulting on a mortgage to save money can be murky. But a growing body of research indicates that significant numbers of borrowers are declining to live under what some waggishly call “house arrest.”
Using credit bureau data, consultants at Oliver Wyman calculated how many borrowers went straight from being current on their mortgage to default, rather than making spotty payments. They also weeded out owners having trouble paying other bills. Their estimate was that about 17 percent of owners defaulting in 2008, or 588,000 people, chose that option as a strategic calculation.
Some experts argue that walking away from mortgages is more discussed than done. People hate moving; their children attend the neighborhood school; they do not want to think of themselves as skipping out on a debt. Doubters cite a Federal Reserve study using historical data from Massachusetts that concludes there were relatively few walk-aways during the 1991 bust.
The United States Treasury falls into the skeptical camp.
“The overwhelming bulk of people who have negative equity stay in their homes and keep paying,” said Michael S. Barr, assistant Treasury secretary for financial institutions.
It would cost about $745 billion, slightly more than the size of the original 2008 bank bailout, to restore all underwater borrowers to the point where they were breaking even, according to First American.
Using government money to do that would be seen as unfair by many taxpayers, Mr. Barr said. On the other hand, doing nothing about underwater mortgages could encourage more walk-aways, dealing another blow to a fragile economy.
“It’s not an easy area,” he said.
Walking away — also called “jingle mail,” because of the notion that homeowners just mail their keys to the bank, setting off foreclosure proceedings — began in the Southwest during the 1980s oil collapse, though it has never been clear how widespread it was.
In the current bust, lenders first noticed something strange after real estate prices had fallen about 10 percent.
An executive with Wachovia, one of the country’s biggest and most aggressive lenders, said during a conference call in January 2008 that the bank was bewildered by customers who had “the capacity to pay, but have basically just decided not to.” (Wachovia failed nine months later and was bought by Wells Fargo. )
With prices now down by about 30 percent, underwater borrowers fall into two groups. Some have owned their homes for many years and got in trouble because they used the house as a cash machine. Others, like Mr. Koellmann in Miami Beach, made only one mistake: they bought as the boom was cresting.
It was April 2006, a moment when the perpetual rise of real estate was considered practically a law of physics. Mr. Koellmann was 23, a management consultant new to Miami.
Financially cautious by nature, he bought a small, plain one-bedroom apartment for $215,000, much less than his agent told him he could afford. He put down 20 percent and received a fixed-rate loan from Countrywide Financial.
Not quite four years later, apartments in the building are selling in foreclosure for $90,000.
“There is no financial sense in staying,” Mr. Koellmann said. With the $1,500 he is paying each month for his mortgage, taxes and insurance, he could rent a nicer place on the beach, one with a gym, security and valet parking.
Walking away, he knows, is not without peril. At minimum, it would ruin his credit score. Mr. Koellmann would like to attend graduate school. If an admission dean sees a dismal credit record, would that count against him? How about a new employer?
Most of all, though, he struggles with the ethical question.
“I took a loan on an asset that I didn’t see was overvalued,” he said. “As much as I would like my bank to pay for that mistake, why should it?”
That is an attitude Wall Street would like to encourage. David Rosenberg, the chief economist of the investment firm Gluskin Sheff, wrote recently that borrowers were not victims. They “signed contracts, and as adults should also be held accountable,” he wrote.
Of course, this is not necessarily how Wall Street itself behaves, as demonstrated by the case of Stuyvesant Town and Peter Cooper Village. An investment group led by the real estate giant Tishman Speyer recently defaulted on $4.4 billion in debt that it had used to buy the two apartment developments in Manhattan, handing the properties back to the lenders.
Moreover, during the boom, it was the banks that helped drive prices to unrealistic levels by lowering credit standards and unleashing a wave of speculative housing demand.
Mr. Koellmann applied last fall to Bank of America for a modification, noting that his income had slipped. But the lender came back a few weeks ago with a plan that added more restrictive terms while keeping the payments about the same.
“That may have been the last straw,” Mr. Koellmann said.
Guy D. Cecala, publisher of Inside Mortgage Finance magazine, says he does not hear much sympathy from lenders for their underwater customers.
“The banks tell me that a lot of people who are complaining were the ones who refinanced and took all the equity out any time there was any appreciation,” he said. “The banks are damned if they will help.”
Joe Figliola has heard that message. He bought his house in Elgin, Ill., in 2004, then refinanced twice to get better terms. He pulled out a little money both times to cover the closing costs and other expenses. Now his place is underwater while his salary as circulation manager for the local newspaper has been cut.
