Treasury hopes new rules send short sales to the rescue of underwater mortgages

By Tracey L. Longo
Special to The Washington Post
Saturday, March 13, 2010; E01

With new Treasury Department rules designed to expedite short sales set to take effect April 5, relief can’t come soon enough for some area buyers, sellers and real estate agents who have waded through a long and arduous process to get short sales approved by the bank.

In a short sale, a homeowner sells the property for its current market value, which is less than what’s owed on the mortgage, and the lender agrees to accept the lower amount. The new rules that offer participating lenders cash incentives to get them to approve more short-sale deals also allow them only 10 days to approve or reject short-sale purchase offers, said Treasury spokeswoman Meg Reilly.

Incentive payments written into the Home Affordable Foreclosure Alternatives Program are designed to help offset some of the financial pain that banks experience when they agree to settle for less than they are owed on a home loan. Mortgage servicers (the companies that accept and process homeowners’ mortgage payments) may receive up to $1,000 for the successful completion of a short sale. Treasury will also pay up to $1,000 to those holding second liens and home equity loans, if they agree to the deal. While junior lien holders have begun to ask for more compensation, the rules now limit incentives to $3,000.

To help speed up short sales, the program calls for lenders to use standardized paperwork and to establish an acceptable sale price before the home is put on the market. Sellers will be allowed at least 120 days to market the home and possibly as long as one year. During that time, the lender cannot foreclose. At closing, the government will give sellers up to $1,500 to cover relocation expenses.

Banks participating in the program have also agreed not to negotiate reductions in real estate agents’ sales commissions after they receive a short-sale contract. Such commission reductions have discouraged some agents from listing and showing short sales, according to the National Association of Realtors.

According to the Treasury rules, a participating loan servicer must offer the short-sale program to a borrower who does not qualify for, or did not succeed at, a loan-modification under the administration’s home affordable mortgage program.

Nationally, 38 percent of all sales in January were distressed sales, which include short sales and foreclosures. In the Washington area, short sales accounted for 6 percent of all sales in Maryland and 8 percent in Virginia during the last four months of 2009. That number is expected to rise significantly in the next several months, according to NAR. Agents have not yet reported short-sale activity in the District.

Some who have worked with short sales, however, are skeptical that the new rules can compress the approval process into 10 days.

“I’ve done five short sales in the past year and, frankly, I don’t want to do another one,” says Cyndy Davis, president of Flaherty Group Realty in Kensington. Her most recent short sale, which required a sign-off from Bank of America, took 10 months.

“I contacted the bank at least every other day, and it still took them 90 days to respond to our first offer on a Silver Spring townhouse,” Davis said. “They took from June until August. Then when we ordered the appraisal, it came in $33,000 below my buyer’s offer. When we resubmitted the new offer, it took the bank another 45 days to respond.”

Mortgage servicers take 90 to 120 days on average to approve short sales, according to NAR.

Juwana Bauwens, a spokeswoman for Bank of America, acknowledged that the process did take that long.

“When the buyer lowered the offer, we had to almost start the process all over again,” Bauwens said. “Short sales are a very complicated process, and at times we have to get approval from the bank and the investor on the loan and the second lien holder. We are working on ways to improve technology and resources so we can get an approval in the hands of Realtors as quickly as possible.”

Sometimes buyers are willing to wait on what they believe is a good deal. Sometimes they walk away. Davis’s client, two aid workers currently stationed in Kenya, didn’t mind the 10 months it took to purchase the property. They bought the Silver Spring townhouse for $214,000. It originally sold for $380,000 in 2005 and had been on the market for 285 days.

Writing down loans is a tough business. Short sales involving home-equity lines and second liens often require the junior lien holders to write off the loans altogether. But when lenders hold on to offers, hoping that a better one will be presented, they risk not only losing the buyers, but that real estate prices will fall.

“We see this all the time,” Davis said. “Banks stop communicating as they wait for better offers. Then months go by.”

