Foreclosure Crisis Question and Answer

This article was posted on my Florida Realtor Member site and I felt it was great information to pass on.

Foreclosure procedures undergo reviews:

WASHINGTON – Oct. 18, 2010 – Recent revelations about mortgage lenders filing possibly faulty court papers to foreclose on homes has sparked a public outcry and called into question tens of thousands of foreclosures. Here’s a look at the issue and its impact.

Q: How did this come to light?

A: Lawyers for homeowners fighting foreclosures took depositions from officials who prepare legal documents to get court approval to foreclose. The document signers – who have now been dubbed robo-signers – said they signed thousands of affidavits without reviewing the supporting papers or having the affidavits signed in the presence of a notary. Both are supposed to be done before foreclosure papers are submitted to courts in about 23 states that require judicial approval for all or most foreclosures. Some lawyers allege there were instances of fraud, too, including backdated documents and forged signatures.

Q: What’s happened so far?

A: Some major banks have suspended foreclosures while they review their procedures; others are proceeding while doing their reviews. Bank of America has suspended foreclosures in all 50 states. GMAC Mortgage has suspended evictions and foreclosures in the states that call for a judge’s approval and is reviewing foreclosure practices in the others. PNC Financial Services and Litton Loan Services are reviewing their practices. JPMorgan Chase suspended foreclosures in 56,000 cases in the judicial approval states and is reviewing its practices in a handful of the other states.

Q: Who is investigating this and what could be the outcome?

A: State attorneys general have launched a joint investigation. The Justice Department is reviewing the matter. The Office of the Comptroller of the Currency, which regulates the nation’s largest banks, said Friday that it is examining banks’ foreclosure procedures, and the Federal Housing Administration is conducting a review. The Senate Banking Committee has scheduled a Nov. 16 hearing.

Possible outcomes include civil penalties, criminal prosecutions, the creation of an independent monitor to oversee foreclosure practices and legal settlements under which lenders agree to do more to get struggling borrowers into mortgage workout plans to help them avoid foreclosure.

Q: What about a national moratorium on foreclosures?

A: Some members of Congress have called for one, but the Obama administration has rejected that idea out of concern that a blanket halt to all foreclosures could damage the fragile housing market’s recovery and, with it, the economy.

Q: Why is this controversy important?

A: Lawyers and consumer advocates for homeowners say that if banks are found to have acted illegally, courts could see a wave of challenges in both current and past foreclosure cases. It could lead to title claims in courts, where former homeowners who lost their homes in foreclosure actions assert they still own them, even after the homes have been sold. Banks say that even if procedures were not followed correctly, there’s no mistake that the homeowners are in default and that the banks have the right to foreclose.

Q: What impact could this have?

A: Foreclosures already take a year or more to complete in some states and could slow further as judges review documents more thoroughly and banks tighten procedures. That could keep some homeowners in their homes longer but might also postpone the sales of homes that have been abandoned or that banks have repossessed, keeping them vacant longer.

Delays could be costly for banks and taxpayers, because banks and government-owned mortgage giants Freddie Mac and Fannie Mae all must continue to pay maintenance and other expenses on foreclosed properties they can’t sell. Freddie and Fannie own or guarantee more than half of all first mortgages.

Q: What could this mean for the housing market?

A: If foreclosures are delayed significantly, economists say the housing market recovery could suffer.

Significant delays in completing foreclosures could mean it will take longer for prices to recover, economists say. About 30 percent of all house sales now are foreclosures or other distressed properties that sell at substantially lower prices than homes whose owners aren’t in financial difficulty. That pulls down market prices overall.

The longer home prices stay depressed, the longer millions of homeowners will be underwater, owing more on their mortgages than their homes are worth. About one in four properties are underwater, making it difficult for the owners to sell their properties or refinance their mortgages.

Q: Should I buy a foreclosed home?

A: Real estate experts say buyers shouldn’t avoid foreclosures. But you may want to buy a title insurance policy to protect against a claim stemming from a previous foreclosure, says Guy Cecala of Inside Mortgage Finance.

Lenders generally require title insurance before they’ll approve a mortgage.

