Archive for the ‘foreclosures’ Category
President Obama followed up his State of the Union mention regarding more help for underwater homeowners with an announcement yesterday. Looks like there will be hurdles, including congressional approval, and it’s linked to a tax on banks. But making it possible for people to refinance and take advantage of low interest rates so they can keep their homes sure sounds better than more short sales and foreclosures.
The Federal Housing Finance Agency announced today some changes to the Home Affordable Refinance Program (HARP). Basically, the idea is to make it possible for more people with loans backed by Freddie Mac and Fannie Mae to refinance to take advantage of low interest rates. The program has been limited to those who owed up to 125% of their home’s value, but they’re removing that limit so homeowners who are substantially underwater will be able to refi into lower payments, hopefully letting more people stay in their homes.
Of course if your loan isn’t backed by Freddie Mac or Fannie Mae, if you have a jumbo loan for example, this won’t be such exciting news.
You can read the official press release here.
On a daily basis we are getting calls from home buyers looking for a “deal” on homes for sale in Marin. This could possibly be one of the best times to buy real estate in the last few years.
- Interest rates are at their lowest point since 1971
- Home inventory levels are high in most areas
- Home prices are down in most areas
In August, the median home price was $790,000 for a single family home and the number of homes sold was down 17% from August 2009.
So how do you find a deal and what constitutes a good deal? Finding a deal takes time, patience, and preparation. Many clients come to us asking about homes being foreclosed upon. So what is the difference between a short sale, a home for sale at auction and an REO?
Short sale- A short sale is a home being sold for below what the current seller owes on the property. The seller does not have other funds to make up the difference at closing. If the lender agrees to accept an amount less than the outstanding mortgage as satisfaction for the debt, the sale is considered a short sale. Short sales can be “good deals” for the right buyer–one who has patience and time. Short sales can take 120 days or even longer! If you don’t have a lot of time, short sales are not for you.
Auction sale- After a property owner has been been given a NOD (Notice of Default) a sale date will be set by the lender, whereupon the property will be auctioned at the courthouse steps. If no one purchases the property at the auction it is then owned by the bank and it’s typically listed for sale through a REALTOR®. Buying property at auction can be a risky process, as you are purchasing that property with any outstanding liens and there is no time for inspections. Buyers are unlikely to know the true condition of the property.
REO- (Real Estate Owned) If the home doesn’t sell at auction, it typically becomes an REO. An REO is when the seller’s lender has taken back title of the home (the bank now owns it) and is selling it directly through a real estate broker. REOs take considerably less time than a short sale but they aren’t always as good of a deal. Most REO properties are sold close to fair market value and are sold “as-is” , meaning the bank typically won’t do a lot of, if any, repairs. Unlike an auction sale, buyers still have the right to perform inspections so they at least know the condition of the property before they buy and can get an idea of how much actual repairs will cost. Again, the lender is unlikely to pay for them. They are much quicker to close then short sales. If you are buying an REO, you are likely to need some cash reserves to do repairs after close of escrow.
What is considered a “deal” depends on your goals, how much time you have, how much cash you have, and what risks you’re willing to take.
There was an interesting article in the New York Times this week based on a study showing that a higher percentage of mortgages over $1 million is delinquent than that of smaller loans. Some of the conclusions reached may be debatable, but it got me thinking about strategic default, which our friend Wikipedia defines as “the decision by a borrower to stop making payments on a debt despite having the financial ability to make the payments”. The NYT article asserts those in higher income brackets are more likely to see strategic default as a wise business decision, while Joe Sixpack continues to make the payments on his underwater mortgage. Is that really the case? And if so, who is right?
Google “strategic default” and you’ll get almost 11,000 results, including a recent 60 Minutes segment on the topic. It’s definitely a controversial subject–some say choosing to walk away from a home when you can afford to make the payments is unethical, while others think it’s strictly business and the banks have it coming since they got us in this mess to begin with. I see both sides of the argument, though after reading a lot about the subject this week I’m leaning towards thinking maybe there’s nothing wrong with a homeowner making the same kind of business decision a bank or corporation wouldn’t hesitate to make faced with a similar situation. Back in January Roger Lowenstein argued the case for strategic default in The New York Times Magazine, and he made some pretty good points:
“Mortgage holders do sign a promissory note, which is a promise to pay. But the contract explicitly details the penalty for nonpayment — surrender of the property. The borrower isn’t escaping the consequences; he is suffering them.”
If you buy into the argument that it was the irresponsible and greedy behavior of the banks that brought about the housing bubble and corresponding bust, then maybe it’s fair that they’re left holding the bag. It’s a tough question with no easy answer. What do you think?
Foreclosure Radar released the February 2010 California Foreclosure Report today. The report had some interesting data. Highlights of the report:
- Notice of Default’s were up 20% in February after 4 months of declines. This is to be expected based on rise in delinquencies. Despite the increase, they are down year over year almost 40%
- Foreclosures are down. There was a 14.34% decrease in the number of properties going back to the bank at the courthouse steps. The number of foreclosures going to 3rd party investors at the court house steps was also down 2.72%. These numbers are very low based on the number of delinquencies.
- Foreclosure cancellations remains flat because loan modifications are not happening- “hamp has failed”.
- Bank owned inventory (REO’s) are up even with foreclosures down because resales are slow
Check out the full report below:
Foreclosures happen for many reasons and it is something no homeowner wants to experience. There are many resources available to homeowners concerned about or in jeopardy of being foreclosed upon. I have a series on this site with loan modification tips. Unfortunately, we are hearing about many instances where homes are being foreclosed on while the homeowner is in the process of the loan modification. We are also seeing many new short sale listings coming up after failed loan modifications. We have a new series coming up on the short sales in Marin, stay tuned for that. In the meantime, we thought it would helpful to have tips and resources for homeowners who need assistance and information to avoid foreclosure.
CREDIT COUNSELING SERVICES- HUD approved, non-profit counseling service, offers assistance with debt management, budgeting, credit report review, housing education and financial planning.
The California Association of REALTORS provides this list of online resources:
FORECLOSURE AVOIDANCE TOOLS
- Foreclosure Prevention Resource Center
- National Association of REALTORS Foreclosure Avoidance Brochure
- Fannie Mae – Act Now to Avoid Foreclosure
- FHA Avoiding Foreclosure
- HUD Tips for Avoiding Foreclosure