When an offer is finally accepted, if a home doesn’t appraise at the buyer’s first offer price, they lower their offer. That’s what Davis’s buyers did — lowering the offer on the townhouse by $33,000 after it didn’t appraise.

To avoid such long delays, the new Treasury rules requires banks to establish fair market-value prices on homes at the front end of the short-sale approval process, instead of waiting until after offers start rolling in. They can modify that price if a real estate agent is willing to sign an affidavit stating that the new price reflects its market value.

“I think if lenders can make it work, it could be amazing. But the issue we see time and again is a hold up getting banks’ approvals,” said Guled Kassim, who works on more than 40 closings a month as a settlement officer with Atlantic Title & Escrow in Bethesda.

“Banks have to be convinced that the sales price is market value and that a reduced payoff amount is better than foreclosure,” added Kassim, who bought a distressed property using Flaherty Group last year. “Essentially, you’re asking lenders to take a bath. It’s not a business model most companies have set up. They are very doubtful about pricing, which is why I think the 10-day timeline may be wishful.”

Pilot program launches

To quicken the pace of its own short sales, Bank of America has launched a pilot program for customers and real estate agents to help them through the process.

“If an offer is received, we will be in a position to approve the sale within two weeks,” Bauwens said. “This program is currently in a limited pilot stage, and we hope to expand it soon.”

The bank has also deployed a password-protected Internet portal that agents, sellers and bank employees can use to track short sales in real time, communicate and exchange documents, Bauwens said.

“We hope the new rules revolutionize the short-sale situation,” said Jeff Lischer, managing director of regulatory policy at NAR. “It has the potential — by setting deadlines, identifying property values upfront and providing standardized forms.”

Recession eased in second quarter, data show

From the AP Associated Press via MSNBC on July 31, 2009

GDP dips at better-than-expected 1 percent pace, but revisions are deep

WASHINGTON – The U.S. economy sank at a pace of just 1 percent in the second quarter of the year, a new government report shows. It was a better-than-expected showing that provided the strongest signal yet that the longest recession since World War II is finally winding down.

The dip in gross domestic product for the April-to-June period, reported by the Commerce Department on Friday, comes after the economy was in a free fall, tumbling at an annual rate of 6.4 percent in the first three months of this year. That was the sharpest downhill slide in nearly three decades.

The economy has now contracted for a record four straight quarters for the first time on records dating to 1947. That underscores the grim toll of the recession on consumers and companies.

Many economists were predicting a slightly bigger 1.5 percent annualized contraction in second-quarter GDP. It’s the total value of all goods and services — such as cars and clothes and makeup and machinery — produced within the United States and is the best barometer of the country’s economic health.

“The recession looks to have largely bottomed in the spring,” said Joel Naroff, president of Naroff Economic Advisors. “Businesses have made most of the adjustments they needed to make, and that will set up the economy to resume growing in the summer,” he predicted.

Less drastic spending cuts by businesses, a resumption of spending by federal and local governments and an improved trade picture were key forces behind the better performance. Consumers, though, pulled back. Rising unemployment, shrunken nest eggs and lower home values have weighed down their spending.

A key area where businesses ended up cutting more deeply in the spring was inventories. They slashed spending at a record pace of $141.1 billion. There was a silver lining to that, though: With inventories at rock-bottom, businesses may need to ramp up production to satisfy customer demand. That would give a boost to the economy in the current quarter.

The Commerce Department also reported Friday that the recession inflicted even more damage on the economy last year than the government had previously thought. In revisions that date back to the Great Depression, it now estimates that the U.S. economy grew just 0.4 percent in 2008. That’s much weaker than the 1.1 percent growth the government had earlier calculated.

Also Friday, the government reported that employment compensation for U.S. workers has grown over the past 12 months by the lowest amount on record, reflecting the severe recession that has gripped the country.

Federal Reserve Chairman Ben Bernanke has said he thinks the recession will end later this year. And many analysts think the economy will start to grow again — perhaps at around a 1.5 percent pace — in the July-to-September quarter. That would be anemic growth by historical measures, but it would signal that the downturn has ended.

New home sales soar 11 percent in June

From MSNBC

Largest monthly increase in more than eight years, Commerce Dept. says

WASHINGTON – New U.S. home sales rose by the largest amount in more than eight years last month, in another sign the housing market is finally bouncing back from the worst downturn in decades.

The Commerce Department said Monday that sales rose 11 percent in June to a seasonally adjusted annual rate of 384,000, from an upwardly revised May rate of 346,000.

It was the strongest sales pace since November 2008 and exceeded the forecasts of economists surveyed by Thomson Reuters, who expected a pace of 360,000 units. The last time sales rose so dramatically was in December 2000.

Sales have risen for three straight months. The median sales price of $206,200, however, was down 12 percent from $234,300 a year earlier and down nearly 6 percent from $219,000 in May.

The report is another encouraging sign that the beleaguered housing sector is finally coming back to life. Last Thursday, the National Association of Realtors reported that home resales posted a monthly increase of 3.6 percent in June.

There were 281,000 new homes for sale at the end of June, down more than 4 percent from May. At the current sales pace, that represents 8.8 months of supply — the lowest level since October 2007.

Fallout from the housing crisis has played a central role in the U.S. recession, now the longest since World War II. Foreclosures have spiked, homebuilders have slashed construction, and financial companies have lost billions.

Existing-home sales hit 8-month high

Posted by Elizabeth Strott on Thursday, July 23, 2009 10:33 AM on MSN Money

Inventories fall, adding hopes that the housing market is starting to recover.

Existing-home sales rose 3.6% in June to an annualized pace of 4.86 million, to the highest level since October, the National Association of Realtors reported this morning.

It was the third monthly increase in a row.

Economists had expected an annualized pace of 4.85 million last month. Sales are down 0.2% from June of 2008.

Inventories fell 0.7% to 3.82 million in June. At the current sales pace, it would take 9.4 months to sell homes on the market, an improvement from the 9.8 months in May.

A 7-month supply is typically consistent with stabilization in prices, NAR chief economist Lawrence Yun, said in a press conference. It may take until the end of this year or early 2010 before property values steady, Yun added.

So who’s buying? Tax incentives are helping spark resale activity in lower-priced homes. The supply of homes under $250,000 is under a six-month supply, while the supply of homes over $1 million is over 20 months.

That excess supply is contributing to the slump in home prices. The median price of an existing home fell 15.4% to $181,800 from $215,000 in June 2008.

June is traditionally one of the best sales months of the year as families prepare to move before the start of the next school term, according to the NAR. The group adjusts the figures for these seasonal variations, however.

Home sales peaked in August 2005 at an annualized rate of more than 7.2 million. Sales have not topped the 5 million mark since last September.

Report: D.C.-area home prices up 3.4% in April

Washington Business Journal
by Tucker Echols, Staff Reporter
Thursday, June 25, 2009

Report: D.C.-area home prices up 3.4% in April

A new report indicates that Washington-area home prices rose in April — a sign the market may be establishing a bottom.

Home prices in the Washington area, as measured by research firm Radar Logic, were up 3.4 percent in April, compared to March. Nationally, the gain among 25 top metropolitan areas was 1.2 percent, the first increase since home prices peaked in June 2007.

D.C.-area prices, like those nationally, are still weaker than a year ago. April prices in the Washington area were 15.2 percent lower than April 2008, according to Radar Logic.

Nationwide prices remain 20 percent below year ago levels.

Housing Construction Jumps by Largest Amount in 3 Months – Political News – FOXNews.com

Housing Construction Jumps by Largest Amount in 3 Months – Political News – FOXNews.com

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HUD Action Allows Home Buyers To Use $8,000 Tax Credit For Downpayments On FHA-Insured Loans

May 13, 2009 – HUD Secretary Shaun Donovan’s decision to allow consumers to use the $8,000 first-time home buyer tax credit to help cover their downpayment and closing costs on FHA-insured mortgages will be a big boost to the housing market, according to the National Association of Home Builders (NAHB).