Short sales – where lenders agree to let owners sell houses for less than they owe – should not be affected by the foreclosure controversy, says Rick Sharga of RealtyTrac.

Christopher Immel, a lawyer at Ice Legal, a Florida law firm that represents homeowners challenging foreclosures, says prospective buyers of foreclosed properties should examine court case files for missing documents and incorrect dates.

He recommends hiring an attorney to review the file.

© Copyright 2010 USA TODAY, a division of Gannett Co. Inc., Stephanie Armour

Right to Rent Act of 2010

A new law is being looked at in Washington which would allow borrowers of homes in foreclosure to remain in their current home, not as owners but as tenants. The “Right to Rent Act of 2010” or HR 5028 would do exactly this.  The bill is designed to assist middle income famalies who are facing foreclosures on their curent homes.  In short the bill would allow a homeowner to petition the courts to allow them to stay in the home at fair market rent as tenants.  The “fair market rent” would be determined by a court appointed appraiser. There are also other qualifications for this law: the borrowers must have lived in the home for the past two years as a primary residence, they must have acquired this loan prior to July 1, 2007, the home must have been purchase with in the median home value in its market as determined by the National Association of Realtors. In addition, the borrower would have to petition the court for the right to rent within 25 business days from receiving their foreclosure notice.

This law is aimed at assisting middle class homeowners in foreclosure.  Their monthly expenses would be decreased allowing them to regain a foot hold on their finances, in addition the real estate market would be assisted by keeping vacancy ratios lower than anticipated.  The lenders are also expected to be encouraged to be more likely to perform loan modifications in order to avoid becoming landlords.

For a complete property search for sale including foreclosures log on to: www.arealtyteam.com

South Florida Brokers & Associates, Inc.

Strategic Defaults – To walk or not to walk, that is the question

With foreclosures on the rise; a huge buzz word is “Strategic Default”. A strategic default is when a borrower decides to walk away form a mortgage because the property value is much les than the amount owed on the property (underwater borrower). 

This exact question: “Do we walk away or do we continue to pay”, is currently plaguing households across the country.  In many cases the borrower can actually afford to pay, they simply do not feel that to continue to pay is a wise economic decision. Many of these borrowers feel that they will recover their credit faster than the home will recover equity.

The problem is becoming more evident.  It is estimated that roughly 50% of mortgages in South Florida (Miami-Dade, Broward and Palm Beach) are underwater.  Unfortunately, many of these mortgages came underwater because the homes were bought during the recent real estate boom (2004 – 2006) they were also bought with adjustable rate mortgages and with very little to no down payment, this only adds to the problem.

Borrowers that are considering walking away must consider the down falls of such a decision. Some of these pitfalls are losing 200 to 300 points on your credit score, also not being able to get a mortgage in roughly 2 to 3 years, plus bad credit could affect employment and even car insurance rates. In addition, in the state of Florida a lender may persue the borrower for deficiencies personally.  Regardless many borrowers are opting to accept the risk in order to get out from under a mortgage that is simply upside down with equity.

A common complaint we are hearing is that banks are simply not working with borrowers who are underwater.  They are not moving quickly with loan modifications and it is very tough to get around the red tape in these large organizations. In our opinion it may just be that the banks not only want to protect their own interest, but they may not have been ready for such a huge influx of defaults.

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Tips for Selling your Home in Today’s Market (2010)

There is no getting away form the simply fact that we are in a “BUYERS MARKET”.  The reality is that foreclosures and short sales are still increasing at a drastic rate.  As we all know simple economics will dictate that the more supply we have the less likely we are to have demand catch up which will naturally drop prices.  Well, although this puts sellers in a tough position, sellers should not throw their hands up in the air. There are many things a seller can do to help move their home is such a tough environment.

Here are some tips for selling your home:

1. Do not wait around for a recovery or major turn in the market – The harsh reality is that home values will more than likely not see a drastic increase or even a nominal increase any time soon.  Keep in mind that if you are selling and subsequently buying, what ever you feel you are leaving on the table by selling lower you will probably pick up on your purchase as you will then be the buyer.

