2010 News - Chicago short sale
New rules give fast help to homeowners in short-sales
Credit-preserving short sales get new federal boost
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April 6, 2010
BY SANDRA GUY sun times
New federal rules took effect Monday to speed up short sales -- the time-consuming, often-frustrating process of selling a home when the owner owes more than the house is worth.
The Obama administration program offers financial incentives for homeowners to agree to a short sale. Owners will still lose their homes, but a short sale, or deed in lieu of foreclosure, doesn't hurt a borrower's credit score for as much time as a foreclosure.
A man browses homes for sale in Los Angeles. Federal rules implemented Monday will aid quick home sales for owners who owe more than their homes are worth.
(AP File)
The new rules let lenders use an appraiser, market research and a real estate agent's opinion to determine the value of a home, and thus a minimum to accept. Mortgage companies must set their minimum bid before the house is listed for sale, and if an offer is above that, the lender must accept it. Typically, lenders didn't decide how much they would accept until after they had received an offer.
The rules give a time and home-value certainty to a short-sale process that essentially had had no parameters. The previous process had left sellers and potential buyers in limbo, said David Hanna, managing broker with SourceOne Realty in Chicago.
Banks and lenders typically look at short sales with skepticism because they are fraught with the potential for abuse. That means banks had taken time to scrutinize the sales, Hanna said. Banks are unsure of the appraised value of the home and have been burned by such frauds as homeowners lying about whether they are employed or a homeowner's financially viable sibling using the process to get the property for a song, for example.
Lenders lose about 40 percent of a property's value on a foreclosure vs. about 19 percent on a short sale, according to industry estimates.
The new rules also require that, for the first 30 days that a home is marketed, the lender may approve only offers that result in minimum net sales proceeds of 88 percent of the home's appraised fair market value.
Such guidelines should help give banks the certainty they need to move more quickly to approve short sales, Hanna said.
The plan also offers incentives to homeowners. The program will pay a homeowner $3,000 in moving expenses -- up from an original $1,500. And HUD will pay up to 1 percent of the buyer's mortgage as part of the closing costs if the new mortgage falls under the Federal Housing Administration program.
More Chicago short sale News
Don't foreclose! Do a short sale This Virginia home was sold in a short sale. A new government program will make these transactions more common. By Les Christie, staff writerMarch 29, 2010: 2:30 PM ET NEW YORK (CNN Money) -- Short sales are the hottest thing going in the distressed-property market, and the trend is expected to get even hotter in coming weeks, when the government starts handing out cash to encourage lenders to close these deals. "Banks have ramped up short sale approvals," said Duane Legate of House Buyer Network, which connects short sellers with buyers. "They're hiring a lot of the people who once worked in the mortgage-lending industry and moved them over to short sales." Facebook Digg Twitter Buzz Up! Email Print Comment on this story These transactions, where lenders allow homeowners to sell their houses for less than they owe, accounted for 17% of all residential real estate sales in February, up from nearly 13% in November, according to a monthly real estate market survey by Campbell/Inside Mortgage Finance. And Bank of America (BAC, Fortune 500), the country's largest mortgage servicer, has more than doubled the number of short sales it processed in recent months. Elizabeth Weintraub, a Sacramento, Calif.-area real estate agent who handles many short sales, was amazed at how quickly a recent deal went through. "Bank of America approved it in 24 days," she said. "That flipped me out." This is a huge change from even just six months ago when the short-sale market was stalled and most people would describe the process has real estate hell. Because lenders stand to lose so much on these transactions, they have been reluctant to make short sales happen, often waiting months before getting back to potential buyers. Beware: You lost your house but still have to pay "In the past, many short sales would never come to fruition and the ones that did averaged over half a year to complete," said Chris Saitta, CEO of Equator, which produces short sale software. "Things would just fall into a black hole and not come out again," added Weintraub. And even when banks did agree to the sale, the process could be further complicated if the original owner had a second mortgage. In most cases, the first lender is repaid in full before any money flows to a second-lein holder. And because most distressed borrowers are severely underwater, there's usually nothing left to send on. As a result, second-lein holders are left holding the bag and have been killing many deals. But that has been changing. For one thing, banks realize that they make out far better financially with a short sale than a foreclosure. "The lenders lose 50% on a foreclosure and only 30% on a short sale," said Glenn Kelman, founder of the real estate Web site Redfin. "And short sales offer a way to get distressed properties off their books quickly." And on April 5, lenders and mortgage investors will have even more incentives to offer troubled borrowers short sales instead of foreclosing. Under the new Home Affordable Foreclosure Alternatives program, borrowers will earn a $3,000 "relocation incentive" and servicers will get $1,500 for handling a short sale. The investors who actually own the mortgage notes will get $2,000 in exchange for sharing proceeds of the short sales with any second-lien holders. And, finally, those second lien holders will receive up to $6,000 for releasing their claims. Lenders participating in the program must also determine the market values of properties early on and inform the owners of just what price they're willing to accept. Then, if owners come back to the lenders with bonafide offers, they have to be accepted within 10 days. Equator's Saiita anticipates a short sale explosion in response to the new program. "The challenge will be handling all the volume," he said. The company has already tweaked its software, which 58 servicers use, to handle the new HAFA rules. And that should help reduce the time it takes to execute a sale, which currently averages 88 days. The boom in short sales may accelerate the end to the foreclosure crisis by cleaning out the overhang of borrowers in distress and replacing them with more stable homeowners. Plus, these sales are better for distressed borrowers because their credit scores suffer less. Going through a foreclosure can knock 200 points off a FICO score, twice as much as the penalty for a short sale.
