The California Governor Makes the Homeowner Bill of Rights Official

     In a bold yet calculated move, California Governor Jerry Brown pulled the trigger on the long-discussed California Homeowner Bill of Rights, officially signing the bill into law last Wednesday, July the 11^th.  Designed to reinforce the existing infrastructure for loss mitigation review processes, the California Homeowner Bill of Rights is hoped to help families and homeowners better avoid foreclosure whenever possible so that the negative consequences of such foreclosures can be subdued.  As a short sale specialist for the past 4 years, it is far too common a story to hear of pre-qualified homeowners being unsuccessful in their loss mitigation efforts.  Even with their packages falling in line with the program criteria, homeowners are coming up empty-handed on their modification and / or short sale campaigns, only to have their lender foreclose and repossess the property.  Much like applying pressure to an open wound to stop the bleeding, the Homeowner Bill of Rights is being called into action to push down these foreclosure horror stories one at a time so the market and overall economy can heal at a faster rate.

     Set to come into effect on January 1, 2013, the law will only pertain to first trust deeds secured by owner-occupied properties.  Below itemizes the primary components of the law.  For full text, I encourage all my California readers to visit www.leginfo.ca.gov  In my next blog to follow this week, I will share my own analyses and forecast the effectiveness of the law’s various components in reducing foreclosure rates across California. 

     The California Homeowner Bill of Rights, A.K.A. Assembly Bill 278 and Senate Bill 900, consists of the following primary components:

1.  Imposes Limitations on Dual Tracking à Dual Tracking is a practice in which a mortgage servicer / lender continues to advance a property through the foreclosure filing process concurrently to reviewing a defaulted borrower for a workout program.  Under this provision, while a homeowner is currently requesting modification or short sale consideration from their bank, the borrower’s bank will no longer be able to freely push the property further into foreclosure, whether it be recording a new notice of default or notice of sale, or even conduct a trustee’s sale. Depending on workout review status, certain foreclosure filing restrictions will now apply.  As Governor Brown stated, “Californians should not have to suffer the abusive tactics of those who would push foreclosure behind the back of an unsuspecting homeowner.  These new rules make the foreclosure process more transparent so that loan servicers cannot promise one thing while doing the exact opposite.”

2. Requires Provision of Single Point of Contact à For a borrower requesting a foreclosure prevention 

alternative, the mortgage servicer [or bank] will be required to promptly establish and provide a direct means of communication with a single point of contact.  This provision is aimed to make it a bit easier for homeowners to acquire workout and foreclosure status updates, which theoretically will create more efficiency in review timelines.

3. Additional Written Notice Requirements à Mortgage Servicers/ lenders will be required to provide borrowers written correspondences pertaining to both workout and foreclosure status changes.  The element of surprise may be suitable for a birthday party, but certainly does not have much of a place in loss mitigation. 

4. Mortgage Servicers / Lenders are Subject to Penalties for Violations of this Law à In an effort to prevent reckless behavior, mortgage servicers / lenders are now more susceptible to penalties for violating any of the above parameters of the law.  Borrowers will now have an opportunity to bring action against their banks for violations of this provision.  Monetary awards and suspension of foreclosure activity are both available for homeowners found to be victims of lender misconduct.

A Silver Lining in a Troubled Market

     

     When it comes to real estate, especially here in southern California, I commonly get asked the question, “When do you think the worst is behind us?”  Using new foreclosure filing figures as my guide, I am unfortunately here to report that recent studies show the real estate market may not be as well off as some analysts had forecasted in prior months.  According to RealtyTrac Inc., a leader of the online marketplace in collecting and aggregating foreclosure data worldwide since its inception in 1996, lenders commenced foreclosure proceedings against more homeowners nationwide last month.  In fact, over 109,000 new Notices of Default [NOD] were filed in May 2012, representing a 12% increase from the prior month and a 16% increase compared to May 2011.  Much like picking up an opponent’s tell in a competitive game of poker, these trends reflect how lenders are becoming more aggressive in their efforts to address delinquent mortgages.