2. Make Improvements – Due to the economy, many repairs are much cheaper to make now.  Contractors are giving create deals and with the slow down in building materials are also relatively cheap. So make your home different form the competition.

3. Hire professionals – Dont give the work to a friend or family just because they are a friend or family. Be sure that your broker has experience and will market the property to the fullest potential, remember your broker is your marketing partner. The same goes for whomever may make improvements to the property. Ask for credentials and experience.

4. Make sure you know about buyer assistance programs – Make sure that you broker is well versed in the first time home buyer tax credit for example. Your broker needs to be able to make suggestions to all prospective buyers for financing and government assistance.

5. Price the property properly – A property will sell if it is priced properly, especially if your property is not a foreclosure or a short sale.  Your broker will be able to assist with this by providing a comparative marketing analysis.

6. Clean up the look – Remember buyers want to picture themselves in the home. Therefore, very specific decor or excessive knick – knacks will take away form the buyer’s experience. Keep the decor simple and the personal items out of sight as much as possible.

Please feel free to contact us or visit our website additional tips on listing, marketing and selling your property.

South Florida Brokers & Associates, Inc.

Foreclosure crisis might be seeing relief or might be ending

For the past three years foreclosure filings have been on the rise; well last quarter for the first time in three years this number went into a decline. Although, the recent downturn in the market will echo for years, evident in the declined home prices (markets such as Las Vegas, Miami and Phoenix lost about 50% value), the fact that the foreclosure filings are declining is a major sign of a recovery. The Mortgage Bankers Association indicated in its latest report that Nevada, Arizona and Florida had the sharpest decline in foreclosure filings.  Jay Brinkmann described this decline in foreclosures as “the beginning of the end” when describing the crisis.

However, it is not all good news. Still 15 percent of homeowners have missed at least one mortgage payment and nearly half of all delinquent borrowers are at least three months behind. Both of these statistics constitute record highs.

A “bright side” statistic is that only 3.6% of borrowers missed a payment in the last quarter of 2009 that number is down from 3.8 percent the previous quarter according to the Mortgage Banker Association.  This may not seem like such a sharp decline; however, we have to take into account that this would normally be the time of the year when we would naturally see an increase in new delinquencies.

We have seen other signs of a stabilizing real estate market.  We have seen inventory decline, we have seen the pending home sales index rise significantly and now we are seeing foreclosure filings drop; could this be the formula for a recovery?

South Florida Brokers & Associates, Inc.

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Foreclosure Legislature

I read this story in passed on to us in the business by the Florida Association of Realtors and felt it was worth re-posting on our blog.

Fla. Legislature: Foreclosure fight develops TALLAHASSEE, Fla. – Feb. 10, 2010 –

The Main Street versus Wall Street fight that has consumed national politics for much of the last year has made its way to Florida with two lawmakers pushing a proposed “Foreclosure Bill of Rights” while bankers are shopping a bill to do away with legal proceedings in foreclosures altogether.

The battle is playing out on the watch of Senate President Jeff Atwater, a banker by trade, who suggested that any pro-bank legislation that puts people out of homes more quickly would likely be a long shot.

Sen. Dave Aronberg, D-Greenacres, and Rep. Darren Soto, D-Orlando, announced Tuesday their “homeowners’ defense legislation” (SB 1778), which they say would pre-empt the possible eviction of tens of thousands of Floridians from their homes by requiring mediation, and for home loans to be renegotiated at current values. They said they filed the measure in response to an initiative, backed by the Florida Bankers Association, which would create a non-judicial foreclosure system that speeds up foreclosures to 90 days.

“It is fundamental to our economic recovery that we resolve the foreclosure crisis in the state of Florida and there are two vastly different visions out there,” Soto said during a news conference at the Capitol. “While the banks seek to avoid judicial process altogether, allow 90 days and show our Floridians the door with no incentive to settle, we’re here to say, ‘no.’ We will not allow a half million Floridians to be kicked out on the street. We will not allow bailout, spend-happy banks to dictate our agenda here in Tallahassee, and we will not allow the trampling of the rights of Floridians for mere convenience.”

Aronberg, who is running for attorney general, agreed, saying that removing judges from foreclosure proceedings would hurt vulnerable populations in Florida, particularly seniors and residents who don’t speak English.

