A Quick Recap of April Real Estate Trends to Fend Off June Gloom

Hope everyone had a relaxing and safe Memorial Day weekend.  I know I appreciated the sunny weather bestowed upon us here in Los Angeles, California.  In an effort to help keep the good mojo going as we turn the page to a new month, I’d like to quickly revisit some of the reported real estate data figures from the prior month, which should be welcomed with open arms.  It had been far too long since market trends and analyses demonstrated improvements of such statistical significance, so why not quickly recap to rejoice in the little victories.  After all, when it comes to current real estate markets nationwide, we can’t seem to have too much of a good thing.  Perfect timing too for such positive reporting, as we are just around the corner from what us native Los Angelinos call June Gloom - a southern California term for a weather pattern that results in cloudy skies with cool temperatures during the late spring / early summer. 

Fun fact # 1 - home loans in foreclosure or at least one payment in default have declined to the lowest level since 2008, according to a Mortgage Bankers Association report.

Fun fact # 2 -  Sales of single-family homes, condominiums and town homes rose 5.1% compared to April 2011 , reaching a total just north of 19,000 last month

Fun fact # 3 – According to the C.A.R. Newsline, 5/30/12 issue, “Sales of new single-family houses increased 3.3 percent in April to a seasonally adjusted annual rate of 343,000 units, according to estimates released jointly by the U.S. Census Bureau and the Dept. of Housing and Urban Development. This is 9.9 percent above the April 2011 estimate of 312,000 units.”

Fun fact # 4 – Also pulled from the C.A.R. Newline, 5/30/12 issue, “National home values rose for the second consecutive month, climbing 0.7 percent in April compared with March to a Zillow Home Value Index of $147,300. This is the largest monthly increase in home values since January 2006, when they rose 0.8 percent, according to the April Zillow® Real Estate Market Reports.”

It’s too early to do a victory dance, and I still have yet to hear the fat lady sing; but data trends like those above are potential indicators of a real estate market on the rebound.  If sales can continue to rise, and competing buyers can continue to drive up median home values, there is no reason to believe that the worst isn't behind us.  Perhaps we can use this glimmer of hope to outshine and subdue our summertime nemesis June Gloom.

Perfecting the Art of Short Sale ESCALATIONS

Perfecting the Art of Short Sale ESCALATIONS

It is always frustrating to have short sale reviews fall behind schedule; the short sale time line is long enough without such delays.  The good news is, all short-pay lenders implement procedures to correct any negotiation process that has derailed from its expected review course.  Although each lender might use a different name for such a procedure, the end result is the same.  The most widespread identifier for this lender-corrective process is the ESCALATION, so for the sake of this posting, we’ll adopt the same.  If used properly, the escalation will help you minimize negotiation times.

The escalation is a coined short sale review term used by realtors and 3^rd party negotiators to red flag a short sale account record which has fallen behind schedule.  For each and every bank task, an expected due date (or time frame) is provided.  As soon as the due date (or time frame) has elapsed, the file will become eligible for a red flag escalation.  The escalation message should be sent to not only the delinquent review party, usually the assigned file negotiator, but to the review party’s immediate manager / oversight team as well.  The escalation will be documented in the account notes, which can be referred to in subsequent follow-up status calls.  The escalation will then have an expected turnaround time for the delinquent party to bring the file back in good standing.  Should the escalation time period elapse with no file advancement or account note updates, the file will again be eligible for an additional, phase 2 Escalation.  This additional escalation will have a new response date, and will usually include even higher management than the initial escalation request.  As such, the escalation really has two benefits:

1.       Places a red flag tag on the file until the review process has been brought up to speed

2.       Includes upper management to make these parties aware of the file delays, establishing a way for agents and 3^rd party negotiators to walk up the bank’s chain of command

Escalations have risen to the surface as the primary tool Realtors and 3^rd party negotiators call upon to correct review hold-ups.  Keep in mind, that should an initial escalation go unanswered, not all is lost.  In fact, each and every escalation documented in the account notes will add strength to your short sale negotiation leverage.  A history of under-performance by a bank employee, as evidenced by an account record full of escalations, will eventually place the file under review of upper management with more immediate access to the overall decision team.

I hope you find the above information helpful, and as always, Happy Negotiating!

A Critique on Freddie Mac’s Communication Time Lines for Short Sales

As an active Realtor and lead short sale negotiator for my Studio City, California-based Real Estate company, I was very pleased to read the short sale bulletin posted 4/17/2012 by FreddieMac.  Within said press release, Freddie Mac outlined several short sale review parameters and time line requirements which “should allow more efficient processing of short sale requests”.  Having played the role as lead negotiator on over 200 successful escrow closings since mid-2009, I have been exposed to the full gamut of short sale trials and tribulations.  Above all else, it is the extremely long review times [usually translating into buyer dropouts] which can be most detrimental to short sale successes.  As such, I applaud Freddie Mac for raising the bar on their own accord and self-implementing higher standards for their short sale reviews, HAFA and traditional alike.

