Great Short Sale News. You CAN Buy Another House.

Losing sleep over the precipitous drop in the value of your home? Wondering how you can continue to make payments on that $500,000 loan when the home now seems worth at most $300,000? Casting  jealous glances at the newcomers in your area who are getting bargain prices and bargain rates?

Guess what? Now you can short sell your home AND  buy another house at today’s prices and rates.

Over 14 million loans in the U.S. are now either underwater or in some stage of foreclosure. About half the nationwide sales to new buyers are either repossessions or short sales.  It seems to most underwater homeowners that there ought to be some way to connect the two–now there is. You can short sale your home and buy a similar property for half the price.

Lenders are  now coming out with new programs, many insured by FHA, which make it possible for homeowners to short sale their homes and simultaneously buy another property at today’s prices and today’s rates. Many homeowners have allowed their homes to go into foreclosure or waited helplessly for the loan modifications that never came simply because they couldn’t figure out where they were going to live if they left their homes. Some decided to stick out the school year. Others couldn’t bear to leave the neighborhood. Now they don’t have to.

Here are a few of the guidelines that will allow homeowners to short sale their current home and simultaneously purchase another home. First, they must be current on their mortgages. So, owners who have “let the property go” or who were not financially able would not qualify. Finally, here is some reward for those who have steadfastly made their payments in the face of dropping values.

Second, they must be able to qualify for the new mortgage.That means a FICO of at least 640 and income sufficient to pay for the new mortgage.That’s not as hard as it may seem. If a homeowner can pay the $500,000 mortgage at 6% or 7%, no matter with what great difficulty, think how easy it will be to pay the $300,000 with a 5% mortgage for an identical property.

Third, the buyer must have money sufficient to pay the minimum 3.5% FHA down payment and the accompanying  closing costs. The short seller will get no proceeds from the sale of his property. That’s a given. So, where will the money come from for the new property? If  it’s an FHA loan, the minimum down payment is 3.5% and that total amount can be a gift. Also, the short seller is eligible for the federal tax credit which goes up to $6500 for move-up buyers. That may be applied to the down payment or closing costs, but this is not yet determined.

Finally, some programs require that the new loan cannot be more than the previous loan. So, in this case the new loan cannot be more than the $500,000 which the  buyer was paying on the previous home. With the drop in prices today, in most markets, this will be an easy criterion to satisfy.

Impetus to do short sales just got much bigger. If you’ve been dithering about what to do and how to house the family after a short sale, these new loans could certainly aid in the decision-making process and give you peace of mind. Short selling your home and buying another one at today’s much lower values may, in fact, result in a significant improvement in your housing standards…

Mortgage Rates At 37-Year Lows!!

Finally, some good news.  Mortgage rates are now at their lowest since 1971 as the Federal Reserve continued to pour money into the morgage market in an effort to jump-start  housing sales. Freddie Mac announced that rates for 30-year, fixed conventional mortgages have dropped to 5.19%. This is the lowest rate since Freddie began its weekly mortgage survey in April 1971. Subsequently, nationwide rates fell to 5.06, the lowest since the 1960s.

All this comes as a result of the Federal Reserve buying up $600 billion of mortgage-related securities and other debt issued by Fannie Mae, Freddie Mac and other Federal Home Loan banks.

This has resulted in a surge of homeowners seeking to refinance adjustable-rate mortgages.  Refinancing, however, has become a much more difficult game than in the past few years when home owners seemed to view their homes as alternative ATM machines, refinancing sometimes two or even three times in the same year. Refinancing is now far more difficult.

First, homeowners must have equity in their homes.  Here in SoCal where prices have dropped over 35% in the past year, this means either the very conservative who did not participate in the refi craze or those who have owned their homes in good areas for a long time.  Second, the old days of no qualifying and no verification are over. Now homeowners must  qualify, providing evidence of   income via tax returns, W-2s  and bank statements. Also, even qualifying homeowners must be aware that refinancing costs money for points, title and  escrow fees as well as appraisal fees.  Yes, the fees are integrated into the new loan, but in these days of plummeting equity is that a good idea?

For those near or in foreclosure these new rates will mean little or nothing as the foreclosure will continue. However,Fannie and Freddie do plan to help distressed more homeowners via loan modifications. In fact, the plan is to up the loan mods from the 60,000 last year to 75,000 this year.  Loan modifications typically are applicable only to those who’ve missed at least three loan payments, have sufficient income to make a modified payment and still live in their homes.  Recent data have shown that, distressingly,  even those who get loan mods wind up in foreclosure a few months later.