“The biggest obstacle for first-time buyers is coming up with a downpayment,” said NAHB Chairman Joe Robson, a home builder from Tulsa, Okla. “We commend Secretary Donovan for acting decisively to enable buyers to access the tax credit at the time of closing. This will help to stimulate home sales, stabilize housing and get the economy back on track.”

The measures announced by HUD would allow FHA-approved lenders; federal, state and local government agencies; and FHA-approved non-profit organizations to supply home buyers short-term or “bridge loans” up to the amount of the $8,000 first-time home buyer tax credit.

Longer term loans secured by second liens can also be used by government agencies and FHA-approved non-profit organizations to facilitate home sales. Several state housing finance agencies have introduced such programs and a number of agencies are considering that possibility.

More information about these programs can be found on the National Council of State Housing Agencies Web site at www.ncsha.org/section.cfm/3/34/2920.

Previously, the home buyer would have been unable to access the tax credit until they filed their next annual tax return or an amended 2008 tax return and received the refund from the IRS.

Robson and others NAHB leaders discussed this matter and other housing-related issues with Secretary Donovan last week.

“Secretary Donovan shares our view on the need for a housing and economic recovery,” said Robson. “We appreciate his leadership in moving swiftly to help first-time home buyers to access the tax credit up-front at the time of closing. The timing could not have been better as we are in the midst of the crucial spring home buying season.”

The next step is to see how FHA-approved lenders use HUD’s new guidelines to actually monetize the tax credit for first-time home buyers and structure the payback provisions o f the loans. NAHB encourages lenders to act promptly to put these provisions into place.

To qualify for the tax credit, first-time home buyers must actually close on their home purchase by Dec. 1, 2009. Buyers can take the credit on their 2008 or 2009 income tax return.

For further information about the tax credit – including a detailed question and answer section and a number of home-buying resources for consumers – log on to NAHB’s consumer Web site at www.federalhousingtaxcredit.com. A Spanish version is also available to provide detailed information on the tax credit to Spanish-speaking first-time home buyers.

The Crisis of Credit Visualized

The Perfect Time to Buy a Home

WashingtonBizJournals.com reported the following in February, 2009…

“A new real estate value survey from real estate data service Zillow.com says American homeowners saw $3.3 trillion erased from the value of their real estate in 2008.”

They went on to say…

“In the Washington area, median home values fell 14.8 percent in 2008 to $334,443. In the Baltimore market median home values dropped 10 percent to $258,263.”

Sounds like bad news, doesn’t it?  Well, if you are a homeowner who must sell now and you don’t have plans to move up to a more expensive home, this is bad news. The good news is  if you’re purchasing a home right now, I’ve got five great reasons you should make your move…

1. HOMES ARE ON SALE… They’re actually on CLEARANCE… The lowest prices we’ve seen in years!  We’ve seen “Fast-dropping interest rates and the most affordable homes in more than three decades…” according to a report released Tuesday by the National Association of Realtors.
2. Pair that with the amazing interest rates that are available today – somewhere in the 5% neighborhood – and you’re CRAZY to be renting!  Here’s how I see it:  Renting = paying off someone else’s mortgage for them.  Why would you?
3. There are a lot of homes from which to choose!  In the real estate industry, we call this a lot of ‘inventory’  Lots of inventory + few buyers = a buyers market!
4. One of the greatest myths today is that you must have a 20% down payment in order to buy today.  WRONG!  Guess what?  More good news…FHA loans only require at 3.5% down payment right now.  Yes, you will have to pay MIP (Mortgage Insurance Premium) but that is only about 1%, and it’s part of your monthly payment.
5. Here’s the icing on the cake!  Most sellers will pay your closing costs for you!

If you are still frightened by the thought of purchasing a home, consider these wise words from the world’s wealthiest man, Warren Buffett.  In a shareholders meeting in 1986 he explained one of his rules for smart living and savvy investing: “We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.” So, go ahead and get started on your path to prosperity.  Be bold and grab this opportunity before the market turns around and you’re caught up in the frenzy of all the other buyers who’ve been waiting for the market to “bottom out.”