Housing rebound continues, barely 2 July 2009 News
But 0.1% gain in Realtors' index - 4th straight advance - could be tempered by complications in appraisal process.
NEW YORK (CNNMoney.com) -- Home sales continued their modest upward swing in May, according to a closely watched industry report that rose for the fourth straight month for the first time in nearly 5 years.
The Pending Home Sales Index, reported Wednesday by the National Association of Realtors (NAR), rose 0.1% during the month. The index was up 6.7% compared with May 2008. It was the first four-month run up in the pending sales measure since October 2004
Industry prognosticators had forecast no growth at all in the index for the month, according to Briefing.com, expecting it to settle back after ramping up 6.7% in April.
But the rise in sales contracts may not yield a like increase in completed sales, according to Lawrence Yun, chief economist for NAR.
"Closed existing-home sales have improved but are coming in lower than expected because some contracts are delayed or falling through from the application of new appraisal rules for many transactions," he said.
Many industry insiders have complained that home appraisals are being too often based on values of foreclosed properties, which sell for significantly less than the homes of ordinary sellers.
The banks that have repossessed the foreclosed homes are anxious to sell and accept offers at large discounts than comparable homes not in foreclosure.
"We see that distressed homes often are selling for 20% less than normal homes in the same area, but some appraisals don't distinguish between traditional homes and distressed property," said NAR President Charles McMillan, a broker in Dallas-Fort Worth.
Overall, home sales are still slow, about a third below the peak years of 2005 and 2006.
The market will probably not rebound very fast, according to Robert Dye, a senior economist with PNC Financial Services, the Pittsburgh-based bank
"[The May number] is not a robust indicator of future market expansion," he said. "Taken with the April number, it points to a gradual but slow recovery."
One factor favoring a rebound is lower home prices. NAR's Housing Affordability Index remains near historic highs, although it declined in May to 171.6 from 178.8 a month earlier, mostly due to higher interest rates. April was the high point for the index, which dates back to 1970.
"Under these conditions the typical family would devote only 14.6% of gross income to mortgage principal and interest, which is one of the lowest percentages on record," said Yun.
"If rates hadn't crept up, we may have seen a better number [for the May index]," said Dye.
Still, many other economic factors are decidedly negative, pointed out Dye. Consumer confidence is low, unemployment is up and prospects for more layoffs, work furloughs and slashed hours high.
"Market conditions are still poor," he said
By Jim wilson New york times
Ever since the housing boom began to cool in 2006, an increasing number of homeowners have fallen into foreclosure; that is, have lost ownership of their home or been threatened with it because of a failure to keep up with their mortgage payments. That rise in foreclosure is behind all the trouble that has wracked Wall Street ever since.
The foreclosure wave has also battered cities where subprime mortgages had been prevalent, since foreclosure sales can drive down the value of homes in the surrounding area, thereby making further foreclosures more likely. And falling property values have sharply eroded the tax base of some areas, forcing spending cutbacks by state and local governments already hurting from the general economic slowdown.
By June 2008, about 2.75 percent of all home loans, or about 1.75 million mortgages, were in foreclosure, up from 2.47 percent in March. Another 4.58 percent of homeowners were behind on their payments, a slight decrease from March. Foreclosure rates were highest in California, Florida, Michigan, Nevada and Ohio.
