Wikipedia Short Sale Definition is a post from: Troubled Property Solutions | Loan Mods | Short Sales call 1-619-631-4546

When a property owner fails to make their mortgage payments for a number of months they are in default. The first step of the foreclosure process (which typically takes a number of months) that the lender will take is to file the notice of default. This is a public document that is recorded. The property owner will contract to sell the home conditioned upon the lender accepting a lesser amount than what is owed on the mortgage. Note that there are no similarities between a real estate short sale and selling a stock short.
In many jurisdictions, including the United States, the seller is responsible for taxes on the amount of the mortgage left unpaid after the sale as ordinary income.
The Mortgage Forgiveness Debt Relief Act of 2007, enacted Dec 20, 2007, generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief. The original effective date was through 2009 but in October 2008, legislation extended the relief through 2012. Use IRS form 982 to handle the debt relief provision.

Short Sales Up Significantly Due to Loan Mod Failures is a post from: Troubled Property Solutions | Loan Mods | Short Sales call 1-619-631-4546

Short Sales Rise 600% from 2008

The number of Freddie Mac  short sales has increased 600% from two years ago according to Freddie’s CEO Ed Haldeman, as lenders look to dampen the impact of foreclosures hitting the marketplace. In a statement put out this week, Haldeman said Freddie Mac is doing everything it can to prevent more foreclosures, and that short sales are becoming an ever-popular tool in situations where foreclosure is imminent and modifications have failed. That number could increase as the Home Affordable Foreclosure Alternatives (HAFA) program takes hold. The Treasury Department launched it in April to provide cash incentives to servicers for conducting short sales and deeds-in-lieu of foreclosure.

RealtyTrac, an online foreclosure marketplace, is even preparing a short sale report to go long with its usual foreclosure report every month. It won’t be available until the end of 2010 however. “Foreclosure alternatives like short sales and deeds-in-lieu help borrowers to avoid the stigma of foreclosure, shorten the waiting period before they can buy a new home, and may inflict less damage on their credit reports,” Haldeman said. While short sales still add to the housing supply and can put pressure on local home values, they often avoid the lack of maintenance or damage foreclosed homes often display. Since the middle of 2008, Freddie Mac reported total losses of $84.4bn, according to its quarterly reports. The company’s plight has forced a directive from the Federal Housing Finance Agency (FHFA), its conservator, to de-list its and Fannie Mae’s common stock from the New York Stock Exchange.

Loan Modification Re-Default Rates Rise to 75% including in San Diego is a post from: Troubled Property Solutions | Loan Mods | Short Sales call 1-619-631-4546

The Odds Are Stacked Against the Homeowner:

Most San Diego homeowners want to keep their home, and thus pursue a loan modification but will find it ultimately doesn’t work. 

But according to a recent report approximately 65-75%  of  borrowers who have had their mortgages modified through a government-sponsored program will redefault within 12 months.  Between 65% and 75% of loans that are modified through the Home Affordable Modification Program(HAMP) but not backed by the federal government are likely to go bad, according to the report released by Fitch Ratings, a N.Y.-based credit-rating agency. The main reason these borrowers continue to struggle is that HAMP does nothing to solve the rest of their debt problems, the report added. “Many of these borrowers still have very heavy levels of other debt,” said Diane Pendley, a Fitch managing director, “auto loans, credit cards and other expenses.

The HAMP modifications reduce housing expenses down to 31% of income but do not touch these other obligations.” Currently, according to the Fitch report, about half of prime borrowers who lose their homes now do so through foreclosure. The other 50% go through short sales, in which they sell their homes for less than what they owe the bank, or deed-in-lieu, a transaction where the bank takes back the property directly and forgives the outstanding balance (what we call the bank’s “Give Us Your House” Program). The servicers have been encouraged to rev up their short sale engines by the Treasury Department, which runs HAMP and its sister program, Home Affordable Foreclosure Alternatives (HAFA), which provides cash incentives to the parties who agree to short sales.  Now, when borrowers re-default on HAMP mods or other bank workouts, banks are much more likely to offer help to execute a short sale or deed-in-lieu.  Keep in mind that a loan mod is considered a refinance, and in California is no longer protected against the anti-deficiency judgement laws that California offers for purchase money loans.

So if you think the terms of the loan mod are not going to work out for you in San Diego or in California, consider whether you want to sign those loan mod docs and expose yourself to a deficiency judgement if you re-default.

Short Sales in San Diego Lose Banks Less Money is a post from: Troubled Property Solutions | Loan Mods | Short Sales call 1-619-631-4546

Short Sale is Better for Banks than a Foreclosure in San Diego

According to DSNews.com the Loss Severity on Short Sales are 13% Lower than REOs, including in San Diego, confirming what we have known for the last 3 years!

Over the past year, the mortgage risk analysis firm Clayton Holdings says it has witnessed an overall increase in short sale activity. Because of the growing emphasis on keeping borrowers out of foreclosure, servicers are becoming more inclined to employ alternative loss mitigation strategies. And Clayton says the added benefit to servicers is that loss severities for properties sold through short sale are 13 percent lower than loss severities for REO sales. The analysts at Clayton Holdings examined performance indicators across nine servicers’ internal proprietary short sale programs, from October 2009 to March 2010. In addition, the data showed that short sales cost bondholders about half the amount in fees and advances as REO sales, saving roughly $16,000 per sale.

Clayton says servicers with the lowest loss severities for short sales employ a variety of strategies including outsourcing, utilizing dedicated short sale teams, working directly with local broker networks, and setting list prices based on historical and geographical REO net proceeds.

More Short Sales Coming in San Diego is a post from: Troubled Property Solutions | Loan Mods | Short Sales call 1-619-631-4546

Loan modifications are not working – so banks are moving towards short sales to solve the mortgage crisis

Diana Olick – Big Banks Move to Short Sales, but Will It Help Housing?

“Earlier this week a top executive at Bank of America told an REO conference in Dallas that the lender would be focusing more on short sales than ever before. At first hearing this, I assumed it was because of the government’s Home Affordable Foreclosure Alternative Program, which provides cash incentives to servicers and borrowers for short sales and also streamlines the process, but of course there’s way more to it than that. Said Bank of America exec, Matt Vernon, whose official title is National REO, Short Sale and Deed in Lieu Executive (his childhood dream title I’m sure), granted me an interview this morning, and was pretty clear as to why B of A is pushing these alternatives. The big difference, he says, is that BofA, as well as some other big banks, are changing the model from reactive to proactive. In other words, instead of waiting for a borrower or real estate agent to approach the bank with an offer for a short sale, they are using a “cooperative approach, with homeowner, Realtor and servicer on behalf of investor, working to move that property through the process. All three of the interested parties holding everything together,” Vernon explains. ”

Olick continues: “So the servicer sets a minimum value for a short sale and then the borrower and Realtor go out and find a buyer. When they do, the process then moves far more quickly because it’s already approved. