Fannie Mae announces “Deed for Lease™” program

Fannie Mae last week announced a new Deed for Lease™ program.  Deed for Lease allows borrowers to transfer their property back to the lender and then lease back the house at market rate.  The lease period is for up to 12 months, with possible month-to-month contract extensions after that period.  The program is designed for borrowers who do not qualify for or have not been able to obtain other loan-workout solutions, such as a loan modification.

 To participate in the program, borrowers must live in the home as their primary residence and must be released from any subordinate liens on the property. Tenants of borrowers in this circumstance also may be eligible for leases under the program. Borrowers or tenants interested in a lease must be able to document that the new market rental rate is no more than 31 percent of their gross income.

If this works out as intended, it could really have a positive impact in reducing the number of distress sales. For up to date information go to www.efanniemae.com.

 

Short Sales Will Become Easier Thanks To Obama Administration Initiative

Good news from Washington, D.C., today. The Obama administration announced new details under its Foreclosure Alternatives Program (FAP) enabling servicers and borrowers to pursue short sales and deeds-in-lieu (DIL) of foreclosure in cases where the borrower is generally eligible for a Making Home Affordable modification but does not qualify or is unable to successfully complete the three month trial period. The program, effective through 2012, requires that prior to proceeding with a foreclosure, servicers must determine if a short sale is appropriate.

Incentives in the FAP program include $1,000 for servicers for successful completion of a short sale or deed-in-lieu of foreclosure; $1,500 for borrowers/homeowners to help with relocation expenses; and up to $1,000 toward the cost of paying junior lien holders to release their liens ($1 from the government for every $2 paid by the investors to the second lien holders).

The FAP includes streamlined and standardized documents, including a Short Sale Agreement and an Offer Acceptance Letter to minimize complexity and increase use of the short sale option. Servicers will independently establish both property value and minimum acceptable net return, in accordance with investor requirements, based on an appraisal or one or more broker price opinions, issued no more than 120 days before the date of the short sale agreement.

In the Short Sale Agreement, servicers must give borrowers/homeowners at least 90 days to market and sell the property, or up to one year, depending on market conditions. The property also must be listed with a licensed real estate professional with experience in the neighborhood, and no foreclosure may take place during the marketing period, of at least 90 days, as specified in the Short Sale Agreement.

The Short Sale Agreement also must specify the reasonable and customary real estate commissions and costs that may be deducted from the sales price. The servicer must agree not to negotiate a lower commission after an offer has been received. Servicers may not charge fees to borrowers/homeowners for participating in the program. Servicers have the option to require the borrower/homeowner to agree to deed the property to the servicer in exchange for a release from the debt if the property does not sell within the time allowed in the Short Sale Agreement, plus any extensions.

More details to follow..

Beware of Scam Artists Feeding On Distressed Home Owners

Due to the large number of foreclosures, many lenders have now created mortgage modification programs to help homeowners in default modify their existing loans into more affordable fixed rate ones. The volume of defautls has resulted in many banks finding it difficult to cope and as a result, some other companies, real estate brokers, nonprofit organizations etc. have been offering to work as go-between between the homeowner and the bank, sometimes for a fee.  Not surprisingly, this is a magnet to scam artists.  Anybody that charges a fee prior to providing such a service has to be registered with the California Dept. of Real Estate so consumers should always verify the legitimacy of any company or individual by visiting www.dre.ca.gov or by calling (916) 227-0770.  Note that if the fee is only charged after the service is performed, there is no requirement to register with the DRE

Now Contra Costa & Alameda Counties Are Getting Into The Act

According to today’s San Ramon Valley Times, cities and counties across the East Bay are about to start buying up foreclosed properties from the banks with a view to re-habbing them and then selling them to low income home buyers. This willl be financed from the Housing Recovery package and Antioch, Richmond, Oakland and Alameda and Contra Costa County will receive $24m to spend on this project.

They will be targetting the worst hit areas and they will be aiming to buy these REOs by offering 10-15% below value.

It sounds good at first glance but I am really not so sure. What do councils know about re-habbing properties? Will the banks co-operate? If they do, this will surely have a negative effect on comps and drive prices even lower.

Any thoughts?

Countrywide Cancelling Short Sales – Freezing Foreclosures

Are you a home owner with a Countrywide mortgage? If so, and you are having difficulty in making mortgage payments, you should be aware that Countrywide have recently cancelled a number of Short Sales in process. They have also been reported as putting a hold on any Foreclosure sales.

The “official” line appears to be that Countrywide want to re-structure mortgages for people in difficulty so that they can keep their homes. The problem, of course, is that many people now have homes where they owe more than the home is worth so re-structuring does not make a lot of sense to them. They would rather just walk.

So if you have defaulted and an NOD has been filed, any late or non-payments will be reported to the credit bureaus. If countrywide won’t approve your short sale, this will just get worse.

The only silver lining I can see behind this cloud is that at least you will get to live in your home rent free for a while until Countrywide figure out a solution.

Why Are There So Many Short Sales?

It seems like Short Sales are just accepted as part of the overall marketing mix now yet in practice they are a fairly recent phenomenon. Recent, that is, as far as the past 10 or more years go. Short Sales are not entirely new.

But why are there so many right now? To answer that, we have to look at some dubious lending practices that were being allowed, even encouraged, just a few years ago.

Most of us will recall that, in the late 1990s, those of us that live in the San Ramon Valley and surrounding areas were experiencing previously unheard of rates of increase in home values. An increase of ten percent per year was being taken for granted and it appeared that it would just keep going. There was a feeling of affluence and it seemed like everybody wanted to get in on the action.

Obviously, this was good news for lenders. When everybody wants to buy a home there is a lot of potential business about. Unfortunately, there was a problem. House prices were going through the roof, and even though interest rates were very low and buyers may have had 20% down payment many of them could not qualify for the monthly mortgage payments. That’s when the lenders got creative. How about if your monthly payment could be reduced by setting the interest rate even lower? And even better, suppose you didn’t have to make any repayments other than interest, that would get you into a position where you could buy the home you wanted. Now it was always clear that these loans were “temporary”. The technical term for them is ARMs or Adjustable Rate Mortgages. So a 5/1 ARM meant that the rate was set at a fixed amount for 5 years and then it would become an adjustable rate loan. A 3/1 was the same but fixed for 3 years. Many, as I mentioned before, were Interest Only. Even the major lenders were offering such loans. To qualify, you needed a good credit history, 5-10% down payment and sufficient documented income to show you could meet the initial monthly payments.

And then there was the first time buyer market. With home prices escalating, people who had not yet become home owners were becoming concerned that they never would be able to, unless they took immediate action. But many had no cash available, although they may have had a good credit history. Fortunately for them at the time, 100% financing was available, and 3/1 or 5/1 Interest Only ARMs were made available to the first-time buyers. Many of them still could not actually qualify for the mortgage they wanted so the practice of issuing “Stated Income” loans became commonplace, where the borrower did not have to show any documented proof of earnings. Stated Income loans were originally intended for borrowers who were self-employed and who typically had a 25% down payment. Using them as a device for people who could not otherwise qualify for a loan was a new development. Obviously these were higher risk loans and these were offered by the so called “sub-prime” lenders. Interest rates tended to be a little higher of course.

When a borrower raised the question of what happens after the initial 3 or 5 year period, the answer should have been that your loan payment goes up significantly, not least because you then have to start making Principal repayments. In practice, it was often suggested to the borrower that they had no need for concern because by the time 3 or 5 years had passed, their home would have increased significantly in value so they would have built up a lot of equity. They could then re-finance into whatever was the most attractive loan available at that point in time.

