Good SoCal Housing News Or Is It?

After months of plunging home prices, Southern Californians heard today that, yes, it’s true….homes have not tanked for the last three months!  It might be a trend! That’s almost all the good news. The other good news is that last month saw a veritable frenzy of home buying as prices throughout the Southland surged 52% over last year. Of course, last year was abysmal, but, oh well, you gotta get your good news where you can.

Here’s the wet blanket to douse those little flames of hope that might be springing up around us. Well, for one thing, there was a foreclosure moratorium and then lenders were holding back the flood, waiting for the new Obama housing policy to be revealed. Obama’s plan came out last month and the first refis started last week.  It will help. But, for so many there will be no help.  Expect foreclosures to surge again soon, putting more downward pressure on prices as lenders try to unload their inventories. It seems that in this first quarter [Q1] of 2009, foreclosure notices, NODs, have jumped 24%. More than 805,000 homeowners got such notices in the past three months. That means during the next three months we’ll see a tsunami of trustee sales and then a few months later a mountain of lender-owned property will hit the market.

Unless government has a few more tricks up its sleeve, prices here will continue to decline in the face of foreclosure. That will, in turn, put more homeowners “underwater” or owing more than their homes are worth. Man of these homeowners will decide it’s simply not sensible to pay the $3000 a month on the $400,000 or $500,000 mortgage when the property is now worth only $250,000. They will short sale their homes and  later buy another for $250,000, effectively cutting their  housing costs in half with today’s low rates.

As an illustration of how crazy we were:  A few days ago I did a BPO, a broker’s price opinion, of a 738 square-foot single family property with a double garage in La Puente. This tiny little house is now a repo, but it sold back in 2006 for $419,000! That’s just wrong. It has a nice lot with a wrought-iron and block fence in front and good curb appeal. But, it’s only a 2 bedroom/1 bath. The former homeowner slapped up a lean-to in the back with an exterior toilet in a little cubicle and a tiny studio wtih another bathroom as a crude rental, it seems. It’s all illegal, of course, and must be torn down. The sad remains of people desperate to save the home and perhaps their life savings. How could it ever have seemed like a good idea to buy that house?

Just as a souvenir, I guess, the L.A. Times today published a chart showing all SoCal Counties and home values during the last 8 years. Now, median SoCal home value is $250,000, less than half what it was in 2007 at the peak of the market.

It’s reached the point now that in many cases it’s cheaper to buy than to rent or at least it’s equivalent. Builders are telling us that new home values are now below replacement costs. Since these two factors are true, that also tells us that just like the last Great California Recession in the mid-90s, prices will come roaring back….sometime. Last time, it took a full 5 years. This time will possibly take as long.

socal-home-sales-and-prices

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What Happens If You Rent & Your Home Is Foreclosed?

Fannie Mae Announces New Policy for Renters in REO Properties
for-rent

Recently,  Fannie Mae released an announcement describing a new policy that will allow qualified renters to remain in Fannie Mae-owned foreclosure properties. Formally known as the National Real Estate Owned Rental Policy, it is meant to address the difficulties faced by tenants who – often through no fault of their own – face serious disruptions in their lives because the owner of the property in which they live has been foreclosed upon.

Renters in properties owned by Fannie Mae will be able to stay in their homes after the foreclosure. Note: this applies only to renters in the property at the time of the foreclosure. It does not apply to the borrowers who lost the home or any of their immediate relatives.

Any  type of property  can qualify: single-family homes, condos, co-ops, manufactured housing, or one-to-four unit buildings.

Key features of the new policy are

  • After the foreclosure is complete, renters will be offered the opportunity to either accept an incentive payment to vacate the property (“Cash for Keys”) or they may sign a new month-to-month rental agreement with Fannie Mae.
  • Fannie Mae will not require payment histories or credit checks.
  • Renters will be charged market rents. This means renters may have to pay higher rents.
  • No security deposit will be required. Nothing is said about the former landlord’s possibly unreturned security deposit.
  • The property will be for sale, and may undergo repair or rehab work, during the term of the tenancy. Tenants must cooperate with the sale.
  • If the property sells, the lease will transfer to the new owner who may decide to occupy himself.
  • The property will be managed by a real estate broker and/or a property management company.

