Real Estate Consumer Info.com

As U.S. consumers try to dig their way out of the worst recession in decades, many have sought help from their lender; but requesting a loan modification may be financial suicide. Unfortunately, many struggling homeowners often find the “cure” to be worse than the illness. An article in the SF Chronicle points out how a loan modification not only lowers credit scores, but often leaves the borrower owing thousands in fees in penalties if the modification is denied.

 

When a homeowner is accepted for a trial modification, their payment is lowered below the original contract amount, and their lender will report them as delinquent to credit reporting agencies. The negative credit reports, combined with a lowered FICO® score, bring additional problems. After enrollment in modification programs, many homeowners find themselves with lowered credit limits and higher payments on existing credit accounts due to a sometimes dramatic increase in interest rates. For many, it’s the proverbial “nail in the coffin,” that eventually drives them to foreclosure.

 

Additionally, both lenders and consumers seem confused about the “requirement” that homeowners be delinquent on their mortgage payments in order to be eligible for a modification. With a number of lenders advising homeowners to intentionally miss payments in order to increase their chance of approval, what they fail to tell the homeowner is that missed payments will result in an immediate lowering of credit scores. Although some lenders have denied making such suggestions, the number of reports to the contrary seems to indicate that many in the industry remain uncertain of the rules.

 

And while, the article doesn’t suggest that homeowners not apply for a modification, it does offer suggestions on how lessen the negative impact to credit scores and increase the benefit of modification. One suggestion is to keep paying the original payment amount during the trial period if possible, and to make certain that payments continue to be made as scheduled.

 

The current recession continues to create hardship for millions of homeowners; and consumers should be aware that requesting a loan modification may be financial suicide unless measures are taken to lessen the impact.

The Housing Guru: The expert source for all your housing questions

 

 

Strategic Default Vs. Strategic Short Sale And "Verifiable Hardships"

The new "buzz phrase" in our industry is "Strategic Default".  

Recently,  University of Arizona professor Brent White wrote an article dealing with the issue "Strategic Defaults".  In the article, he basically justified the idea of "walking away" from your mortgage, based on the fact that it was a "business decision" on the borrower's part, just as the bank made a "business decision" when they decided to loan the money for the residence. 

60 Minutes even decided to run a story on "Strategic Defaults".

As much as it pains me to say this (I'm an ASU Grad), I agree with much of what the UA Professor is saying.  Let's face it, when the borrower decided to borrow money, they were asked to not only use the lender's appraiser, but were also asked to pay for the appraisal.  The lender, in turn, decided that, based on the opinion of their own hand-picked appraiser, it was a good business decision to provide a loan to the borrower.  In addition, we were all privy to the age-old question from the appraiser of "Where do we need to be on the price?"

What I don't agree with is the premise of "walking away" vs. "making an attempt" to work with the lender.  In most cases, a borrower's credit would be less affected by conducting a "strategic short sale" vs. a "strategic default".  Don't believe me?  See my recent blog that details how FNMA looks at a foreclosure vs. a short sale, in terms of waiting periods to get their next loan.  

Now, some of you may ask, "What is a Strategic Short Sale"?

I'll do my best to explain...As agents, when it comes to short sales, we are always faced with Rule Number One...  Does the Seller have a verifiable hardship?

Six months ago, I wouldn't take a short sale listing unless the Seller had a "verifiable hardship"...  Things have changed...  We've recently closed several short sales for clients who did not have "verifiable hardships", as defined by most lenders.

So, what does this mean?  My opinion is that lenders are now beginning to look at their "bottom line" profit of a short sale vs. a foreclosure.  In other words, most lenders have finally realized that their "breaking point" in terms of bank-owned properties has been reached (i.e., they finally understand that it makes more sense to short sell a home than foreclose and take it back and sell it as an REO).  