In reality, the whole scenario was a house of cards and in retrospect, it is easy to see that it was never a question of would it collapse so much as when would it collapse. When home prices started to fall we had a situation where hundreds of people owed more money on their homes than the home was worth. That is inevitable when you have 100% financing in a declining market. The situation is exacerbated by the fact that 3-year and 5-year ARMs are now re-setting and most of the affected homeowners have no hope of either re-financing or affording to make their increased loan payments. The majority are either burying their heads in the sand and waiting for the lender to Foreclose, or selling their home as a Short Sale. At least if they take the latter alternative, they have a chance to salvage their credit and they can hopefully qualify for a mortgage again in 2-3 years.

What Does It Cost To Do A Short Sale

Good question! Amazingly, the answer is “Nothing!”. At least that is so as far as monetary cost is concerned. There may well be a psychological cost but nothing like the stress that most people have to endure when going through a Foreclosure.

In many ways, it is not much different to a regular sale as far as listing your home is concerned but you do need to have an agent like me to represent you – that is who understands the process.

So I will look at your San Ramon Valley home and carry out a Market Analysis to determine what it should bring in today’s market. You sign the Listing Agreement in the normal way and I market it for sale. If we don’t find a buyer fairly quickly, we reduce the price and continue reducing it until we do.

There is certainly more paperwork involved with a Short Sale though. Before I start marketing your home for sale, you have to prepare a financial statement and I will need to get copies of bank statements, tax returns and pay stubs from you because the lender won’t agree to a Short Sale until they have seen that keeping your home and paying your mortgage is not an option for you.

The big difference between a Short Sale and a regular sale is that you are not overly concerned about the sale price. You already know that you will not be getting any of the proceeds so it doesn’t affect you one way or another. From my perspective, I have to work to get the highest price I can because once we have a reasonable offer on the table, I have to present it to your lender or lenders and clearly demonstrate that this is the best price that will be realized.

Once the lender has approved the sale, it will proceed to a normal conclusion and you will sign off on the transaction at the Title Company shortly before the close of escrow. You will then hand over the keys and be free to get on with your life without having the prospect of Foreclosure hanging over your head.

You do need to be patient though. Lenders are notoriously slow in responding to offers that they are asked to approve, mostly because each person in the loss mitigation department has literally dozens of open files at any point in time.

So you can appreciate that an agent who does not understand the Short Sale process will not be very well equipped to help a home seller in these circumstances. And indeed many agents do not want to,

If you think a Short Sale may be appropriate for you and you live in or around The San Ramon Valley, please contact me, Bernard Gibbons, without any obligation and I will be happy to explain the various options to you. Call (925) 997-1585 any time [that is my cell phone] or send an email to bernard@bernardgibbons.com. I will respond quickly.

When The Lender Will Consider A Short Sale

Just because you have realized that your San Ramon home is worth less today than you owe on the mortgage does not mean that you can arbitrarily decide to sell it as a Short Sale. Your lender wants you to keep your home if at all possible and ideally, they would just like you to keep making your agreed monthly mortgage payments.

So when is a Short Sale appropriate? When will the Lender see that they need to agree to a Short Sale?

The answer is that there are only five situations where a Short Sale will be approved by a lender:

1. You have reached the point where your monthly loan payments have been increased beyond your ability to pay (a common problem with adjustable rate mortgages).
2. You can’t make your payments because you have lost your job.
3. You have to move to another part of the country (typically a job related move) and you owe more on your home than it will realize when sold.
4. Divorce forces you to sell your home and you owe more than it will realize when sold.
5. A military transfer

If none of the above situations apply to you and you really do not want to keep making your mortgage payments because you are “upside down”, you may have to reconcile yourself to a Foreclosure.

For more information on the Foreclosure and/or Short Sale Process in the San Ramon Valley, call me, Bernard Gibbons, at any time on (925) 997-1585 [that's my cell phone], or send an email to bernard@bernardgibbons.com. There is never any obligation and my primary objective will always be to help you find the best solution to the situation you find yourself in.