     Unless a homeowner is able to reinstate [or make up missed payments in full] their loan, or unless a loan modification or refinance is obtained, NOD’s eventually lead to either foreclosure auctions, home repossessions, or short sales.  Since foreclosures, REO’s and short sales all tend to sell at a discount, such transactions would continue to negatively impact home values. 

     There is an upside, however, which we can all feel good about.  Although the rate of foreclosure initiations has increased of late, so too has the number of short sale closings as compared to foreclosures.  In fact, Realty Trac reports that the first quarter of 2012 shows not only a 25% increase in short sales as compared to the prior year, but REO sales decline of 15% this first quarter.   What does this tell us?  Lenders have increasingly embraced the short sale as a more lucrative loss mitigation tool as compared to repossession and the eventual real-estate owned [REO] sale to follow.  Since short sales tend to sell at a smaller discount than REO homes, such transactions have less of a negative impact on home prices.

     So although we will likely continue to see new foreclosure cases injected into the marketplace over the next several months, we can take solace in the fact that better loss mitigation systems are now in place to absorb the negative implications of such foreclosure activity.  If you want my quick retort the question, “When do you think the worst is behind us?”, I would respond as follows –

     I do not envision any further extreme losses in home values as we saw with the initial bubble burst in 2006 - 2007.  However, the dynamic between new foreclosure filings and more efficient loss mitigation approaches will likely continue to thwart drastic home value growth for the next few fiscal quarters.  

The Loss Mitigation Menu May Just Have a New Entrée Addition

    

     Recent studies indicate that one in three homes is presently underwater nationwide.  Many such households have either attempted in the recent past, or are currently amidst, loss mitigation resolution efforts to alleviate themselves from their distressed property situations.  For some time, the menu of mitigation entrées has been somewhat limited in scope to the following few choices – loan modification, refinance, short sale, or deed-in-lieu.  Bank of America’s pilot testing of their Mortgage to Lease program may soon mature into a permanent, new loss mitigation option for underwater households. 

     At present, Bank of America has solicited an estimated 2,500 households in Nevada, New York, Arizona and California.   Analysts are optimistic that the program will not only be received with open arms by the general public, but identified by investors as a solid loss mitigation tool as well.  Myself and my Equitable Realty & Services co-workers are all optimistic that we will soon see the Mortgage to Lease program added as a permanent loss mitigation menu item nationwide.  While said program is still in its testing phase, now is the perfect opportunity to identify the prequalification requirements so my California readers can be first line in the application process once the pilot tag is lifted.   

·          Have loans owned by Bank of America.

·          Are delinquent for more than 60 days.

·          Have exhausted modification solutions or have not responded to alternatives to foreclosure, including short sale and deed-in-lieu.

·          Have high loan balances in relation to their current property value.

·          Face considerable risk of ultimate foreclosure.

·          Have no junior liens.

·          Are still occupying the home.

·          Have adequate income to make an affordable rent payment.

    If you believe that you meet the above criteria, keep a watchful eye on new developments, because I believe the Mortgage to Lease program floodgates to open up very soon. 

    Keep in tune for a follow-up blog which will summarize the key benefits of the Mortgage to Lease program.

THE SHORT SALE TRANSACTION : BACK TO THE BASICS

As an everyday California Realtor and short sale negotiator, I sometimes take for granted all the situational learning I’ve accumulated over the past four grueling years.  What I now regard as second nature may truly be an exercise of the unknown to others when it comes to the short sale transaction.  If you look at statistical evidence, putting a proper file together, and efficiently walking said file from submission to short-pay approval, must be no simple task.  In fact, it is estimated that only 1 in 3 short sales get approved, and even fewer close successfully.  These numbers certainly demonstrate the inherent challenges Realtors face when taking on short sale listings from their clients.

I must have woken up on the altruistic side of the bed today… because I am calling upon myself to present a quick refresher course dissecting the short sale basics, which my audience of fellow agents, buyers and sellers will hopefully find useful for their own short sale endeavors.