My inclination is that they are now more willing to sell a home at market value, and they are realizing that current market value (as evidenced by their BPO or Appraisal) is much better than what they would expect to get if they decided to take the home back into their inventory (less the $50-$60k they will spend on a foreclosure).  More important, they are willing to "look the other way" when it comes to a "verifiable hardship" in order to make more $$.

Many of us subscribe to the rules of "No Hardship, No Short Sale".  I'm here to challenge you to "think outside the box".  We've had several short sales approved in recent months where there was no "verifiable hardship" present.  

While all lenders still require a hardship letter, we're finding that this requirement holds little, if any value.  The bottom line is if the lender feels that they can come out ahead (financially) in a short sale vs. foreclosure, they will more-often-than-not go for the short sale (if it makes financial sense, which it almost always does).  The beauty of a short sale is that your only competition is the BPO that the lender requires.  If your contract price is within 5-8%% of the BPO price, chances are, your deal will  go through.  

It's been repeated Ad-Nauseum, but I'll say it again here...  LENDERS DO NOT CARE ABOUT THE FINANCIAL HEALTH OF YOUR CLIENTS.  THEY ONLY CARE ABOUT THEIR OWN BOTTOM LINE.  In other words, if it makes more sense for them to short sell a home (which it always does, unless there is PMI, but that's another story) they will approve it.

A group that I happen to subscribe to (they will go un-named) preaches that if your client doesn't  have a "verifiable hardship", you shouldn't take their short sale listing.  I'm here to debunk this myth.  Banks could care less about hardships.  They only care about their bottom line.  Don't believe me?  

We recently closed two short sales for a retired orthopedic surgeon with two rental/investment homes with Chase.  He couldn't even write a hardship letter, based on his current financial position (i.e. no hardship).  Chase simply made a good investment decision.  

If you have a client who you feel doesn't meet this "hardship letter" requirement, and you don't want to take the listing, have them contact me.  I'll take it.

Let's quit talking about "strategic defaults", and start talking about "strategic short sales".  If the bank agrees to do it, what is the harm?  Let's face it, a short sale is a MUCH better alternative for a Seller's credit vs. a strategic foreclosure, and it's almost always a better alternative to the lender.

Now, before some of you jump in and slam this blog with your comments, please realize that what I'm writing about is reality.  We are not trying to "scheme the system" (please, get over the whole "victim thing").  The bottom line is that lenders are not stupid.  They (most of them, anyway) are finally realizing that approving a short sale is a better alternative than foreclosure.  In most cases, they are FINALLY coming to the reality that they own enough homes (through foreclosure) and they need to start making rational business decisions.  

In other words, it matters not what/how you feel about "strategic short sales", but how the lenders feel about them (at least in my recent experience), and how you can best advise your clients.

This blog is only intended to share what I'm seeing in my short sale transactions.  Your opinions are welcomed.

 

 

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Bob Hertzog
Designated Broker-Summit Home Consultants 2009:
95% Success Rate Closing Short Sales
www.phxshortsalehelp.com

 

 

If there is one thing about new construction this Connecticut home inspector knows is that all new homes need inspections.  Unfortunately most new construction home buyers seem blissfully unaware of this little fact. After all the home is brand, shiny new.  Oh and it's been inspected by the town inspector...for free. And there is a one year warranty. Yep nothing to worry about, everything should hunky dory.

Do people lose all connection to reality when purchasing a newly constructed home? Has everyone not at one time or another purchased a brand new item only to find out it's defective? I wonder if buyers fully understand a home is a complex structure consisting of many interrelated systems put together over the course of several months by many hands. When you consider that fact it's amazing how often there are just minor problems.

Sometimes however there are potentially larger issues that crop up when a buyer is wise enough to have the home inspected.

For example on a recent new construction home inspection I discovered two potentially serious problems.

The first was with the manufactured fireplace. The installer did not correctly fit the ceramic surround together leaving large gaps. Behind the surround is the wood framing for the fireplace. Using this fireplace could result in a much bigger fire than expected.

