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Mortgage Debt Forgiveness Act

In 2007 the Mortgage Debt Forgiveness Act when into effect.  Before the enacting of this Act if you had mortgage forgiveness from your lender this amount that was forgiven was taxable.  If you did a short sale and your lender accepted a sales price of less than what was owed on your home, you were taxed on the amount you were short.  It was considered income.  The Mortgage Debt Forgiveness act changed this.  You no longer had to pay taxes on the amount you were short.  This applies to tax years 2007-2012.  It is scheduled to expire at the end of 2012.

What does this mean to you?  Well, if you are considering doing a short sale, you may want to do it sooner rather than later.  There is no way to tell if this act is going to be extended past the 2012 deadline.  If you do a short sale and close before the end of 2012 this debt may be excluded and not taxed.  If you wait and close after the end of this year the amount of debt forgiven may be taxable.  I know I would not want to pay tax on such a large sum of money!

Another thing to consider is that short sales are time consuming.  Do not wait to initiate the short sale until the end of the year.  The escrow must close before for the end of 2012 for the debt forgiveness to apply.  Let's look at a typical short sale to give you an idea of when you should start in order to close by the end of the year.  In El Cajon, the average time on the market is 80 days, short sale approval (the time you wait for the lender to review your financials and any offers) can take 3-6 months depending on the lender, how quickly you can compile documentation, how responsive the negotiator is and so on.  Once you get the short sale approval, a typical escrow is 30-45 days.  So, so you are looking at 10 months from start to finish on a short sale.  If you want to give yourself a realistic chance to be eligible for the debt forgiveness you need to get started by the end of February of this year.

If you would like more information about initiating a short sale please call me today.  Do not wait and risk not being eligible for the savings.  If you would like more information regarding the Mortgage Forgiveness Act, here is a link to the IRS website.

Bank Insanity #3

When I usually write about bank insanity, it usually involves the short sale lender or the REO owner.  Today I am going to let you know about a buyer's lender who is driving me up the wall.  The buyers are using Navy Federal for their loan.  The only item missing from the file before they would order the loan docs was the termite clearance.  We submitted the clearance yesterday and this morning I received a call that the processor saying it is inadequate, that they require the Section 2 item to be repaired.  What?  Really?  Since when are section 2 items required?

When you have a termite inspection done the report is broken down into 2 sections.  Section 1 is evidence of active infestation and lists the work necessary to provide a clearance.  This work is done in order for the termite company to provide a clearance stating that the property is free of pests.  The second section of the report is the Section 2 items.  These are recommendations or findings of items that could lead to infestation in the future.  Items such as moving dirt away from walls, stucco damage from sprinklers, grading issues.  These are things that a homeowner might want to remedy to prevent damage in the future.  I have never had a transaction where the buyer's lender required section 2 items to be done in order to get the loan.

I have sent numerous emails and left messages for clarification.  All the loan officer would say is that all repairs have to be made.  The section 2 item on this particular report is "Stucco deterioration".  The recommendation is to get it checked out by an "appropriate tradesman".  The report is not even recommending a repair.  All the loan officer will say is that "the processors is requiring it to be fixed".  What repairs?  Do they want the buyer to pay a stucco company $100 to say "Yup, the stucco is chipping"?  If so, this is going to be required for 99% of the sales in California since most homes are stucco and most homes have had a sprinkler hit the wall!  Or are they suggesting that we should re stucco the house?  Good luck with that one since it is owned by Bank of America.

So, here I sit, waiting for a call from either the processor or the supervisor to hopefully get them to listen to reason and understand this is a section 2 item and no repair is being recommended.  If in fact they did change all their requirements and now need section 2 inspections and repairs completed, why did they wait until now to let everyone know?  The buyers (their clients) now risk losing the house, their deposit, the appraisal fee and inspection fee.  All because either a processor does not understand the requirements or Navy Federal has changed theirs.