Falling interest rates are a godsend to the economy. Just as consumers have benefited from falling gas prices, homeowners who buy now or who can refinance will find themselves with quite a windfall of extra money in their pockets. In the aggregate, this should account for billions of dollars of extra spending power and may accomplish its goal of stimulating the now-moribund housing sector.

It looks like good news for the new year. We could certainly use some.

Foreclosures Up. Big Surprise.

Across the country, foreclosures are up a whopping 71% in the third quarter  over the same period last year.  Almost 766,000 homeowners  nationwide had a sheriff show up at the door and with a foreclosure complaint in hand.

Six states made up for nearly 60% of the list: Arizona, California, Florida, Michigan, Ohio, and Nevada.   Actually, in California Notices of Default, the first stage in the foreclosure process, are down significantly–from 121,673 in the second quarter of this year to 92,240 in the third quarter. Despite appearances,  that’s not really not much to cheer about.  A new state law came online October 1. That law ia requires lenders in California  to contact defaulting homeowners first, then to wait 30 days before beginning the foreclosure process.  So, that drop is a delay, not any really good news.

Maybe Californians behind on their mortgages will slide through Christmas, but the first quarter of 2009 looks bleak indeed for the many homeowners now behind on their mortgages.

The good news Southern California home sales are up. Prices are now at 2003 levels.
“Sinking home values continued to drive home sales in September as bargain hunters snared properties at 2003 prices.The median Southern California home sales price was $308,500 in September, the lowest since May 2003 and down 33% from the September 2007 peak of $462,000, according to real estate research firm MDA DataQuick.

The number of homes sold in Los Angeles, Orange, San Bernardino, Riverside, Ventura and San Diego counties shot up 65% compared with September 2007. Fifty percent of homes sold last month had been foreclosed.

Of course, even the good news comes with a caveat. These homes were purchased mid to late summer before the horrific slide on Wall Street, before the Bailout and before the news that even corporate giants like Ford and General Electric were facing economic extinction. As usual, with bargains galore, many are too scared to buy.

Foreclosure Conundrum

Lately, we have heard that 1 in 3 homes bought in California is a foreclosure. In the first quarter [Q1] of this year, 47,171 homes were repossesed in California, a record. Also in Q1 California public records show 110,000 notices of default [NODs], up 143% over last year. An NOD is the first stage of the foreclosure process. Typically, 3 in 10 NODs result in foreclosure.

While some may see bargains on the horizon, there are also horrendous social costs involved in each and every foreclosure. On such a massive scale, whole neighborhoods could be devastated, school districts and tax bases adversely impacted. Such dislocation,often resulting from job loss, has other consequences, such as divorce, suicide, physical and mental trauma, which, in turn, impose more costs upon society as a whole.

Bearing this in mind, last year the Federal Housing Administration [FHA] reportedly paid $158.6 million to keep lenders from foreclosing, up 61% from 5 years ago. Six in 10 homeowners with NODs were able to stay in their homes.

Some Democrats in Congress, notable Barney Frank, Chair of the House Financial Services Committee, are promoting bills to refinance borrowers into FHA loans, guaranteed by the government. Frank estimates this may entail up to 2 million mortgages at a cost of $3 to $6 billion. Foreclosure rates among those with FHA loans are much lower, primarily because of such “workouts”. A “workout” may cost from $136 to $7,169 per year. Already, the FHA workouts have saved $2 billion in loans and prevented the ravaging of whole neighborhoods. Today, after all costs are factored in a foreclosed home brings the bank on average about 55 cents on the dollar. Multiplied by millions, this is a potentially stunning blow to the mortgage industry and, by extension, the financial markets, just now staggering back to normalcy.

But is such a bill really a good idea? Other Dems and many Republicans say the system would be rife with abuse. They say the market should be left to work itself out. Cheating homeowners won’t make payments anyway. The FHA is pushing loan servicers to make modifications that won’t last. In a declining market, homeowners will eventually lose their homes anyway, pushing foreclosed homes onto the market in the future resulting in even lower returns.

The Department of Housing and Urban Development [HUD] which oversees FHA strongly opposes such congressional action. Its position is that such a law would force the agency and taxpayers to take on excessive risk.

The question then becomes how far should the government go to prevent the escalating social costs of foreclosure? Assuming the money would be spent anyway, [and we can’t assume this really] is preventing foreclosures the best use of the taxpayers’ dough? What is the social cost of 2 million families forced from their homes? Where is Solomon when we need him?