Archive for the 'Ask the "Specialist"' Category
There Will Be More Strategic Defaults in the Future
July 19th, 2010 categories: Ask the "Specialist", Just "My" Opinion
I predict strategic defaults are going to be the next wave of foreclosures.
It was reported that the financial markets will not recover for another 3 to 7 years.
As I see it Real Estate is the last to recover. I predict it will take 7 to 10 years before Housing will recover.
Why would anyone want to hold onto real estate for that long and continue to take a loss each year?
The argument of “what is the right and ethical thing to do” is no longer a valid argument.
I say the proper thing for people to do is ask themselves “should I continue to throw good money after bad money” or ” should I just pull out and take the loss now” ?
These Economic decisions are beginning to out way ethical or moral decisions and this is why I say we are going to see more strategic defaults.
Many people bought second homes, investment properties and these so called investments are now liabilities instead of assets.
Soon people will learn that true wealth is not measured by what one owns rather how one lives and saves.
A home can be a necessity or an asset when it is paid off in full or it can be a liability and long term debt.
“The Richest Man in Babylon” did not become the wealthest man in his day by spending more than he earned.
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In The End Everyone Looses when Short Sales are Denied.
July 19th, 2010 categories: Ask the "Specialist", Just "My" Opinion
One of my short sales was denied by the bank. The reason was not because I did not have an offer because I did.
But let me start this story from the beginning not the end.
It was July of 2009 that I met with the seller. She purchased 3 condos with an Option Arm loan and paid $170,000 for each unit. The last unit sold in the building was $29,000 and this was a 2 bedroom/1 bath foreclosure sale just like my sellers unit.
I had the unit listed for sale at $50,000 and the “Highest and Best” offer was $35,000 cash offer. The unit was listed for 340 days and was seen by 337,000 people on Realtor.com. This really was my best offer.
Chase Bank was the servicer of the Loan while BOA was the investor. In the end Chase bank would not submit our Cash offer to the Lender because they said it was too late and the file was too old.
Poor Excuse. In the end everyone looses.
- The Bank looses because any offer in the future will be less than what they received today.
- The Seller looses because they end up with a foreclosure on their record.
- The Buyer looses because he does not end up buying something they want.
- The Tenant looses because he has been paying rent and now is being forced to move even though he did nothing wrong.
I am starting to think both Chase and BOA are doing nothing but C-T-A (Covering their Asses) when it comes to the current real estate market.
We need to change that soon.
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Where are all the Foreclosures? Only the Shadow Knows ….
June 14th, 2010 categories: Ask the "Specialist", Just "My" Opinion
How many foreclosures are out there? As far as I can tell “Only the Shadow Knows”.
The new buzz is there is a large shadow inventory of foreclosures yet to hit the housing market.
Keeping this inventory of homes off market helps to stabalize prices of homes in the short term.
Imagine all these homes coming on the market at one time. There would not be enough buyers to absorb the number of homes for sale and this would cause home prices to tumble.
But lets say we hold onto the homes and keep them off market.
The result would be a steady flow of homes for sale and a more steady market and this would be good for the real estate market.
Why because the ratio between home buyers and homes for sale is an important number. This is called the Absorbtion Rate.
If there are more homes for sale than buyers this is called a buyers market. In a buyers market home prices will be lower.
If there are more buyers than homes this is called a sellers market. In a sellers market home prices will be higher.
So the logical thing for banks to do right now is to keep homes off the market until there are fewer homes than buyers. By keeping homes off the market banks feel the homes will be worth more.
In math we were taught the theory of ”two negatives equal a positive”.
I am not sure this is the right position for the bank because we are talking about money here and the value of money does not remain stable over time.
We can see that now in the stock market and in the Euro Zone, and Greece. What was worth a dollar today may not be worth that in the future. So if the bank holds on to a bad asset too long it might be actually worth less. This is a gamble the banks are taking.
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New Study On Illinois Foreclosure reveals…
April 29th, 2010 categories: Ask the "Specialist", Market Data
The Woodstock Intstitute releases new study on Foreclosures in Illinios and the results do not look favorable.
According to this new study, there were 9,302 completed foreclosure auctions in the first quarter in the region. This number was the largest number recorded in a quarter since 2006.
This number represents a 56% jump when compared to the first quarter in 2009. Within a six county region, Kane County saw the largest increase with a 122% year over year completed foreclosure auctions.
According to the Woodstock Institute the reason for the increase in Foreclosure auctions maybe the result of the statewide moratorium on foreclosures in support of the Home Affordable Modification Program (HAMP). In January the moratorium was lifted.
It also appears from early data on HAMP that 50% of all loan modifications fail. As they fail lenders have no other recourse but to begin the foreclosure process.