More Bank Insanity

Banks just need to get out of their own way.  Within the last two weeks I have run into 2 separate examples of how banks jeopardize real estate transactions with their lack of common sense.  The first involves a short sale.  The short sale lender has decided in all their wisdom to require an affidavit be signed and notarized verifying that there is not a property flipping scam involved in the transaction. 

Here is an exert from the affidavit that the short sale lender (GMAC) requires to be notarized before they will consider the buyer's offer.

"BUYER represents, along with BUYER real estate agent, that I/WE are not involved in a for profit scheme to flip the property and there are no current agreements, written or otherwise, to immediately re-sell the Property at a higher price, and that no transactions of this nature will take lace within ninety (90) day of the date of closing on the short sale transaction.

I/WE represent that there are no relationships between any parties involved in the transaction, including BUYER, SELLER, FINANCING COMPANY OR INSTITUTION, or REAL ESTATE AGENT "

GMAC requires this form be notarized by the buyers, the buyer's real estate agent and the buyer's lender.  They are requiring the buyer to spend money on this before they know if their offer will be accepted and if GMAC will even do the short sale.  I understand the need to protect themselves from scams and this form should be addressed but it should be notarized by the buyer once the offer is accepted and escrow is opened.

The second issue I have is that the second paragraph essentially means I, as a real estate agent, can not represent anyone I have a relationship with.  I can not represent my mother, sister or daughter since I do have a relationship with them.  Wow, really?  I can't represent them even if they are first time, owner occupied buyers?

The final issue that stands to be the deal breaker is the most ironic.  The short sale lender (GMAC) requires this form be notarized not only by the buyer and the buyer's agent but also the buyer's lender.  The buyer is using Navy Federal Credit Union for their loan.  It is probably not surprising to you to learn that the buyer's lender will not sign and notarize such a form.  NFCU will not sign it.

So now the buyer's offer is stuck in limbo between two banks.  The first demanding a form to be signed by the second institution and the second bank refusing.  The buyer's offer will not be submitted so they will not be able to continue.  It is so sad that the ready, willing and able buyers are trapped in a pissing match between lenders and unable to purchase a property.

The second example of lenders being ridiculous and shooting themselves in the foot involves a REO (bank owned) property.  In this example the buyer's submitted an offer with a 17 day contingency period.  This is a standard time frame to do their inspections, review title, HOA reports and get the appraisal done.  The bank that owns the property reduced the time for the contingencies to a point where it would be difficult, if not impossible for an appraisal to be done. This is not because of the buyers but rather the buyer's lender can't get it done that quickly.  Once again a buyer is caught between two banks the first bank reducing the appraisal period to a point that even their own institution could not get an appraisal done in their own time frame.  To make matters worse the listing bank takes forever to return the signed contract and the buyer's lender refuses to order the appraisal until they get a copy. 

The banks need to stop the insanity.  They need to ask themselves if they would be able to do what they are requesting of other lenders.  If they would not be able to comply with their own demands, chances are other lenders will not be able to perform the tasks either.  By making unreasonable demands, they are not helping themselves but rather they are making things worse.  And unfortunately they are forcing the buyer into the middle and stopping them from buying homes.

2011 Home Affordability Refinance Program (HARP)

I am trying to get the word out regarding the recent revamped HARP program.  This program started in 2009 and is also known as the government Home Affordability Refinance Program.  They have made some significant changes in the 2011 program.  Please share with anyone who owes more on their home than the current value and who could benefit from reducing their interest rate.

Here are the details.

1.  Your loan must be backed by Fannie Mae or Freddie Mac in order to be eligible.  Many times homeowners are not even aware their mortgage is Fannie Mae or Freddie Mac.  If you are unsure please visit Fannie Mae at Fannie Mae Lookup and Freddie Mac at Freddie Mac.  You will need to type in your address in both sights to see if you have a Fannie or Freddie loan.

2.  Your current mortgage must have originated before June 1, 2009.

3.  Your home loan must be paid on time for the last 6 months and at least 11 of the most recent 12 months.

4.  You must NOT have used the HARP program previously

5.  The new HARP program specifically has no loan-to-value restriction so that homeowners in California can take advantage of it.  You can be seriously upside down, your home worth far less than what you owe on it and you will still be able to refinance under this program.