“It’s something that’s very dangerous, especially with the language barrier,” Aronberg said during the news conference. “You could get a letter and not understand the letter, or you could be a senior citizen and have someone as your caretaker, and you would never even have been notified of that letter. And within 90 days, your home is gone.”

He said that the right to go to court is “something that is engrained, not in our culture here in Florida, but in our constitution,” and added that the bill would help the record number of residents who faced foreclosure last year in the state.

“This will help homeowners who have deflated home values and inflated mortgages, (those) who are at the mercy of these large institutions who helped create the economic crisis through their own reckless behaviors,” Aronberg said.

Separate analyses found recently that foreclosure court filings across the state rose last year by just more than 30,000 and overall foreclosures in Florida leaped 34 percent in 2009. The state posted the third highest rate in the nation for the year.

Numbers such as those are why Florida Bankers Association Director of Government Affairs Anthony DiMarco said the organization was proposing a move to a non-judicial foreclosure process, which he said is used in 37 states.

“Foreclosures are taking way to long,” DiMarco said in a telephone interview. “Courts are taking some 12 months to 24 months to get a foreclosure done. In the meantime, the houses may be sitting there becoming eyesores, and neighbors don’t like that (and) the condo associations and homeowners associations don’t like that because they’re not getting paid. Courts are backlogged because there are so many foreclosure cases sitting on the books.”

DiMarco said the association has not found a sponsor for its bill yet. He added that bankers are feeling the brunt of the foreclosure crisis from all sides, citing pressure from consumer advocates to ease up on evictions.

“We’re getting squeezed because people say we shouldn’t foreclose too fast and people like the condo associations and local governments say we’re taking too long because they don’t want to take care of property,” he said.

But Senate President Atwater, who is running for chief financial officer in part on his experience as a banker, indicated Tuesday that the foreclosure fight might be premature. Atwater said in an interview with the News Service that he’s wary of any idea that doesn’t give homeowners a chance to keep their house, though he didn’t rule out a system that tries to find ways to speed the process up.

“One of the first things any banker is taught is, you never want to take back the collateral. … You’re in the business to work with someone,” said Atwater, R-North Palm Beach. He rejected the idea that because of his profession the bankers may get more consideration.

If anything is done, “it will not be done in the spirit of benefiting the bankers,” the president said. “We’re not going to try to accelerate someone losing their home” without “some measure of fairness” to the homeowner.

However, Atwater also noted that condominium and homeowners associations have concerns, and they’re pelting lawmakers with complaints about delinquent or foreclosed units that no longer pay association dues, overburdening everyone else in the community.

Source: News Service of Florida, Keith Laing.

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FHA relaxes the “FLIPPING” rules

First of all, what is “flipping“; this is when a buyer purchases a home and then almost immediately places the home on the market for sale at a profit.  This kind of activity is usually accomplished by investors who typically purchase a property in need of repair or improvements, then they complete the repairs / improvements and sell the home at a profit.

The Federal Housing Administration in the past has frowned upon this type of activity; that is to say flipping, due to the tendency to have prices over inflated. During the real estate boom many people conducted flips in a not so legitimate format.  However, most investors are very legitimate and are simply looking to make a living by doing what they do best – improving properties. A good flip deal usually benefits everyone: the investors buys a property under market and makes a profit at the sale, the end-user buyer will buy an improved property that more than likely they would not have been able to improve themselves.

Now the FHA as of February 1st has loosened rules on flipping. The FHA will begin to offer financing on some properties in which the sellers has owned the property for less than 90 days. These less strict anit-fligging rules are being made in an effort to speed up sales in communities in which the rate of bank owned or foreclosure properties is too high.

This is most certainly going to be a positive effect on the market.  hopefully the new rules will allow for a faster absorption of inventory.

South Florida Brokers & Associates, Inc.