But are we getting a bit ahead of ourselves in celebrating Freddie Mac without statistical evidence demonstrating enhanced short sale processing?  I ask that you all read the same Freddie Mac bulletin from 4/17/2012 again, and this time do so with a fine-tooth comb.  Like a verbal scavenger hunt, I put you all to the test of identifying the red flag phases which create gaping loopholes for Freddie Mac Servicers to potentially under-deliver without recourse consequences.   Refer to the blog attachment to see if you found the same red flags as I did.  

Strategically-placed phrases like “if feasible” and “there may be some situations in which the Servicer will be unable…” afford each and every Freddie Mac Servicer an out should short sale reviews stray off course. Even the author of the bulletin, Tracy Hagan Mooney, questions the effectiveness of these time line amendments when she states that such innovations “should allow more efficient processing”.  Why does Tracy not definitively state that we will  see improvement, I ask myself.  Don’t get me wrong ; I always try to act the optimist and be a glass-is-half-full guy.  However, I’ve learned enough in the Loss Mitigation world not to count my chickens until they’ve hatched.  Let us see how the new improvements translate in Real World short sale cases, and perhaps 12 months from now we’ll look back at this 4/17/2012 bulletin as the compass that righted this wayward ship.   

Until next time…..

The Economic Implications of the Mortgage to Lease Pilot Program

It’s been a few weeks since Bank of America first introduced its newest pilot program – Mortgage to Lease – and still the Real Estate world is buzzing.  As a quick refresher, the Mortgage to Lease program is the latest alternative to foreclosure, and was initially extended by Bank of America to 1,000 homeowners within Arizona, Nevada and New York who fit the pre-screening criteria.  Within said program, Bank of America screens 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.  If the occupant honors his / her established lease terms, and if significant credit reporting negatives can be avoided, the occupant will have an opportunity to obtain Bank of America financing to (re)purchase the property at the end of the two to three year period.  In fact, Bank of America guarantees their lessees financing who remain compliant with their lease arrangements.   

Analysts have been keeping a close distance and are still hopeful the program’s initial success and popularity will lead to further expansion, possibly even nationwide. Let’s assume for a moment these analysts’ optimism become reality, and that the Mortgage to Lease program continues on its path of success over the next several months, given its initial trajectory and welcomed reception in its early stages.  What economic consequences, if any, can we expect from the Mortgage to Lease program in the Real Estate market?

For starters, we can expect an immediate reduction in inventory on the open market, all else being equal, as many homeowners denied loan modifications will now have another option outside the short sale path.  As a Realtor within the greater Los Angeles area, my first reaction is to worry about diminishing sales opportunities.  However, I take solace in the basic economic principle of decreased supply increasing price, given constant demand levels.  Thus we should witness the welcomed secondary effect of increases in the home price index as a result of the Mortgage toLease program on active inventory on the MLS. A reduction in inventory to us agents could truly be “a blessing in disguise.” 

Another side effect of the Mortgage to Lease program, as it pertains to decreased inventory, is the potential stabilization of home prices due to less deferred maintenance.   A huge stigma of the housing market dominated by short sale transactions is the constantly deteriorating property conditions.  The combination of apathy from homeowners not caring to maintain their properties while under short sale review, and the listing agents’ understanding that worsened property conditions may even assist their short sale approval successes, produces a lethal cocktail of declining property conditions and hence, prices.  Such attitudes will be largely stricken from the record with this Mortgage to Lease program, as homeowners will now be encouraged to maintain their homes, as they will no longer be relocating. 

A tertiary consequence of this new program, which falls in line with the above, is less opportunities for squatters, break-ins and vandalism.  Now that homes previously being foreclosed and left vacant for months on end will remain owner-occupied, property conditions should be further sustained.

A final consequence I can forecast which adds another potential chalk-mark to the positive side of this equation, is the foreseeable decrease in competition within short sale negotiations.  One major complaint agents [and their hired negotiating teams] have with today’s market is the length of short sale review timelines.  With the Mortgage to Leaseprogram now an additional avenue for homeowners  to avoid foreclosure, the number of short sale files under review should be decreased.  The remaining short sale files left behind will be competing against fewer files, which could translate into quicker review times and higher closing success rates.

So, from an economic perspective, the Mortgage to Leaseprogram may go a long way in curing the disgruntled housing market.  Although inventory and sales opportunities may be reduced, home prices should not only be stabilized by a reduction in deferred maintenance and break-ins, but bolstered by the economic principle of decreased listings increasing home prices.  The existing short sale market will likely be positively influenced by the Mortgage to Lease program, as the decrease in short sale files should reduce review times and increase successful file closing rates.  All of these variables together tip the scales in favor of the Mortgage to Lease.

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…