Under this plan, tenants, many of whom are not aware their home is even in foreclosure,  are not forced out into the street. But, all leases will be month-to-month, meaning tenants may have to move within 30 days of a sale.

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Loan Restructuring v. Loan Modification: What’s the Difference?

Cover for the first Zombie-Loan manga volume
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Mortgages and foreclosures, never popular topics, are dominating the news lately. Gradually, we are learning ways to halt or at least slow this onslaught of foreclosures ravaging neighborhoods and ruining lives.  One stop-loss method is loan modification. Typically, loan mods are for homeowners who are behind in their payments and are facing  foreclosure. In fact, I’ve even done a previous post about Loan Mod Myths.

Yet, loan mods do work. Here’s who will benefit from a loan mod:

Loan Modification Eligibility

  • Minimum of 12 months elapsed since loan origination date.

  • The mortgagor [homeowner]  most be delinquent (3 full payments due and unpaid) or more.

  • Default due to a verifiable loss of income or increase in living expenses.

  • The Loan Modification mortgage must remain in the first lien position.

  • Loan may not be in foreclosure when executed.

  • Owner occupant, committed to occupy property as primary residence.

  • Mortgagor has stabilized surplus income sufficient to support the Loan Modification mortgage.

  • Does not have another FHAinsured mortgage.

In some cases, the banks today will modify loans for those who are less than three months late. And, banks will modify investor-owned or non-owner occupied. Banks do require financial information, such as pay stubs and tax returns, but credit scores are not an issue.

What this all means is that you must have enough income to support the new payment. Banks will not modify your loan if you cannot show you have the income to sustain the new, lower, payment.

If you can’t show the income, then the best option for you is probably a short sale which will do less damage to your credit than a foreclosure and allow you to purchase another home within 2 years, provided, of course, you’ve paid your debts during these years and you can qualify for a loan.

What about those who are not behind in their payments?

For those current in their payments, Loan Restructuring , may be the answer. If you have not missed payments or perhaps find yourself owing more than your home is worth, you may be able to  redo your  loans without having to bear the cost of refinancing.

How is this possible?  Who is eligible for loan restructuring? Essentially, if you do not fall into any of the loan mod categories, then you may be eligible for a loan restructuring.

Loan Restructuring Criteria

  • Homeowner may be current in mortgage payments or  have missed a payment or two
  • Mortgagor does not have to reside in the property; investment property qualifies.
  • Mortgagor may receive a reduction in principal, interest and a cash refund.
  • No “Hardship” letter is required.
  • Existing income, debt, credit scores  do not matter.

A loan restructuring may enable you to reduce your principal, especially in areas where property values have fallen drastically and many owners are thinking of “walking away.” How exactly can this happen?

In seeking to restructure a loan, the homeowner re-examines the loan at the point when it was originated.  Attorneys or real estate brokers, like myself, working with attorneys search the documentation of the loan to see if it was  predatory in nature or, if not, if it  did not fully comply with federal Real Estate Settlement Procedures Act [RESPA] requirements. If a flaw is found,  the original loan is voided and restructured (not modified). This allows the homeowner or his representative  to negotiate with the lender from a position of strength. If the loan was “bad” from the beginning, why modify a loan to the advantage of the lender? Restructuring is clearly the best option for the homeowner.

If the loan is found to be predatory or in violation of RESPA, the homeowner may also be eligible for a refund of all or part of the original closing costs.


As we have all heard, banks packaged our mortgage loans into so-called “exotic” financial instruments and sold them all over the world. It’s these mortgage-backed securities and credit default swaps which are the original cause of our Current Recession. In their bottomless greed, banks sold and resold mortgages, slicing and dicing them into parts which they cannot now put back together. It is these mortgages which are great candidates for restructuring.

If you think you might qualify for a restructuring, call or email me and for a small fee we can find out. If your loan is not eligible for restructuring, the fee will be returned.

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