Loan Modification Update

I keep swearing never again  to post about loan modifications and,yet, here I go again. Here are a few tidbits about HAMP, the government-sponsored plan and other loan mods.

Nearly 22 % of mortgages modified non-HAMP , regular bank mods done without government help, redefaulted. At the same time,  under the government’s Home Affordable Modification Program, known as HAMP, only 11% have fallen two months behind in payments, according to a banking regulators’ report issued Friday.   The reason for the gap is pretty clear, regulators said. HAMP modifications reduce a borrowers’ monthly payment by an average of $608, while bank modifications lower it only by $307. “There is a correlation between sustainability of payment and the reduction in the payment,” said Joe Evers, deputy comptroller at the Office of the Comptroller of the Currency, which put out the report along with the Office of Thrift Supervision. That’s banker goboldeygook meaning–bigger reductions in payments mean more homeowners can and will make those payments.

Under HAMP, eligible borrowers can have their monthly payments lowered to 31% of their pre-tax income as long as its more profitable for the bank to modify the loan than to foreclose. The federal government pays servicers an incentive to participate in the program.  Also, proprietary bank modifications are outpacing HAMP adjustments by more than 2-to-1. Many troubled homeowners are falling out of the government program and 44.5% of them are receiving bank modifications. Housing counselors have been wary of proprietary modifications, mainly because there is not a lot of information about them. They caution homeowners to make sure they understand the terms of the adjustment. A Chase spokesman said HAMP is always the first program the bank considers for troubled borrowers “because it lowers the payment more than most other programs.” If they don’t qualify for
HAMP, they are reviewed for a proprietary modification.

If you are interested in a DIY loan mod kit, give me a call at 626-641-0346.  If you are considering a short sale, give me a call at 626-641-0346,

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.

Why Do A Short Sale?

Short sales offer many advantages to homeowners. Many homeowners, though, never take the trouble to even call their banks when they find themselves in financial difficulty. Granted, many banks greet their borrowers with a formidable voice maze, but, gradually, even the most clueless are realizing how dumb that is.

So, if you are upside down in your mortgage or experiencing financial challenges, at least call me at 626-641-0346 for a free consultation or email me at drdbroker@gmail.com. A short sale is a great option to avoid foreclosure. Let me personally tell you some great tales of borrowers rescued from the brink of financial disaster by doing a short sale.

Advantages of a short sale:

1. You may walk away owing nothing. You are often able to negotiate away all the debt. Banks know they will net more money with a short sale versus foreclosure. In fact, a recent study showed banks would net 20% more money with a short sale v. foreclosure.

Because of this, most short sale banks completely forgive the debt. Yes, they might be losing $100,000, or more. However, they would rather cut their losses and let you go free.

2.You will be able to buy another home much faster. If the rest of your credit report looks good, you may qualify for a mortgage as soon as 18 to 24 months after the close of your  short sale.  If you have some money and are current before beginning the short sale process, you mayeven be able to buy a new home right then and there.

3.  You will be able to get a good night’s sleep. You will no longer have to worry about that Notice of Default posted on your door or how you will come up with all the money to pay your debts.

4. Your credit will suffer much less. Your credit score typically drops by 250 to 300 points on a foreclosure. With a short sale, your credit may only drop by 50 points, provided you are current on all your obligations.

Disadvantages of a Short Sale:

1. You have  no guarantee your bank will accept the short sale offer. Working with a short sale specialist, such as myself, however, will give you a much better chance. Plus, banks are working very hard to improve their short sale processes, so at least with some banks, it’s getting easier.

2. You will have to  document all your income and assets. This, obviously, is to protect the banks and is similar to what you must go through to obtain a loan.

3. Your short sale may drag on for months. Some short sales I’ve negotiated have taken as long as a year, depending on the bank. This process is hard on your psyche, but, on the other hand, most sellers are not paying their mortgages during all that time.

4. You may have to bring money to the table. Whether your buyer insists on repairs or the bank insists on a promissory note, you may have to pay something out-of-pocket, though the months of not paying your mortgage may help you there.  Usually, the costs are minimal and I have yet to see a bank demand a promissory note, though it remains a possibility.

A short sale is a good option for most homeowners. It allows you to get rid of the debt and move on with your life. Many people rent another home for less than their mortgage payment or, as mentioned above, may purchase a better home for less than they owe on their current one.

I’d be happy to fill you in on the details not covered here. Just give me a call at 626-641-0346 or email me at drdbroker@yahoo.com.

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

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…

Homeowner Stability Initiative=Obama’s Housing Plan

We in these hard-hit states with many foreclosures [CA, FL, NV, AZ] have been waiting for this plan and now we have it. It’s not what we expected, at least not what I expected, but what creative ideas on how to handle the foreclosure crisis and not reward the foolhardy or the fraudulent.

The Obama Homeowner Plan has three distinct parts:

1. Help those who are CURRENT on their mortgages to refinance. They do NOT  need to show a hardship.

2. Help for those who are BEHIND on their mortgages get loan modifications. They DO  need a hardship, but that is broadly defined.

3. Help for HOME BUYERS by providing tax credits and low interest rates.

The main complaint that stable homeowners, especially those in areas, like ours, hit hard by foreclosure is that their tax payer dollars are going to “save” the imprudent, the insolvent and the extravagent. This plan tries mightily to avoid helping those kinds of borrowers. When introducing it, President Obama was very determined to point out that this does help even good payers who have never missed a payment. “Every foreclosure reduces neighboring home values around 9%,” he said, “and this will help prevent foreclosures.”

I do hope he is right. I do know that nationwide foreclosures are up 81%  over 2008 and 226% over 2006. This crisis hits about every state with the BIG FOUR, California, Nevada, Florida and Arizona, leading the plunge.  It’s also estimated that by 2012 8.1 million homes or 16% of all homes will be or have in foreclosure. That’s frightening.
foreclosure-next-exit

In sum, I don’t know whether this plan will work. I can see already that more people, even those upside down on their home value will be able to refinance as this plan makes it more palatable for the lenders. If they can’t refinance, they can get a loan mod more easily.  Failing those remedies, the plan even smooths the way for short sales which can take forever.