The second issue was with the bedrooms electrical wiring. The arrow is showing the voltage drop at this receptacle, 102.5 volts which is much too low. The minimum is 108 volts. All receptacles in this bedroom and a few in the adjoining bedroom showed a similar drop indicating a problem in the circuit.

What potentially could occur due to this condition is damage to an appliance plugged into the circuit because of the low amount of current. A fire is another possible occurrence.  

Both these issues are fairly easy to repair. They also have not and would not have been discovered by the municipal inspector. Building officials do not test circuits, however the electrician should, and the fireplace is manufactured and as such most of the installation falls on the manufactures instructions, not the building code.

Which brings up another point; not all aspects of home construction fall under the building codes. Who do you suppose is checking on the areas that slip through those cracks?

Having a home inspector thoroughly inspect a newly constructed home can seal up those proverbial cracks giving the buyer a safer home and peace of mind.

 

 

James Quarello
2010 SNEC-ASHI President
NRSB #8SS0022
JRV Home Inspection Services, LLC

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Buy A Move In Ready Home or Fix One Up? Gettysburg PA Real Estate is available in all forms, but what is the best choice for each individual buyer? 

We've already established that there isn't a buyer in the market that isn't taking advantage of the inventory and looking for the best deal, at least what they seem to think is the best deal.  So recently the "fixer upper" has been mentioned quite a few times.  The particular people I'm working with have gone to both ends of the spectrum.  We've seen move in ready, foreclosures, and the god awful. 

This is a great opportunity to look at the financial aspects and potential net gains from buying a fixer upper or buying a move in ready home.  Before I even do this evaluation I can tell you that personally I'm leaning toward move in ready.  I have some rentals that have required more than their fair share of renovating which isn't always in the budget but necessary.  That being said lets consider some of the items that would effect a buyers decision.

1.) I think first and foremost you have to consider how long you're planning on staying in the house.  If you're considering living in a home for only 5 years it's imperative that you consider the amount of money that you would spend on a payment over 5 years vs. how much cash it would take to renovate the property.  If the payment difference between the fixer upper and move in ready is 400/mo it's equates to 24,000 over 5 years.  Make sure it makes sense either way. 

2.) What is the equitable value of the renovation?  It wouldn't make sense to spend 50,000 renovating a property only to find out that the house only gained 20,000 in value after renovations.  In the current economic climate you really have to consider your market and the price trends.  I'd certainly avoid this scenario of prices are trending downward (they are still doing so locally). 

3.) Are you prepared to live in a home while you are renovating?  Are you capable of managing a renovation or are you paying someone?  Can you live in a house that is being renovated? 

Those are just a few, but I think in general most people are better off financing a little more of a payment in order to get a home that is completely ready to be lived in.  If you're a contractor or handyman and want to take on a project, it can be rewarding but consult a Realtor to make sure you win monetarily in the end. 

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If you have built castles in the air, your work need not be lost; that is where they should be.
Now put foundations under them.
Henry David Thoreau

David E. Monsour, Realtor

Prudential Bob - Yost Sites Homesale, Gettysburg, PA 17325

717-319-3408

David.Monsour@gmail.com

Yes, My Buyer Has the Money to Buy . . . Does Your Seller Have the Money to Sell? Get the facts on the seller's ability to sell, before putting the home on the market!

I believe it is pretty standard real estate practice in most areas to have a pre-qualification / pre-approval letter (or proof of funds), to submit to the seller along with the buyer's offer.  It reassures the seller and provides the buyer a stronger bargaining position.

In fact, experienced agents generally like to have a copy of this letter from the buyer's lender, before they even begin showing homes to the buyer. Kinda makes sense really.  Why waste everyone's time looking at, or making offers on, homes the buyer can't afford? That's nothing but a one-way ride down Heartbreak Alley for all concerned.