Avoiding Foreclosure

It’s estimated that 33 million home owners are at least one month behind on their mortgage payments.  If a homeowner falls behind on their mortgage payments, usually a foreclosure or short sale is coming soon. Most homeowners do not know their options in this situation. It can be very confusing, frustrating, and frightening. Often, the lender is aggressively contacting the homeowner, demanding payment and threatening legal action.

WHAT IS A SHORT SALE?
Some people mistakenly believe that a short sale implies that the sale will go very quickly. Ah, quite the contrary! In a short sale, the mortgage company is involved and must approve the terms of the sale (3rd party approval) thus making the process much longer than a typical sale. When homeowners must sell their home because they can no longer make the payments but the amount owed on the loan is greater than the current value of the home, the home can be sold for less than is owed. The proceeds go to the lender and usually the difference in the sale price and the amount owed is written off by the bank. The bank takes a shortage, which is why it’s called a short sale.

WHAT IS A FORECLOSURE?
When a homeowner defaults on their loan, the lender has the right to evict the homeowners and take possession of the home. This process is call foreclosure. The lender then owns the home and must sell it. This process usually takes six to nine months from the time the first payment is missed.

The first thing the homeowners should know is that there is help available to them. Most people do not even know where to begin to look for assistance, so here’s the Real (Estate) Scoop…

If a homeowner has faced a hardship (i.e. lost job, reduced hours, divorce, illness/disability, drastic rate increase) the first thing they should try to do is a loan modification. Loan Modification is NOT a refinance. There is no credit check or appraisal involved in the transaction. The homeowner keeps their same lender and same loan, the terms are simply modified so that the homeowner is better able to make the payments and the home does not go into short sale or foreclosure. The primary goal of a loan modification is to reduce monthly payments. There are three things that could possibly happen in a loan modification.

1. The term of the loan is extended. For example a 30 year loan would be extended to a 40 year loan, thereby reducing the monthly payment.
2. The interest rate is lowered. This also reduces the monthly payment.
3. The principal amount of the loan is reduced. (This one is rare, but can be done.)

Many states require that an attorney be involved in a loan modification. Maryland is not one of those states, so there are options.

There are FREE or low cost resources available to assist homeowners in dealing with their lender in order to avoid foreclosure. These resources are non-profit organizations and consumer advocacy groups. It’s not necessarily going to be easy (as shown by this ABC News video), but it’s worth the effort to save your home and save your credit. 

• Freddie Mac has a great website with links to credit counselors and foreclosure prevention resources. Check out their page.
• The U.S. Department of Housing and Urban Development (HUD) offers help finding a counseling agency near you. Check out their page or call 1-800-569-4287. (This page is also provided in Spanish).
• HUD also has a Guide to Avoiding Foreclosure.

If these options have been exhausted, or the homeowner does not feel comfortable doing the legwork needed to get the loan modification done, there are plenty of reputable lawyers out there who have lots of experience in dealing with lenders and often have much more success getting the loan modification done on behalf of the homeowner. There is a fee for this service. Usually the cost is a couple of thousand dollars. The advantages with this route are:

1. The homeowner has no further communication with the lender. The attorneys & processors speak to the lender on the homeowner’s behalf.
2. These lawyers & staff do this for a living. They have years of experience in this field and are good at it. The results (reduction in monthly payment) they get are usually much better than a homeowner could negotiate independently.
3. A few reputable firms offer a money-back guarantee. If they are unable to get the loan modified to the client’s satisfaction, the homeowner receives their fees back. In essence, they have a great deal of motivation to get the loan successfully modified. If the deal doesn’t get done, they don’t get paid

Contact me for information on reputable lawyers!

The Loan Modification process takes anywhere from 21 to 90 days, so if a homeowner is just a few days from foreclosure, it could be too late to get this done. If a homeowner is just a couple of months behind on payments, the Loan Modification is a great option to try and should be pursued promptly.