News From the Housing Trenches

Good News and Bad News

The latest housing figures are now in with mixed results.  The good news is that the number of seriously delinquent loans is down to a bit less than 10% of all loans, so it does look that with short sales, loan mods and, perhaps also, the home buyers’ tax credit, the combined efforts of the federal government, lenders and home owners are finally having an impact.

But, another bit of statistical news is troubling. After a solid year of declines, the first-time mortgage delinquency rate has gone up. The most likely cause is, of course, the continuing crisis we are facing in employment.  After months without work,  eventually resources run out and unemployed homeowners must face the inevitable and start missing mortgage payments.

Choices If You Are Unwilling or Unable to Make the Mortgage Payment

So, what are the resources available to homeowners with underwater mortgages and/or no jobs? Well, with time we now have some clarity about the choices open to us.

One choice is to try for a refinance under the government program. With this, homeowners can get up to 125% of their property’s value. The catch is  the homeowner needs a job to apply and in California, at least, usually even this amount is not enough to cover the shortfall in value.

Another option is to search for a loan mod.  These fall normally under HAMP , the federal government’s Home Affordable Modification Program. This and all loan mod programs have been spectacularly unsuccessful as indicated in several previous posts. Suffice it to say, that even those who actually succeeded in obtaining these loan mods are now back in default in record numbers. The main reason is that the average mortgage, tax and debt loan for such homeowners is around 65%–a recipe for failure.

So, that leaves short sales. Even there we now have two flavors of short sales-regular and HAFA. The difference is that particpants in HAFA, the government-backed plan, must have first applied for a loan mod under HAMP. Having done that, though, such HAFA short sellers are guaranteed no deficiency judgment after the sale  by the participating lenders.  HAFA short sellers also get $3000 at close of escrow to help them move.

Which Is the Best Choice?

Short sales in my view are the way to go. Homeowners do eventually lose their homes, but statistically, that is taking quite a long time. The average homeowner in foreclosure is now an incredible, unbelievable 461 days behind in his payments. That is, short sellers are living  rent-free for months or even more than a year-on average. The stigma of short selling is now mostly gone. Those who short sale their homes can expect to be accepted for a new loan in as little as 18 months, provided that is the only negative on the credit.

New Rules: Short Sales on Steroids

The new federal guidelines for short sales, called HAFA [Home Affordable Mortgage Alternative] came into being November, 2009 and just recently became operational. Most loan servicers and banks are now using HAFA.

What’s So Great About HAFA?

Really,  what’s the big deal? Everybody knows short sales are tedious, take forever and are a last resort for the homeowner, right? Not exactly–HAFA does streamline the process, shorten the time periods and provide significant incentive s for both short sellers and their banks. In short, it’s a win-win for all parties.

If you’re a homeowner considering a short sale, then,  it’s a fairly big deal, assuming that it works out as envisaged by the federal government.  Home sellers can get up to $3000 in relocation money from the transaction. That’s very helpful to distressed homeowners who may want to rent and need to pay a deposit. And, another very big deal is that homeowners would be guaranteed from their banks to have no deficiency judgments. Coupled with the 2007 law foregoing any tax on defaulted income, that leaves short sellers really free and clear once they close escrow on their underwater properties.

What Do the Banks Get Out of HAFA?

We have to ask why would the banks want to do this? What’s in it for them? Here, too, are some very positive reasons. Banks prefer short sales over foreclosures because banks save about 20% on average by doing the short sale. This program simplifies the process, streamlines it, and allows the mortgage servicers $1500 to cover administrative costs with an additional  $2000 to the investor who actually owns the loan.  Banks do better with this program. Altogether, sellers, servicers and investors are collecting $6000 on each HAFA transaction. Not too shabby.

Now the Big One: Who is Eligible?

If your principal residence qualified for a loan mod under HAMP [Home Affordable Modification Program]  and you can’t pay or have fallen behind you are eligible. If this is an investment property or rental, you are not eligible.  If your loan is FHA or VA, you are not eligible. Both FHA and VA have their own short sale programs with different rules.

Having applied for the HAMP program is crucial. If you applied and were rejected, you are eligible. If you entered a trial period and fell by the wayside, you are eligible. If you received a permanent loan mod under HAMP and have missed at least two payments, you are eligible.

Let’s say, you discover you probably are not eligible for HAMP or HAFA, what should you do? Don’t worry. The servicer will still do a short sale; it will simply not be using the HAFA guidelines. We’ve been doing what seems like zillions of short sales for the past three years, so the process there has become more streamlined as well. If you need help or want to do a short sale, make sure to call me at 626-641-0346. I can even help if you are outside of California.

Oh-one last thing-if you are an investor who would like to purchase a HAFA short sale then flip it, you must wait for 90 days.

Here’s the National Association of Realtors’ video on the topic

NAR on HAFA

Loan Mods: What’s the Situation Now?

It’s been about a year now since the Obama administration introduced its loan mod program, HAMP, so what’s happened?
What have American homeowners been getting for our government’s $7 billion?

Loan Mods One Year Later

Aw, come on, you know the answer–not much. As usual, the big banks don’t want to play. Always ready for a handout, they pretend to go along, but never really deliver. At this point, one year later, we now have about 299,000 permanent loan mods as of April 2010, according to the US Treasury. That’s about 25 percent of the 1.2 million who started the program since its March 2009 launch. They are paying, on average, $516 less each month.

Terrible Loan Mod Results Compared to the Problem

Placed in its proper context and you will see how measly that is. We’ve already had more than 3 million foreclosures. Estimates are that about 7.5 million mortgages are in the 90-day-late situation, meaning they are most likely heading into foreclosure. So, that 299,000 doesn’t seem like much, does it, for a whole year?
But wait, it gets worse. The number of people who failed to get loan mods rose dramatically in April, up 79%, in fact. About 270,000 or 23% dropped out at some phase of the process.

Why would this be happening?

I’m sure that banks would like to point the finger at deadbeat homeowners, but that would be a lie, a big, fat lie. Having been involved in a few of these mods and receiving many calls from anxious homeowners, I can say categorically it is not the fault of homeowners. It is the fault of the big banks who make the task so tedious and so long and drawn out that anybody would get frustrated and quit.
Here are just a few of the comments I’ve heard lately..One that particularly galls me is Maria who cannot get CitiBank to give her the time of day. Why would that be? Why, she’s current in her payments, so unless there’s already a fire, this company has no interest in preventative maintenance. Then, there’s Monica who owns several investment single-family homes she was hoping would help provide her retirement. They’re all upside down now and the bank will not even talk to her because she’s also current.

Only Solution Now: Short Sale

Talk to Mike. AMHSI told him point-blank it had no interest in doing loan mods. So, he stopped making his payments and put it on the market as a short sale. Is that a better solution? Folks, that’s about the only solution left. We can all stop dreaming now that the banks will actually do these “workouts” whether they have support from the government or not. They will pretend to do them, but make the process as onerous as possible. Then, too, many who actually produce all the paperwork and wait the 3 to 6 months of processing time are refused a loan mod anyway. Why? Well, if you’re unemployed and really need one, you can’t get one because there’s no income to pay it. If you’re employed, you, like Goldilocks, need to make just the right amount of money or you’ll make either too much or too little and you won’t qualify…

I don’t think I want to write about loan mods anymore. They are a complete crock.