Mortgage to Lease : A Pilot Program Worth Flying?

As the calendar page turns with the start of a new Spring season, all eyes [in the Real Estate world] are on the pilot program introduced by Bank of America.  This program, aptly named Mortgage to Lease, is a new alternative to foreclosure which has the real estate world stirring with newfound optimism.  The Mortgage to Lease program will initially be extended by Bank of America to 1,000 homeowners within Arizona, Nevada and New York who fit the pre-screening criteria, but analysts are hopeful the program’s initial success and popularity will lead to further expansion, possibly even nationwide. 

Bank of America is currently screening for homeowners who are at least 60 days behind on their mortgage payments, have been declined a loan modification, and who owe more than their house is currently worth.  Much like the well-known practice of deed-in-lieu of foreclosure, homeowners will be asked to deed their properties back to their lenders [i.e. Bank of America].  However, home occupancy rights will not be surrendered with the forfeit of home ownership in this program, as these former owners will be permitted by their lenders to rent the house at or below market rents for a period up to three years.   As seen previously with deed-in-lieu cases, all existing loan balances will be forgiven.  For all my Los Angeles readers out there, credible sources have mentioned this Mortgage to Lease pilot program will soon be offered in Los Angeles County by Bank of America, with an added wrinkle of the opportunity to buy back the home at fair market value after the three year rental period has expired. 

As homeowners and investors alike closely monitor the Mortgage to Lease program, so too can we expect to see the other major banks keep a close distance to this pilot program.  If said program is executed properly and received by the public as it is intended, it is not too farfetched to believe the Mortgage to Lease program will be offered by other lenders to more homeowners across the country.

Short Sales Embody the Old Cliché –“ Timing is Everything”

A wise man once said that “timing is everything”.  When it comes to short sales, nothing could be more true.  Perhaps the most widespread complaint vocalized by Real Estate agents and their clients is the duration of file review. 

Buyers understandably find it difficult to locate a perfect home, only to be forced to wait in the dark for an extended period of time before knowing if their offer is accepted by the short-pay lender(s).  Sellers seem to grow noticeably more anxious as review time elapses and foreclosure becomes more imminent.  Like a virus gone airborne, the agents representing these buyers and sellers soon begin to show symptoms of concern, overwhelmed with the thought of another short sale gone sour.  You may be wondering, “Is this the case for all short sales? Do I really need to play the Waiting Game?”

As a hands-on negotiator active in short sales each and every day since 2008,  I have learned how to cut down review times so my agents and their clientele can more swiftly jump into escrow and complete their transactions.  Following these pointers below won’t generate approvals overnight, but review periods can be contained to a manageable time frame of 45 – 60 days, from offer submission to short sale approval release:

1. Strategize before the Attack: It’s never advisable to send in an incomplete package in exchange for initiating short sale review that much sooner.  Since your file will not advance beyond the set-up phase until the lender deems it complete, it makes sense to take the extra time to review all documents for completeness and accuracy.  Make sure dates and signatures are present where required, and make sure all items are present and accounted for.  In short, do NOT compromise the file underwriting process.  You will find that the largest root of file review delays stems not from the lender falling behind, but instead from the lender trying to work to tie up loose ends. 

2. Know Thine Enemies: Each and every short-pay lender has its own unique organizational structure and document requirements.  Before deeming your short sale complete, make sure you are aware of any specific lender requirements which can be handled prior to file submission.  Additionally, understand that each lender employs its own escalation procedures designed to correct a file review which has fallen off course.  If you know what resources are available to assist your file you will be able to mitigate unnecessary delays more efficiently.  To minimize review times, make sure to know the ins and outs of bank escalation procedure and their personnel hierarchy, so you can pinpoint how, when, and with whom to red flag your files.

3. A Good Defense is a Great Offense: Before submitting a buyer’s offer, have a good idea of how the initial standing offer holds in comparison to true market value.  Expect a bank counter requirement of some kind, and ideally leave yourself wiggle room to counter in return. As the old poker saying goes, “always leave yourself outs.”  Also, like a soldier going to battle, arm yourself with inspection reports, CMAs, appraisals, and any other literature which will help you address seemingly high lender counter requirements.  Having such materials will help you work through the exercise I like to call bridging the gap, wherein you work to best align your buyer’s best and final offer with the short-pay lender’s baseline counter payoff requirements.