NEW FHA Policies

The Federal Housing Administration or FHA has announced some changes which are geared at strengthening the capital reserves as well as manage risk.  These changes will affect borrowers abilities to secure a loan, they are changes that should be reviewed prior to making a loan application. The following is a list of changes:

1. The mortgage insurance premium (MIP) will be increased to 2.25% of the loan amount. In addition, the FHA will seek approval to increase to the maximum annual MIP that the FHA can charge.  However, if the maximum is charged then the premium or at lease a portion of the premium will be spread out through the term of the loan versus being paid upfront; this will enable the borrower to feel less upfront impact of the premium while still building the proper capital reserves.  The initial MIP increase should go into affect this coming Spring.

2. The credit and down payment requirements for borrowers will also be updated.  In order to qualify for a 3.5% down payment they must have a 580 or greater FICO score.  Those borrowers with a lower than 580 Fico score will be required to place 10% down payment.  This change is being made in an effort to balance the risk factor involved with these loans.

3. Seller concession or contributions will be reduced to an allowable 3% this is down from 6%.  This change was made in order to eliminate the tendency to over inflate appraised values.

There are some additional operational changes that will be taking place; however, we feel that these three changes are the ones that will affect borrowers in the immediate process.

South Florida Brokers & Associates, Inc.

Clearing up some confusion about the Federal Tax Credit Incentive

The Federal tax Credit Program has recently spawned much activity in the real estate market.  Sales spiked in November 2009 as buyers rushed to meet the deadline for the incentive and many economists are predicting another spike in sales as the summer 2010 deadline approaches.  However, many buyers have tons of questions regarding this incentive programs.  I must admit that even those of us in the business have had trouble understanding these programs.

Federal Tax Credit 2010

Please keep in mind that an excellent source for these answers will be with your tax attorney or your accountant.  Regardless the following are some bullet points which should clarify some of questions:

1. The tax credit is for the amount of $8000.00 and unlike the previous incentive this credit does not have to be paid back.

2. In order to qualify for the credit the purchase must be made for a primary residence.

3. The purchaser which is applying for the tax credit must be a first time home buyer; this is defined as someone who has not bought a home in the past three years.

4. The purchase must close between January 1, 2010 to April 30, 2010.

5. Second home buyers may qualify for the $6500 tax credit.

6. To qualify for this 6500 credit the buyer must have owned a home for 5 consecutive years of the last 8 years.

7. The purchase must be made after November 6, 2009; for the $6500 credit.

8. To qualify for the 6500 credit the buyer must make no more than $125K annually as a single person and $250K for couples.

9. Both tax credits may be claimed on 2009 taxes.

10. If the property is rented or sold within the first 3 years the tax credit of $8000 must be re-paid.

I hope that this clears up some of the recent confusion surrounding the Federal Tax Credit.

South Florida Brokers & Associates, Inc.

Real Estate for 2010…. what’s going to happen

Tax Credit

Most of the professionals in the business would probably agree that although 2009 did show some signs of recovery in the housing market they certainly look forward to  new year with new hopes.  Well, there is some good news on the horizon along with some positive indicators.

I recently read a message written by NAR Chief Economist Lawrence Yun (Personally I have always found his analysis very reliable and I would even say that he tends to be conservative with his predicted numbers):

The end of 2009 did show higher sales compared to the rest of the year; however, Mr. Yun and other economist will say that most of this movement was due to folks running out to beat the tax credit expiration.  Now with the new deadline not threatening until mid 2010; Mr. Yun is predicting heavier activity for spring and early summer due to the tax credit expiration.

So, we have seen lowered near bottomed prices and we are still seeing historically low-interest rates and in addition we are (as buyers) enjoying high levels of inventory and motivated sellers and not to mention a great government incentive program.  It really is the best time to BUY. So what is holding this housing market back??? According to Mr. Yun the answer lies in the job market.

Unemployment is still looming at a very high rate of 10% and although there are sectors which are having job gains the reality is that the unemployment rate is still expected to climb a bit more.

Mr. Yun’s opinion and stats show that the private sector is still very hesitant to move forward with hiring new employees. Instead, company’s are placing additional pressure on their current employees to increase production and they are resorting to the temp job market.  With that said the temp job market has seen increases; hopefully signaling new permanent jobs in the future.

With all this taken into account we should certainly see a boost in the housing market provided that the job market picks up.  We have a formula for success and a recovery!

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