6.  You will be able to use any participating HARP lender, you do not have to stay with your current lender.

7.  You can refinance investment/rental properties, second/vacation homes, condos and of course single family homes.

8.  Income verification is required and you must qualify for a loan.  Income and credit will be verified.

Finally there is some relief for some homeowners who owe more on their home than their home is worth.  While this program will not reduce the principle amount it does give you the opportunity to refinance at today's low interest rates.  If you need any assistance or have any questions, feel free to give me a call.  If you know of anyone who might benefit from this revised program, please pass it along.

How to Fix The Housing Market

Many people are asking how to fix the housing market.  The issue is debated and argued but nothing seems to get done.  Big surprise right?  What all the bigwigs are missing is the old saying that the definition of insanity is doing the same thing over and over and expecting a different result.  What needs to be done is simple.  They need to stop the insanity.  They need to stop focusing on the banks and focus on the people.  Common sense needs to be injected into the situation.  The banks should not be bailed out or given incentives.  They need to stop rewarding the banks for making ridiculous decisions.  The finger pointing when things don’t work needs to stop.  The focus needs to be put back on the people.  It is the people that will fix the housing market, not the banks.

The banks and housing market reflect the fear of the shadow inventory.  The houses that have been foreclosed on but have not yet hit the market and the homes that are soon to be foreclosed on.  This shadow inventory has everyone running scared and fuels the doom and gloom attitude that does nothing to instill confidence in the market that home buyers need to confidently get off the fence.  The solution is really quite simple.  Quit worrying about it and do something.

The REO properties need to be handled in an intelligent manner.  Right now the banks use REO agents to sell their properties.  Many of these agents have so many REO listings they cannot possibly market the property in a way that would solicit the highest offer.  Many times it is nothing more than putting up a sign and putting it in the MLS at a drastically low price.  The  property is sold to the highest bidder within 7 days.  What does this do to the local market?  It is drives the prices even lower.  This hurts local homeowners and the banks as well.  The next time the bank lists a property for sale in the same neighborhood they will need to sell it for even less.   The banks are shooting themselves in the foot  simply because once it hits the market they want it sold and sold quickly.

The other part of the shadow inventory are the homes that are in foreclosure but have not been taken back by the bank as of yet.  This is where common sense definitely needs to be injected.  Time and time again I have seen banks make decisions that actually increase their REO holdings.  Here are some examples.  The home seller puts their home on the market and it is going to be a short sale.  An offer comes in and is submitted to the lender for approval.  The first mistake the bank makes is that it will take months for the bank to make a decision on whether or not to accept the short sale.  All the while the market is declining, prices are dropping.  By the time the lender makes a decision to accept the short sale, the buyer has changed their minds since the property is no longer worth what it was when they submitted the offer.  At this point rather than keeping the file open so the property can be remarketed the banks will close the file so when another offer comes in the whole long process starts over again leading to a vicious circle. 

Sometimes, the buyer stays strong and wants to proceed with the purchase once the bank has accepted, so what does the bank do?  They create yet another hurdle for the buyer.  They shorten the time the buyer has to close escrow.  They make it very clear that if the property doesn’t close in say 20 days the deal is off.  I have seen deals where Bank of America was the lien holder and demanded escrow close in 25 days from acceptance.  The buyer was getting a loan and because of all the underwriting requirements it did not get done.  The bank refused to extend the escrow and the deal was lost. The bank took the home back through foreclosure.  Oh and the ironic part was that the buyer was getting his loan with, you guessed it, Bank of America. 

The third example is probably the most insane.  The short sale has been approved.  Escrow is proceeding and the buyer’s loan is on track.  While this is all going on the bank continues with the foreclosure process and is now to the point where the trust sale date has been set.  The obvious course of action would be for the bank to postpone the foreclosure date.  But again with the lack of common sense they are known for, they refuse to postpone or cancel the foreclosure date.  They are less than 5 days away from closing in escrow and the property going to the new buyer but they foreclose and take the property back.  Congratulations, they just got themselves another REO holding.  Why?