4. Respect your Opposition: It’s amazing how many times I hear of listing agents [or their assigned negotiators] mistreating their file counterparts within lender short sale departments.  Understand that these individuals have an enormous workload, and at the end of the day, are humans too.  Bank negotiators may never admit it, but their review priority is certainly influenced by file personalities.  Always try working through problems with your immediate contact, and resort to complaints (only) when absolutely warranted.  If you cry Wolf prematurely, you will be ignored. 

5. A Chain is Only as Strong as its Weakest Link: Probably the most widespread problem with short sale files, and ironically the one area which can be most controlled, is communication amongst file players.  As a short sale agent / negotiator, it is vitally important to provide continual updates to your buyers, sellers, loan officers, escrow officers, and everyone in between.  As your file hits each new review benchmark [file acknowledgment, value ordering, value recording, counter, final submission, and offer acceptance], make sure to update all persons involved with the file.  Doing so will keep each party out of the dark, and will actually give the impression of a quicker review time frame.  You’d be surprised how many more of your files close successfully simply by updating file players as the review progresses.  Because this constant updating and follow-up takes time and energy, agents find it extremely advantageous to utilize the services of third party negotiation companies or their own in-house negotiation team to handle this burden.

As an active California Realtor and short sale negotiator, I hope you will find these pointers as helpful as I do.  It’s certainly no easy task, but with unwavering commitment and organized systems, I’m confident you will see these techniques improve your short sale success rates by containing your file review time frames.

by: Jeremy Klein, Equitable Realty and Services
www.equitableres.com

 

California’s state attorney General Fires Another Bullet at FHFA Director

Kamala Harris, California’s state attorney general, is going to battle yet again against Edward DeMarco, head of the Federal Housing Finance Agency [FHFA], the government body which oversees the two government-sponsored agencies - Fannie Mae and Freddie Mac.  Riding the coattails of the recent $25 billion foreclosure settlement between the five biggest mortgage servicers and their wronged homeowner clientele, Ms. Harris authored a letter to DeMarco requesting he halt foreclosure proceedings in California until the FHFA "has completed a thorough, transparent analysis of whether principal reduction is in the best interest of struggling homeowners as well as taxpayers."  Having failed to get Fannie Mae and Freddie Mac to participate in helping struggling homeowners in California via the foreclosure settlement and the principal reduction stipulation, I am hard-pressed to believe DeMarco will agree to the suspension of foreclosures altogether and leave billions of dollars on the table.  Last month alone, Los Angeles County recorded six billion in foreclosure sales.  And with over half of the loans in California being owned by the GSEs, Ms. Harris may be barking up the wrong tree. 

Although our state attorney general may be fighting a losing battle on this particular issue, she is at the very least adding fuel to the existing fire surrounding the FHFA director Edward DeMarco.  With other state attorneys general voicing their opinions of disdain towards the GSEs head, especially in regards to his unwillingness to compromise on his refusal of offering principal reductions to struggling homeowners, Edward DeMarco may not be able to dodge these bullets forever.  Public outcries like Ms. Harris’ letter may not be effective in their own right, but the cumulative effect of such inquiries may eventually break the camel’s back. Only time will tell…

$25 billion Foreclosure Settlement: Is it Truly What the Doctor Ordered?

The historic $25 billion foreclosure settlement between the five biggest mortgage servicers – Bank of America, Wells Fargo, JPMorgan Chase, Ally Financial and Citi – and their wronged homeowner clientele has been under much scrutiny since its release date on February 9, 2012.  Many analysts  are speculating on the settlement’s effectiveness in boosting the country’s downtrodden real estate market ; others are blatantly pessimistic in their stance that the $25 billion will do noticeably little to correct the course of this sinking ship.  When comparing the two driving monetary aggregates –

1. total foreclosure settlement dispute = $25 billion

2. total negative equity in the US = $700 billion…

it is hard to maintain optimism when the sheer discrepancy between diagnosis and remedy is so evident.  As the son of a doctor, I can make a medical comparison… it’s like applying a band aid  to a broken back.  The foreclosure settlement may provide immediate protection on the surface of the wound, but will likely do little for the long-term solution to the real estate market’s broken framework.