Geoff Smith of the Woodstock Institute asks ” Did the moratorium help borrowers in the end?” “Are these foreclosure provention programs working” ” If HAMP was working you’d have less completed foreclosures.”
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SFR Certificate
March 25th, 2010 categories: Ask the "Specialist", For Buyers, For Sellers
The National Assoication of Realtors (NAR) offers a Short Sale and Foreclosure Certification Course to Realtors who want to help both buyers and sellers navigate these complicated transactions, as demand for professional expertise with distressed property sales continues to grow.
I recommend working with a Realtor who has received the SFR designation to assist you when buying or selling a home in today’s market. According to a recent NAR survey, nearly one-third of all existing homes sold recently were either Short Sales or Foreclosures.
Realtors who have earned the SFR certificate know how to help sellers who need to sell their home as a Short Sale or help buyers with Short Sale and Foreclosure opportunities.
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5 Stages of Grief in a Short Sale
March 1st, 2010 categories: Ask the "Specialist", For Sellers, Short Sales
As a former Social Worker I am reminded of Elizabeth Kubler-Ross book “On Death and Dying’ and the five stages a terminally ill patient goes through when informed of their life threatening illness.
The five stages she identifies in her book are:
- Denial ( this isn’t happening to me!)
- Anger( why is this happening to me?)
- Bargaining ( I promise I’ll be better person if…)
- Depression ( I don’t care anymore)
- Acceptance ( I’m ready for whatever comes)
As I reviewed these five stages and relate them to Sellers I have worked with or am currently working with I am drawn to how these same stages are exactly what sellers go through when selling their home in a short sale.
Stage 1 Denial:
Many sellers who are falling behind in their mortgage payment often do not get help or seek help because they are in total denial. They often think nothing is going to happen to them even after the bank has sent them the Notice of Default letter.
Stage 2 Anger:
This is a very difficult stage. Many homeowners remain angry through the Short Sale/Foreclosure process. Reports of homes being trashed and appliances missing are usually the signs of people who have a lot of anger and direct this anger onto the property.
Stage 3 Bargaining:
This is the stage where sellers exhibit a lot of ambivalence. They do not want to loose their home and will do almost anything to keep it. Some sellers will contact their lenders and try to negotiate a loan modification while you are doing a short sale. You have to be aware of your seller in this stage because they are very vulnarble and will sabotage any efforts you have initiated because they have not truly accepted the need to sell their home.
Stage 4: Depression:
Sellers in this stage just stop caring about the house and will withdraw from you as their agent. It is important to maintain contact with your sellers during this stage and give them support and assure them that what they are doing is in their best interest.
Stage 5 Acceptance:
This is when you see your seller come out of their shell and begin to prepare for a life after the Short Sale.
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INDY MAC VIDEO
February 15th, 2010 categories: Ask the "Specialist"
A friend of mine sent me this video about Indy Mac. I think everyone who is involved negotiating a Short Sale with a Bank should watch this video.
http://www.thinkbigworksmall.com/mypage/player/tbws/23088/1556915
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Home Affordable Foreclosure Alternative (HAFA) Explained
February 11th, 2010 categories: Ask the "Specialist", For Sellers, Short Sales
Home Affordable Foreclosure Alternatives (HAFA) will begin April 5th of 2009.
What is HAFA?
It is a new Foreclosure prevention program designed to streamline the Short Sale and Deed-in-lieu of foreclosure process.
- Those homeowners who are not eligble for the Home Affordable Modification Program (HAMP) can apply for the HAFA program. Those who do not qualify for HAMP and wish to avoid foreclosure can do so by applying for the HAFA program.
Who is Eligible for HAFA?
- Home owners who are delinquent or in default on their mortgage on their principal residence.
- Loan must have origination date January 1, 2009 or sooner.
- Amount of loan cannot exceed $730,000
- Current mortgage exceeds 31% of homeowners gross income.
What are the Steps?
Borrowers expresses interest in HAFA program.
Servicer has 14 days to determine Net Proceeds they will accept in Bank Directed Short Sale. This amount is expressed as a :
- % of current market value;
- % of list price;
- fixed dollar amount.
Step 2:
A Short Sale Agreement is put into action with a written agreement between lender/servicer and borrower. This agreement shall include:
- List Price/ Allowable Net proceeds to lender
- Guarantee 120 days or greater before lender can pursue foreclosure.
- Homeowner must agree to pay 31% of gross income while Short Sale is being considered
- Maximum Real Estate Commission of 6%. Realtor must also agree that out of the real estate commission a % or $ amount will be paid a third party vendor.
Step 3:
Borrower must provide evidence within 14 days of Short Sale Agreement (effective date)
- A signed copy of a Broker Listing Agreement at Approved List price.