We have been focusing on the insane, greedy banks.  Bailing them out and offering incentives to do what they were already suppose to be doing.  This is not the answer.  The banks are not going to fix the housing market, the people are.  It will be the regular home buyers and sellers who have always been the foundation of the real estate market who turn this market around.  We need to focus on the people and offer them the bailouts and incentives.  And I do not mean just the people on the verge of losing their home.  In order to stimulate the market you need to empower the masses.

Right now many homeowners are trying to do what is right and short sale their property rather than simply walking away and letting it go to foreclosure.  As described above the banks are doing nothing to simplify the process.  There needs to be new rules put into effect to protect both the seller and the potential buyers.  Once a short sale is initiated by the seller, it should be like it is with a bankruptcy.  The foreclosure process stops.  Period.  No trustee sales date can be set.  The banks should also be forced to accept the short sale at the appraised value within a 30 day timeframe.  If they do not there should be serious financial consequences to the bank.  Priority of purchase should be given to owner occupied buyers.  Rather than how it is now where the banks would rather go with an investor/cash buyer.  It is kind of funny that the banks would prefer not to go into escrow with a buyer who is getting a loan.  I guess they understand how difficult lenders are to work with.  Even they do not want to do business with themselves.

Right now one of the biggest problems in the real estate market is that people do not have equity in their homes.  They cannot sell their current home.  I talk to people all the time that would love to buy a new home but they can’t.  They are prisoners of their house.  They are upside down.  This needs to be fixed if we are going to see any significant increase in market activity.  The best way to accomplish this would be to offer these people an incentive, a bailout of sorts.  Allow them to sell their current home at current market value and buy a new home.  Force the banks accept the proceeds from this sale as payment in full for their current mortgage. But the sellers must agree to get the new mortgage with their current lender.  It is kind of like trading a mortgage.  The one thing that would also have to be considered is that the new mortgage would have to be at the going interest rate.  I can see it already, if the lender knew they were going to get the loan they would jack up the rate.  We have to watch those darn greedy banks.  This would definitely stimulate the housing market by allowing people to buy new homes and sell their current one.  With this incentive to sellers, the number of short sales would decline but more importantly the REO inventory would not continue to grow at the current rate.  The market would become stimulated with buyers and sellers.  People who are simply looking for lower mortgage rates would now be potential buyers.  Can you imagine the number of people who would hit the housing market running to take advantage of something like this?  This would help the millions of people who are trapped in their mortgage. It would help the people that want to refinance but can’t because they have no equity.  It would help the people who want to do a short sale but can’t because they are current on their payments or they do not want their credit hurt.  It would help the people who are current on their mortgage but want to make a move.  Finally it would help the masses, the people.

Conforming Loan Limits To Decrease

We just had our office meeting and the big topic was the upcoming change in the conforming loan limits. In San Diego, it is currently set at $697,500.  On September 30, 2011 the conforming loan limits will be reduced.  No one knows for sure the actual amount it will be reduced but it looks like anywhere from $150,000 - $250,000.  This will be effective the end of September.

So what does this mean to you?  Well, right now you can purchase a home with a FHA loan up to the current limit of $697,500.  You would be able to do so with 3.5% down payment.  After the change you will need to stay under $457,500 - $547,000 depending on the new limit.  If you go over the conforming loan limit you would not be able to purchase with only 3.5% down, you would need a 20% down payment.  Also the interest for a loan over the limit is about 0.75% -1.5% higher.  This will cause your monthly payment to be considerably higher.

If you are thinking that this increase will only affect people in the middle range you are wrong.  Buyer's in the higher end market will also be affected especially if they are selling a mid-priced home in order to buy that luxury home.  There will be fewer buyers for the mid level home due to the change and the sales price may need to be adjusted down.