The seller's ability to sell on the other hand has always been assumed.  There is no request for a "lender clearance letter" from the seller, verifying that the seller can afford to sell, prior to an offer being submitted by a buyer. Of course, this is because part of a listing agent's responsibility should include getting payoff information and preparing a net sheet or estimate of proceeds for the seller when listing a property. So it makes sense that any offer accepted by the seller should ensure that the loan payoff and other closing expenses are covered, or the seller has sufficient cash on hand to close.

Because, yeah, it sucks pretty bad -- as recently happened to me -- to have to explain to your buyer just days before closing that well, see, the seller actually can't afford to sell at the agreed upon price. He in fact owes tens of thousands of dollars more than the agreed upon price. It's particularly bad to have to explain this to buyers who expressly said they weren't interested in looking at / offering on short sale properties, due to the hassles and delays involved. Uh, awkward . . .

It's one thing to embark on the short sale saga when forewarned and armed for battle, it's another to be blindsided by it.

Obviously in this business there are always unexpected turns and unforeseen scenarios that are hard to predict (the above case being one such extremely unusual transaction), but clearly this is not an isolated instance and I am not the only one to have had this experience.

I recently closed a transaction on a listing of mine here in Pickens County GA, where the young, first-time home buyer, was at closing for a second time within a couple of months. His prior transaction had fallen apart at the closing table, when it was "discovered" that the seller was selling short, without lender approval, and therefore couldn't close. (How it got that far without being flagged by someone sooner is beyond me.)

I now get calls from other agents who want to show my listings, but who preface the conversation with something like, "Can the seller close at this price? Is there a possibility it will be a short sale? Just thought I'd check before wasting my buyer's time . . ." Sounds like they too have been burned by the "undisclosed", "unknown" short sale.

I think we all get the fact that short sales are on the rise. They are part of our environment and will be for some time. But, just as we pre-qualify buyers, we need to pre-qualify sellers and disclose up front whether or not it is a short sale, or has the potential to be a short sale. It is also important to double-check the numbers before the seller accepts any offer, particularly if the offer is substantially lower than list price, or the home has been on the market for a while, not just as an essential part of our duty to our clients, but as a courtesy to other agents and the public as well.

Seems like common sense, but . . .

Trent D Cluley
Keller Willliams Realty - Select Partners
770-757-3399
EMAIL
www.PickensGeorgiaRealEstate.com

SEARCH ALL PICKENS COUNTY & NORTH GA HOMES AND LAND FOR SALE!

I was listening to a local radio show yesterday and heard a Sussex builder describe himself as the greenest builder in Delaware. Later, driving down Route 9, I spotted a billboard belonging to “the only green builder in Delaware”. That evening on I read another article online about a local builder who said they were selling the greenest homes in the greenest community in the “greenest state”.

This reflects the growing marketing battle over sustainability going on everywhere. It should have been expected from the industry that brought us the biggest and most luxurious home, the most inexpensive biggest home, the most luxurious small home and the smallest big home and on and on.

The truth of the matter is that this flood of comparisons is growing by the day and ends up making a really good case for not believing anyone. Unfortunately there are many really good genuine sustainable builders who are getting sucked up in this brew of greenwashing and exaggeration.

EnergyStar is an example of a third party agency that has successfully set up programs to police everything from televisions to new homes. A major newspaper reported that the Government Accountability Office (the GAO) set up fake companies that submitted nonexistent products to test approval procedures at the EnergyStar program.  "The fake companies submitted data indicating that the models consumed 20 percent less energy than even the most efficient ones on the market.” Yet those applications were mostly approved without a challenge or even questions, the report said.

Without a challenge? It gets worse. Many of the approvals were issued by an automated machine with zero human interaction. An official with the Environmental Protection Agency, which administers the program within the Energy Department, insisted that the automated system is only preliminary and that every product is also screened by a human.  However, many of the Energystar workers told different stories. Yup, the government is at it again.