As a native Los Angelean  and member of the C.A.R., I find myself evaluating the foreclosure settlement on the local [and state] level.  Although the nationwide settlement package may not boost the real estate market on a national level, is it possible for some states and local RE markets, say the Los Angeles market in California,  to benefit more relative to others? Further detailed scrutiny of the settlement statistics on the local level will demonstrate a perhaps gloomy verdict:

·         The state of California is to receive $18 billion of the entire $25 billion settlement package

·         Of the $18 billion, the dependable  Orange County Register reports that $4 billion is being allocated to Los Angeles County alone

Based on the above, we can assume each targeted relief area – principle reduction, refinance assistance, recourse settlements, and wrongful foreclosure via turbo-signing – of Los Angeles County will receive 22% of the entire California settlement package.  Extrapolating these reported [national, statewide and local] figures a step further, each settlement allotment provided by the California’s attorneys general Kamala Harris will equate to:

·         55,000 LA HOMEOWNERS will be eligible for principle reductions who are underwater on their loans and behind or almost behind in their payments, for an average of $48,000 each

·         6,160 LA  HOMEOWNERS who are current on their payments but underwater on their loans will eligible for help with refinance programs like “HOPE”, for an average of $30,321 each

·         30,800 LA HOMEOWNERS who were foreclosed upon between 2008 and Dec. 31, 2011, will be eligible for an average check of about $1,993 each

·         7,040 LA HOMEOWNERS will be eligible for assistance with unpaid balances on recourse loans that are remaining when their homes are foreclosed, for an average of $109,375 each.

Will the above relief breakdown add enough stimulus to turn around the Los Angeles County RE market? Or are there far too many homeowners too far gone and too upside-down for the settlement relief for the LA County markets to gain traction as a result?  If we look at one last telling reported figure, I may unfortunately need to refer to myself not as an avid blogger, but as a bearer of bad news.  According to Foreclosure Radar:

·         LA county saw $6 billion in foreclosures last month alone

·         12,177 new foreclosure or notice of default filings from Nov 7^th, 2011 to January 16^th, 2012, a mere 6 week span.

The far-reaching devastation of real estate crisis is so vast in scope, that the steep number of new foreclosure stories will make it difficult for any government solutions package to truly stop the bleeding.  and As a native Los Angelean, and speaking as an active Los Angeles Realtor, it pains me to write this settlement package is likely NOT WHAT THE DOCTOR ORDERED? 

Luxury Foreclosures: True Homeowner Hardship or Savvy Business Decision?

As the 2012 calendar year gets underway, the nationwide housing market woes are well-known and continue to be well-documented.  The combination of financial instability, political misdirection, and lender hesitancy [to take losses] have cultivated a lethal cocktail of foreclosures and borrower defaults.  What is less familiar, however, is the newly realized default and foreclosure trends in high-end neighborhoods.  Yes, even the star-studded territory of Beverly Hills, although still the home to lustrous faces of stage and screen, big-time doctors and lawyers, is not immune to the housing crisis.

Was it just a matter of time before the tidal wave of default spilled over the Hills like a domino effect from the neighboring areas? Or could something else be at play here that spawned the arrival of increased luxury foreclosures? Analyzing political innovations, specifically the introduction of SB 931 and Civil Code 580E, we'll find that homeowners are no longer inclined to hitting the snooze button to stave off foreclosure proceedings, but instead are jumping out of bed to the foreclosure alarm because of new political incentives.

What is SB 931? SB [Senate Bill] 931 requires the holder of a first mortgage or deed of trust that is secured by residential real property to accept the sale proceeds as paid in full, and requires that note holder to fully dismiss the remaining amount of the borrower's indebtedness on the deed of trust or mortgage following the sale. Translated simply... following the completion of either a foreclosure or short sale, the lender will no longer be permitted to seek deficiency judgments from the homeowner for the forgiven amount. 

What is Civil Code 580E? This law is very similar to SB 931, but extends the non-recourse requirement in the event of a sale to all junior lien holders as well. 

Is it a coincidence that the default rates in luxury RE markets increased following the introduction of political innovations such as SB 931 and Civil Code 580E?  Or are the default trends arising from the increased understanding of Realtors and homeowners of these political enactments?  I would argue the latter, given that more and more cases of "strategic" default have been interjected into these luxury RE markets. 