So what can you do now to protect yourself?  First of all, if you are considering buying a mid level home, do it now before the change in loan limit goes into effect.  Sure, prices might come down a little but if you look at cost versus price (as discussed in a previous post) you may not want to wait.  If you do not have 20% to put down, take advantage of the 3.5% downpayment FHA offers before the loan limit changes.

Sellers of mid level homes should also protect themselves.  If your home is currently on the market and not moving, especially if you are in the $600,000 price range, REDUCE and get it sold.  Once the loan limit goes into effect there will be fewer buyers who will qualify to buy your home.  If your home is not yet on the market and you believe it will be in the $550,000 - $690,000 price range, list it TODAY!!!  Do not wait until the pool of buyers gets smaller.  Give yourself the best chance possible to get it sold.  CALL ME TODAY!!!

10 states with the highest share of non-current loans

Statistics released by the Mortgage Bankers Association this week showed the number of homes in the foreclosure process during the second quarter dropped for the first time since 2006.

10 states with the highest share of non-current loans:

1. Florida (23.6 percent)

2. Nevada (21.6 percent)

3. Mississippi (18.4 percent)

4. Georgia (15.6 percent)

5. Arizona (14.6 percent)

6. Illinois (14.5 percent)

7. Ohio (14.4 percent)

8. Indiana (14.3 percent)

9. Louisiana (14.2 percent)

10. Michigan (14.1 percent)

Other states where the percentage of non-current loans exceeded the national average of 13 percent: New Jersey (14.1 percent), Rhode Island (13.7 percent), California (13.5 percent), Tennessee (13.2 percent) and West Virginia (13.1 percent).Source: LPS.

What is Title Insurance?

Title insurance companies, unlike property or medical insurance companies work to eliminate risk before something happens.  Title insurance premiums are paid to identify and eliminate potential claims and risk before they happen.  Medical and homeowner insurance premiums are paid to insure against an unpredictable future event.  Title insurance premium is paid once, during escrow while other types of insurance are paid at regular intervals and are renewed.

The goal of a title company is to conduct a thorough search and evaluation of public records to prevent any future claims.  The experts are trained to identify the rights others may have to your property, such as recorded liens, legal actions, disputed interests, rights of way or other encumbrances on your title.  They should have extensive experience in local Boundary Lines and Easement locations which will enable them to forecast potential obstacles in a transaction. 

There are 2 different types of title companies.  Direct Writers issue their own policy and have reserves set aside to back the policies of title insurance they issue.  Title Agents operate like a direct writer, however they do not issue their own policy of title insurance but rather pay a fee to the direct writer for the right to issue a policy of title insurance.

Bank of America Loan Modification Program

I have been getting a lot of requests for this information so I thought I would share with it everyone.  Here is the link to Bank of America's website for Home Mortgage assistance.

Bank of America - Home Affordability Modification Program

If you do not qualify for a modification or you decide to sell your home through a short sale, please call me.  I would be happy to explain the process and get it started.

Bank of America Mortgage Principal Reduction Plan

B of A Rolls Out Principal Reduction Plan
This morning executives at Bank of America rolled out their new "Principal Reduction Enhancement" program, which is an earned principal forgiveness plan for borrowers behind on their mortgages and whose loans are at least 20 percent underwater in value.

The plan is in conjunction with the government's Home Affordable Modification Program, but the government's principal reduction plan isn't in place yet.

What makes BofA's plan so proactive is that it employs, "a principal reduction as the first step toward reaching HAMP's affordable payment target of 31 percent of household income when modifying certain NHRP-eligible mortgages - ahead of lowering the interest rate and extending the term." Source: cnbc.com

7 Ways to Improve Your Credit and Get a Loan

Maybe you have been considering buying a home but are concerned that your credit scores are less than steller.  When you apply for a loan, you credit scores along with your debt to income ratios are going to be big factors.  Here are some tips that can help you improve your credit scores and help you in advance.

1.  Run your own credit report so you know in advance what the lender is going to find.  This will give you the opportunity to correct any mistakes and possibly remedy any derrogatory items.