- Information regarding any Subordinate Liens.
- Market the property 120 days or greater
- 3 business days to submit all offers
- Servicer has 10 days to approve all offers.
- Buyer has 45 days to get financing and close
- Borrower has 45 days to move out of the house from date contract has been acccepted.
HAFA Agrees to the following Payments :
- B orrower to receive $1,500.00 for moving expenses.
- Servicer to receive $1,000.00 for processing costs.
- Investor to receive a $1,000.00 back on maximum $3,000.00 paid to all subordinate liens.
Advantages to HAFA:
- No hidden administrative fees can be asked from borrower from servicer.
- The investor must waive all rights to seek a deficiency judgement.
Disadvantages of HAFA:
- Subordinate liens may not agree to $3,000.00 maximum payment.
- Investor owned property does not qualify.
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HAFA Program Explained …
January 19th, 2010 categories: Ask the "Specialist", Just "My" Opinion, Short Sales
The HAFA program is a logical addition to the HAMP program.
My friend Jafer Hasnain of Lifeline Assets has written an article on the HAFA program and I am glad to share his article here on my website.
Thank you Jafer…
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Mortgage Foreclosure Policy: Past, Present, and Future
December 22nd, 2009 categories: Ask the "Specialist"
This is a follow up to a recent Foreclosure Seminar I attended at the Federal Reserve Bank of Chicago on December 9th and 10th
The two day Seminar was quite impressive and the discussions were even more interesting.
THE PAST:
Home ownership was considered the American Dream. As desire to own a home increased the building boom soon followed. As new homes were being build, new buyers entered the housing market.
New Buyers created a demand for new mortgage products.
The rapid appreciation of home values fed the the second boom in housing demand.
As more buyers entered the market, mortgage lenders competed with one another and tried to attract these buyers with exotic mortgage products ( sub-prime, Adjustable Rate, Intrest only, 100% financing) with teaser rates.
The combination of new buyers, higher risk loans, and higher risk capital all created a very competitive housing market.
Loan originators had no risk because they did not hold onto the loans. They pooled and sold these mortgages to the Secondary Mortgage Market.
There became a market demand to bundle these high risk loans as security instruments and sell them to investors on Wall Street.
Private-Labeled securitzation fueled the demand for high risk lending. Sub-prime and Alt-A2 mortgage backed securities increased from $98 billion in 2001 to $814 billion by 2006.
Investors who bought and sold these securities felt home values would compensate for any risk associated with the loans. If a loan went into default the homes value would more than cover the cost of the loan.
PRESENT:
More homeowners are falling behind. One in four homeonwers are delinquent on their mortgage.
Foreclosures are at an all time high and home values are declining as a result.
The Government program to modify loans “Making Home Affordable Modification Program” (HAMP) has been a failure to date.
Only a fraction of the mortgages on a national basis have been permanently modified.
Nationally there are over 9 million homeowners in default and to date there are only 728,000 active modifications. Only 31,282 mortgages have been permantly modified across the nation. This means a majority of the modifications remain as trial mortgages.
It is predictated that most of these mortgages will re-default.
Finally, more homes are just being abandoned and left vacant. These vacant buildings cause more crime, continue to lower home values for neighborhoods.
Future
Most of the experts predict the foreclosure crisis and larger financial crisis to continue well into 2010 .
New Option Arm Loans are due to reset next year, and unemployment will cause more homeowners to fall behind on their mortgage.
Home values will continue to decline and more people will owe more money than their home is worth.
As more people go into foreclosure neighborhoods, cities, and regions are impacted.
Vacant buildings that are neglected cause siginificant concern for most city officials. Not only is crime a problem, but the cost to cure the problems is a major concern.
To address this problem communites are using Neighborhood Stabilization Program (NSP) dollars to buy up foreclosures in the community, demolish homes that are not salvagable, and rent and sell homes to qualified buyers.
It was recommended and generally accepted by most people who attended the seminar that it was best to keep homes occupied.
More effort is needed to modify loans and keep people from loosing their homes to foreclosure.
The current “Extend and Pretend” policy of lenders needs to be abandoned. As home values continue to decline current mortgages should be re-set at the current market values.
Lenders will be required to write-off the difference between what is owed and the current market value in order to keep people in their homes.
Until this happens, communites most affected will have to find ways to assist people and keep them in their homes.
Better foreclosure prevention programs need to be developed.
Pilot programs like Annette Rizzo’s court in Philadelphia, where homeowners and lenders are forced to negotiate in a court room, needs to be explored and reviewed to see if it really does help people and stop foreclosure.
Better Credit counseling programs need to be developed where people are taught how to save more money.
Creating New Zoning ordinances and Urban design to help families work and live and prosper together.
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