Strategic default refers to a situation in which the homeowner intentionally CHOOSES not to pay his / her debt obligation because the property is now worth much less than the loan used to buy it at the artificially high price during the housing bubble. This is contrary to actual default cases in which homeowners were unwillingly forced into missing payments due to income loss, employment changes, or mortgage payment adjustments.  Local statistics show an increased number of houses in Beverly Hills have been foreclosed on by lenders, scheduled for auction, or served with a default notice [ForeclosureRadar.com], yet very few were actually listed for sale by the owners.  Additionally, Foreclosures on jumbo loans are up 579 percent since 2008, greater than any other form of loan, according to a report last month by Lender Processing Services, Inc.[lpsvcs.com] In light of the facts:

·         Foreclosure and default rates have risen in luxury areas, like Beverly Hills

·         Of these homes in foreclosure, very few were actually listed

·         Foreclosure rates on Jumbo loans have increased greater than any other form of loan

We are taking the stance that homeowners are becoming more aware of the political reforms which are for their benefit, and are reacting accordingly by intentionally defaulting on their upside-down loans.  Knowing that their lenders can no longer pursue deficiency judgments after the sale of their home, residents of Beverly Hills are thus choosing to jump out of bed and wake up from their underwater slumbers.

Banks, in reaction to the adjusting behaviors of their borrowers, are introducing new incentive packages to homeowners attempting a short sale, as a way to combat homeowner’s new found indifference to walking away.  We’ll dive into this topic of bank behavior changes in a future article….

Foreclosures made up 20% of U.S. home sales in 3Q

Foreclosures made up 20% of U.S. home sales in 3Q

NEW YORK (CNNMoney) -- Sales of homes in foreclosure comprised 20% of all U.S. residential sales during the third quarter, according to RealtyTrac.
That share is a significant decline from the same period in 2010, when foreclosed homes made up 30% of residential sales, but it's still a far cry from levels seen during healthier housing markets when foreclosures comprised less than 5% of sales.

In total, 221,536 distressed properties were purchased during the quarter, down 11% from the previous quarter and 5% lower than the same quarter a year earlier, RealtyTrac said.

One reason for the year-over-year decline is that fewer homes are making it through the foreclosure pipeline, said Daren Blomquist, a spokesman for RealtyTrac.
Banks have slowed the processing and sale of foreclosures as they attempt to make sure they are not mishandling paperwork or attesting to facts that they have no knowledge of, both actions that were exposed during the robo-signing scandal.

Foreclosures: America's hardest hit neighborhoods

"The number of REOs (bank-owned properties) coming onto the market has been artificially limited because of processing issues," he said. "That has reduced supplies."
As a result of these delays, the average foreclosed home sold during the quarter took 193 days to sell. That was up from 172 days in the previous quarter and 161 days in the third quarter of 2010.
Banks have also refrained from selling some distressed properties in order to avoid flooding the market with "for sale" signs that will weigh further on home prices.
"There's a healthy demand for these homes: People see them as buying opportunities. But banks are not listing them as quickly as they could," said Blomquist.
For buyers and investors, there are indeed bargains to be found. On average, REOs sell for 42% less than conventional sales nationwide.
The smallest discounts are generally in places hardest hit by foreclosures. In those markets, so many of the sales are foreclosures that anyone selling a home has to price it very competitively, said Blomquist.
In Nevada, where foreclosure-related sales accounted for 57% of all residential sales during the third quarter, repossessed homes sold for only 20% less than conventional ones.

Attorneys are killing the homeowner vision of acceptable workout solutions

There are many attorneys that are just involved in what is being coined as "Foreclosure Postponement Law" frivolous lawsuits against the banks and trustees or using bad techniques with shell corps in chapter 11. They know full well that they are only effective toward delaying the inevitable. These attorneys are killing the homeowner vision of acceptable workout solutions. Also I would challenge any attorney who is doing home loan modifications to stay in strict compliance with CA SB 931 even though they aren't entirely subject to it. We are attorney and broker based and will not charge until the modification is done. We've done it long enough that we can pre-screen with our knowledge of each investor's guidelines. We wont take it on unless we think it will get done. If for some reason it can't, we feel it is a disservice to the homeowner to keep fighting a losing battle. We'll screen for any bank errors before making a determination of resubmitting. If an agent has brought the homeowner to us we will then return them to do a short sale with that agent. There is enough business in being responsible and identifying the probable from improbable for homeowners. Business owners should be thinking about putting the client in the best possible situation to rebuild, it will only cultivate more return business.