2.  Don't charge your credit cards to the maximum.

3.  Pay down the credit cards to improve your debt to income ratio.

4.  Pay your bills on time, all the time.  Show your credit worthiness.

5.  Don't play the shell game by transfering balances from one card to another.  This can lower your scores.

6.  Don't open new credit card accounts before applying for a loan.  Having too much credit available to use can scare the lenders.

7.  Don't charge big ticket items for your new house when you are in escrow.  This can throw off your debt to income ratio.  The lenders may run your credit again right before you close escrow.  Wait until you close to by the new furniture!

Banks are Crazy!

I just have to share what many already know...Banks are crazy.

When they are lending on a property they want a recently sold comp to be higher than the subject property. This creates a perpetual declining market which in and of itself is crazy when there are buyers getting into bidding wars for the property.

When the bank is the seller, in the case of this REO, they want a price that is way out of line with the market and will therefore never appraise by the current lending standards.

Figure it out banks...you can't have it both ways!

All Lenders are Not the Same

I just closed on a very difficult escrow and learned a very valuable lesson that I wanted to share... Not all loan officers are the same! I represented the seller in this transaction and we recieved an offer in the middle of March. It is now the middle of August and we just closed, NO! this was not a short sale. After the original loan officer tried for months to get the loan to go through, the buyer and the seller were left feeling "led-on" and frustrated.

I called Suzy Dukelow from ARPLLS,Inc. From the moment I called her, her knowledge and expertise were readily apparent. She was honest and straight forward. She did not make promises she could not keep. She kept us informed of the progress and any issues that needed to be resolved. And believe me with appraisals and inspection reports that were now more than 90 days old and lending standards changing almost daily, there were plenty of challenges for Suzy to overcome. But she did it! She handled everything with the utmost professionalism. I am truly grateful for her hard work and determination to see this through to the end.

So, the next time you need a loan or are thinking of refinancing make sure you find someone you can trust and who is knowledgeable. Do your research and look for recommendations. Just because a loan officer says they can do it, doesn't mean they can or they will. Remember...Not all loan officers are the same.

Skeptics Say Lenders Ignore Loan Mods

The banks can say what they want but the reality is they are not doing much to help troubled homeowners. The servicers and negotiators will kill short sales or drag them out so long the buyers move on to other properties. They will deny a short sale and site the reason as not wanting to pay for title or escrow. Really? They expect a first time buyer to buy a home in California without escrow? I have yet to hear of anyone who has had the balance of their loan reduced but have heard numerous stories of the banks offering loan modifications that actually cost the homeowner more. The government knows this and what is there solution? They want to offer financial incentives to the banks to modify the loans. Great, let's reward the banks with more money for not doing what they were supposed to do. Mr James may deny this is happening and say that investor relations and customer relationships are what is important. I say actions speak louder than words and the actions of lenders show that what is important to banks is the all mighty dollar and their bottom line.



Daily Real Estate News | July 30, 2009 | Share

Even as government officials are pressuring mortgage companies to expedite their efforts to renegotiate home loans for troubled borrowers, industry insiders are scoffing.

They say the delays mostly can be attributed to the reluctance of mortgage companies and servicers to give up revenue from late payments, including on insurance, appraisals, title searches, and legal services.

''It frustrates me when I see the government looking to the servicer for the solution, because it will never, ever happen,'' said Margery Golant, a Florida lawyer who defends homeowners against foreclosure and who is a former employee of Ocwen Financial. ''I don't think they're motivated to do modifications at all. They keep hitting the loan all the way through for junk fees. It's a license to do whatever they want.''

Even the government recognizes the problem. ''The rules by which servicers are reimbursed for expenses may provide a perverse incentive to foreclose rather than modify,'' concluded a recent paper published by the Federal Reserve Bank of Boston.

Bank of America disputes that characterization vociferously. ''To think that somehow or other we would jeopardize investor relationships and customer relationships for the very small incremental income we would receive by delaying seems ludicrous,'' said Robert V. James, the bank's senior vice president for mortgage operations and insurance. ''It's not the right thing to do.''

Source: The New York Times, Peter S. Goodman (07/30/2009)