“It doesn’t seem right that I can rent a place somewhere for half of what I’m paying,” he said. “I told my bank, ‘Just take a little bite out of what I owe. That would ease me up. Isn’t that why the president gave you all this money?’ ”
Bank of America did not agree, so Mr. Figliola, who is 48, sees no recourse other than walking away. “I don’t believe this is the right thing to do,” he said, “but I’ve got to survive.”
This story originally appeared in the The New York Times
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Harris Real Estate University students (and future students) do you have any idea how long we have been waiting to share articles like this one with you?
Many years ago we started teaching agents to do short sales. I can clearly remember at our very first short sale training event the number one question we had from fellow agents was…
“What is a short sale”
Have times ever changed! Now it seems EVERYONE is talking about short sales. In most major markets the home sales ARE short sales (and REOs)
Here is a great story about how short sales will dominate the market in 2010 (along with REOs).
If you’re in trouble on your mortgage and can’t get a loan modification, check out the Obama administration’s new standardized short-sale plan that’s scheduled to roll out during the next several months.
The program, outlined Dec. 1 by the Treasury Department, is an attempt to streamline what has traditionally been a contentious, time-consuming process by requiring lenders and others to use nationally uniform documents, timelines and financial incentives.
A short sale involves a lender or investor agreeing to collect less than the balance owed on a mortgage debt out of the proceeds of a negotiated sale of the property. Often, a short sale is the last alternative to foreclosure available to distressed homeowners and banks. Say you’ve lost your job and fallen behind on your mortgage payments. With little or no income, you can’t qualify for a modification program.
In this situation — grim as it is — your best move may be to see if your lender will accept a short sale. Though the idea sounds straightforward, in practice it is not. First, the bank needs to be convinced that a short sale will yield it more money at the bottom line than a foreclosure.
This usually means you need to bring in a real estate agent who knows the ropes and can pull together the key information needed by the bank: recent comparables on closed sales, local market trends and the likely selling price of your house.
Plus, you’ll need to have a buyer — one who will pay a price acceptable to the bank and who has financing to close the deal. If you happen to have a second mortgage or home-equity credit line, you will also need to negotiate how much that lender will receive from the sale proceeds.
That can be tricky. In depressed real estate markets, the second lien may be worthless in a foreclosure because plummeting property values have wiped out the collateral. Yet that same bank is in a pivotal position: It has the legal power to block the short sale by refusing to sign on to the deal.
Equally troublesome in short sales is the fact that banks, mortgage servicers and bond investors often have conflicting requirements for documentation and financial yields that can complicate and drag out the haggling for months.
Enter the Obama administration’s new streamlining plan.
Thousands of agents have received their HREU CDPD* (Certified Distressed Property Designation). We have made it easy for you to learn everything you need to know to easily list and sell short sales. Watch the FREE Short Sale Secrets video and grab your FREE Short Sale Book. If you would like to go ahead and enroll now for only $97 call 1-866-422-9497 or sign up here.
Besides requiring lenders and servicers to use uniform documentation, preapproved short-sale terms and accelerated turnaround times, the plan also provides financial incentives for key players:
– Homeowners who successfully complete a short sale under the program receive $1,500 to defray relocation costs.
– Mortgage servicers can receive $1,000 per case.
– Investors get $1,000.
– Second-lien holders receive up to $3,000 from the sale proceeds.
Even real estate agents get something. The rules prohibit banks from forcing them to cut their commissions from the listing agreement as part of the final deal.
Sounds like a formula for encouraging a lot more short sales, right? The jury will be out on that for months, and most major lenders are still studying the fine print of the program. But early reactions from big banks appear to be positive.
Dave Sunlin, a senior vice president for Bank of America, said: “We’re very pleased. We welcome any effort to reach standardization for all parties” involved in short sales.
Faith Schwartz, executive director of Hope Now, a Washington-based group representing the country’s largest banks, mortgage servicers, bond investors and consumer counseling organizations, said the plan should bring “uniformity and standards” to a process usually characterized by “mayhem” among the negotiating parties.
Scott Brinkley, a senior vice president for First American, a firm that provides market data for banks, said, “You’re going to see a lot of cooperation” by lenders and investors.
As you know we have been offering short sale training for years and years now. We were the first national coaching company to teach agents how to do short sales…and we are by far the largest. Thousands of agents have received their HREU CDPD* (Certified Distressed Property Designation). We have made it easy for you to learn everything you need to know to easily list and sell short sales. Watch the FREE Short Sale Secrets video and grab your FREE Short Sale Book. If you would like to go ahead and enroll now for only $97 call 1-866-422-9497 or sign up here.
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