A short sale is a real estate transaction in which the sale proceeds are less than the outstanding loan balance(s) owed on the current mortgage lien(s).  Due to the realized loss incurred by the owner of the loan, approval from the owner(s) [of the note] becomes a prerequisite prior to closing the transaction.  Although each lender has adopted its own unique short sale process, each share similar characteristics, and the outline below hits the key highlights.  Before engaging the short-pay lender, it is imperative that you work directly with your homeowner clientele to acquire the appropriate items the lender will be requesting.  It is likewise just as important to the take the next step and audit all documentation, so that no rock is left unturned and the file is evaluated from every angle.  Future blog postings will break down the underwriting process of your short sale package.  For this current article, let’s make a big assumption that such underwriting has been completed… What’s next?

1. SUBMIT 3^rd PARTY AUTHORIZATION à This form is predominantly faxed / submitted separately from the full short sale package.  To ensure your form is accepted by the lender, be sure that your authorization form includes:

                   * full property address, as it appears on the homeowner’s mortgage statement

                   * loan number(s)

                   * seller full printed name(s)

                   * seller signature(s) and date(s)

                   * last 4 digits of seller social security number(s)

                   * identify all intended, authorized parties

Usually this form is honored for the duration of the short sale review process, or until the homeowner instructs their bank to remove authorized parties.  Should you need immediate access to your client’s account, and do not have the luxury of waiting for your authorization form to clear, you can always call the lender with your client and acquire temporary verbal authorization.

3. FILE SUBMISSION à Once your short sale package is rendered complete, packed full of your seller’s financial data and your transaction documents, your file should be submitted to your lender to initiate the negotiation process.  It is important to transmit the entire package in one shot, and in chronological order.  It is this part of the review process which seems to give the short sale nation the most grief, yet it is ironically the portion that which we as real estate agents have most control over.  If information is missing, or documents cannot be located in a messy package, the short sale department will not advance your file’s review.  If submitted incorrectly, you can expect your short sale to be delayed significantly.  To avoid frustration, heart-ache and wasted time on the back-end, do yourself a favor and construct your short sale packages carefully on the front-end.   Always use a fax cover letter which identifies each item contained in the transmission.  In case you are wondering, below is the order chronology I find most effective for my short sale packages after much trial and error:

                   * fax cover sheet

SELLER HARDSHIP DOCUMENTS                   

                   * seller hardship letter

                   * short sale lender application, which will include a financial statement for the seller

                   * seller proof of income

                    * seller bank statements

                    * seller 4506-T form

                    * seller last 2 years tax returns

SHORT SALE TRANSACTION DOCUMENTS

                    * Listing Agreement

                    * Purchase Agreement

                    * HUD-1

                     * buyer financing information

4. FILE QUEUED FOR SHORT SALE REVIEW à Upon receipt of the initial short sale request, the short-pay lender will audit the package for completeness and accuracy.  Only when the file is deemed complete will the account be advanced from the set-up team to the negotiation team.  For some lenders / servicers, the transition from the processing phase to the negotiation phase is not completed until the next step [COLLECTING VALUES] is also completed.  For other lenders, a negotiator may be assigned to your file prior to the recording of the subject property valuation data, but negotiations will obviously be limited until the COLLECTING VALUES process is completed.    

5. COLLECTING VALUES  à The short-pay lender will contact the file’s designated listing office to schedule an appraisal or Broker’s Pricing Opinion [BPO] in order to generate Fair Market Value [FMV] assessment data.  Such value reports are predominantly generated by a contracted 3^rd party, who is responsible for reporting their findings back to the short-pay lender. 

6. COMPARATIVE ANALYSIS à The bank’s FMV figure will be reviewed by the bank negotiator in conjunction with the buyer’s standing offer to determine strength and acceptance eligibility of the original offer submitted.

•  If offer is within bank’s acceptance range, file will be submitted to the investor for FINAL REVIEW & APPROVAL RELEASE.
• If the buyer’s original offer is less than the bank’s acceptance range, the bank negotiator will respond with COUNTER REQUIREMENTS. 
• If there is a sizable discrepancy between the buyer’s best & final and the bank’s bottom-line payoff requirements, this will be the appropriate time to request a VALUE DISPUTE. 