Where does this leave our local consumers? When I was in my teens, I believed that I should trust no one over 18. This worked for me at the time. Conservative caution may be the route to follow with “green building” until there is more accountability in place to protect the public.

Forget the word green all together. Green is not a designation; it is a poor substitute for honestly defining a product by its features (50% lower electric bills, 25% lower water bills etc). You need to spend time doing your homework, talking with educated professionals and proceeding slowly.



Source: Realtor News, The Wall Street Journal, Nick Timiraos (06/07/2010)

 

The cost of FHA loans could increase before the end of the year is over with.  Right now, depending on your LTV (loan to value), the FHA monthly mortgage insurance is either .50% or .55% of the base loan amount.  We could see increases any where from .90% to 1.55%. That is a significant increase. Michael LaFido gives more details in this post : FHA mortgage insurance premiums approved to triple in cost

 

 

FHA Monthly Mortgage Insurance Premiums  (with less than 5% down)

Current premium                    -   .55% monthly

Expected increased premium  -  .90% monthly

Maximum increased premium  - 1.55% monthly

 

 

As in the article mentioned above, it can be established that monthly payments on a $200,000 mortgage could increase any where from $59/month to $167/month. Two things happen here.

1. Yes, the borrowers payment increases and even $150 extra a month could impact the borrowers ability to pay

2. But it also would reduce the purchase price by $20,000 or more.

 

 

Below is an excerpt from what Mr. LaFido stated in his post.

 

 

 

 

 

 

 

Here is my problem with this kind of statement, in which HUD has even stated the same thoughts. I call it smoke and mirrors. Here is how I break it down.

First off, he stated that it would reduce closing costs by $2,500.  Even though the Upfront Mortgage Insurance is considered closing costs, it does not have to be paid in cash at settlement. It can be rolled into the loan amount. With that said, the difference alone in payment is only $14 a month if you reduce the loan amount by $2,500.  So even  if they raised the monthly percentage to the next tier, that is a difference of $59/month. So if you reduce the upfront, that is a difference of $45 more a month.  And if you went to the highest tier, that is a large difference of $167 a month, minus the $14, gives you a difference of $153 a month. Just in 16.33 months, you paid off the difference of the $2,500.  So if you stayed in the house for just 3.2 years, you doubled your costs, paying an extra $2,500.  Think about it, FHA says they will give you a break on the upfront. In reality, they are receiving money pretty quickly in a short time, to help the depleted mortgage insurance funds. I really don't have a problem with that, because FHA is a vital part of the housing industry and we need to make every effort to sustain this type of financing.

 

 

Here is an excerpt from what HUD stated in January of 2010 which can be found here : FHA Announces Policy Changes to Address Risk and Strengthen Finances

 

 

 

 

 

 

 

 

 

Notice what they said..... "with less impact to the consumer". Come on, please don't insult my intelligence. $100 to $150 wouldn't have an impact on the average borrower?

 

 

Conclusion : As I mentioned, don't so much have a problem with what needs to be done to help with FHA mortgages, but I do feel that they could reduce the monthly percentages by at least a 1/4 of a percent. As I showed above, just in 3.2 years on a $2000,000 loan, FHA would recapture an additional $2,500 in that time period. And just for the fact that FHA has realized that it's funds have been depleted for a few years, why couldn't they have looked at this seriously a few years ago or even a year ago, and made a slight change instead of what I feel is a drastic change.  Yes, FHA loans are vital to home buying, but at what cost? What are your thoughts?  We need to let the government hear our voices on this subject.

 

 

For information about FHA myths & FHA rumors, please read : FHA Myths & Rumors

 

 

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For more information on FHA loans, please go to this link. The FHA Expert

For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags!

For information about FHA myths & FHA rumors, please read : FHA Myths & Rumors

 

Copyright © 2010 by Jeff Belonger of Infinity Home Mortgage Company, Inc