Housing experts say that many of those who fell behind on their mortgages did so because they bought subprime mortgages that they eventually could not afford, either because the interest rate jumped after an initial low period or because its cost was higher than they were led to believe. Others lost their ability to keep up with their payments when they lost a job; while some simply paid more for a house than they could afford. And some subprime or so-called Alt-A mortgages -- contracts that skipped over many of the safeguards usually in place to weed out credit risks -- were taken out by speculators who simply walked away when the homes they bought became worth less than they had paid for them.
The woes of these homeowners turned into catastrophe for Wall Street through the practice of securitizing mortgages -- bundling thousands of them together into a financial instrument much like a bond. Because default rates had long been low, mortgage-backed securities were considered safe. But as foreclosures rose the value of the securities dropped, since the revenue stream from interest payments diminished.
News Release
Fannie Mae Resource Center Telephone 1-800-7FANNIE (1-800-732-6643)
November 20, 2008
Fannie Mae To Suspend Foreclosures Until January 2009 While Streamlined Modification Program is Implemented
WASHINGTON, DC -- In order to support the streamlined modification program announced on November 11, 2008, Fannie Mae (NYSE:FNM) today issued a notice to its loan servicing organizations and retained foreclosure attorneys directing them to suspend foreclosure sales on occupied single-family properties as well as the completion of evictions from occupied single-family properties scheduled to occur from November 26, 2008 until January 9, 2009.
The temporary suspension of foreclosures is designed to allow affected borrowers facing foreclosure to retain their homes while Fannie Mae works with mortgage servicers to implement the streamlined modification program scheduled to launch December 15. Foreclosure attorneys and loan servicers will be instructed to use the additional time to reach out to borrowers who have defaulted on their loans and continue to pursue workout options. The initiative applies to loans owned or securitized by Fannie Mae.
The streamlined modification program is aimed at the highest risk borrower who has missed three payments or more, owns and occupies the primary residence, and has not filed for bankruptcy. The program creates a fast-track method for getting troubled borrowers into an affordable monthly payment through a mix of reducing the mortgage interest rate, extending the life of the loan or even deferring payments on part of the principal. Servicers have flexibility in the approach, but the objective is to create a more affordable payment for borrowers at risk of foreclosure.
"The streamlined modification program by Fannie Mae, Freddie Mac, Hope Now and 27 mortgage servicers is an important step forward in addressing the systemic issues driving the increase in foreclosures," said Fannie Mae President and Chief Executive Officer Herb Allison. "Until the streamlined modification program is fully implemented, we felt it was in the best interest of both borrowers and Fannie Mae to take this extra step to ensure that homeowners with the desire and ability to prevent a foreclosure have an opportunity to stay in their homes. We encourage other servicers of non-GSE mortgages to participate in the streamlined modification program to bolster our collective efforts to stem the foreclosure crisis."
Fannie Mae will be working with foreclosure attorneys and servicers to reach out to the more than 10,000 borrowers the company estimates would be affected during this period. Borrowers who have Fannie Mae loans that are scheduled for foreclosure between November 26, 2008 and January 9, 2009, will be contacted directly by the attorney handling the foreclosure. If the home is occupied, Fannie Mae has instructed servicers and attorneys to suspend the foreclosure.
Allison also said Fannie Mae's loan servicers are prepared to work with borrowers during this period, even if previous workout efforts have been unsuccessful. As part of the company's "Second Look" initiative, Fannie Mae personnel have been reviewing seriously delinquent loans to determine if the borrower has been contacted and all workout options have been exhausted.
The streamlined modification program and temporary suspension of foreclosures are two of a series of steps Fannie Mae has taken to expand its foreclosure prevention efforts, which are designed to give loan servicers and foreclosure attorneys tools to find the best solution for a borrower in financial trouble. Fannie Mae and its many partners in the housing industry urge borrowers in financial difficulty to reach out to their loan servicers, regardless of whether they are facing imminent foreclosure. Solutions may be available that could make an existing mortgage more affordable.
"Fannie Mae is committed to working with FHFA to implement the streamlined modification program as quickly as possible to help prevent unnecessary foreclosures," Allison said. "We must and will do more."
Fannie Mae exists to expand affordable housing and bring global capital to local communities in order to serve the U.S. housing market. Fannie Mae has a federal charter and operates in America's secondary mortgage market to enhance the liquidity of the mortgage market by providing funds to mortgage bankers and other lenders so that they may lend to home buyers. In 2008, we mark our 70th year of service to America's housing market. Our job is to help those who house America.