7. CLOSING THE SHORT SALE  à  When your file is approved, you will usually be allotted 30 - 45 days for buyer to obtain financing, and for escrow procedures to fully run its course all the way through recording.  At the end of escrow, title will be transferred from seller to buyer, and the well-deserved commissions will be paid out.

I hope you all find the above information helpful.  Be on the lookout for a new posting very soon.  

Californians, are you ready for Mortgage to Lease?

     Californians, are you ready?  As of May 25, 2012, Bank of America decided to expand its pilot program testing of Mortgage-to-Lease into California.  Initially extended to 1,000 households within Nevada, New York, and Arizona, Bank of America appears to be looking to increase its sample size of testing data points by inviting solicited California residents who meet the pre-screening criteria.  Including those originally solicited, the total is now estimated to be 2,500.  Bank of America is hoping such expansion will generate enough conclusive evidence of the effectiveness of the Mortgage-to-Lease program to warrant its full-fledged implementation across the country.  Until then, however, this pilot program will be conducted strictly on a solicitation basis in these four states, so hold tight on your application inquiries. 

     All of us at Equitable Realty & Services eagerly await the Mortgage-to-Lease pilot study findings, because said program could truly be the shot in the arm the real estate market needed to get back on track.  Bank of America Executive Ron Sturzenegger likewise optimistically remarks that if this program is welcomed by the public as a new alternative to foreclosure, Bank of America anticipates Mortgage to Lease “to stabilize housing prices in the surrounding community and curtail neighborhood blight by keeping a portion of distressed properties off the market. “

-As a side note, a trusted source has alluded to Equitable Realty & Services that this program may come to California with an option to buy. Yes, rent now and regain ownership later... Stay tuned....

California Real Estate’s Spring Progress Report Shows Signs of Improvement

     It’s been too long since I have been able to report uplifting news as it pertains to the California real estate market.  So it is with great pleasure I present this article to you all, chalked full of statistical evidence documenting a real estate market slowly on the rise.  It almost makes me feel like I am back in elementary school showing my parents an encouraging Progress Report, unlike in months past where the lackluster California real estate statistics would equate to the times I exerted all efforts to conceal unsatisfactory teacher remarks.

      According to the trusted source ForeclosureRadar, for example, foreclosure numbers fell quite dramatically last month.  With the number of foreclosure sales making up a lower share of the market, home prices received the boost we were all looking for, as foreclosures and short sales are predisposed to sell at a markdown.  C.A.R. Newsline similarly reported that in California, “the total share of all distressed property types sold statewide decreased in April to 42.0 percent, down from March’s 45.5 percent and from 47.7 percent in April 2011.”  When it comes to the percentage of foreclosures as a share in the market, the old saying certainly olds true… less is more!

     It has also been reported that the number of homes currently on the market has dropped.  As a result, the homes left listed on the active market are becoming enveloped in more intensive bidding wars, now that competing buyers have less inventory to choose from. California Association of Realtors President LeFrancis Arnold remarked that “The tight inventory we’ve been experiencing in the distressed market over the past several months is now spreading to equity properties, essentially affecting the supply conditions of both the distressed and non-distressed markets.” The more rampant and the more intensive these bidding wars become, the better. 

     A quick glance to the future may similarly show further market improvements.  Mortgage Banker Association’s Vice President of Research and Economics Michael Fratantoni announced that “Newer delinquencies, loans one payment past due as of March 31, are down to the lowest level since the middle of 2007, indicating fewer new problems we will need to deal with in the future.” 

I’m not one to count my chickens before they hatch, but if I add up all of the above:

1. foreclosure sales making up a lower share of the market

2. tightened inventory creating more intensive bidding wars

3. new loan delinquency figures are at the lowest levels since 2007…

     It just may mean California and the national real estate market at large may have finally turned the corner.  No doubt there is still much room for improvement, and it still remains iffy whether home prices will ever climb back to the peaks seen in 2006 – early 2007, but at least statistical evidence has some bright spots.  So if these statistics find themselves on the Spring Progress Report, just maybe we can keep the momentum going and produce a solid Final Report Card heading into summer break.  Only then could we metaphorically characterize the real estate market as the student deserving summer vacation as a reward for a job well done, as opposed to the slacker needing summer school to wise up.  

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.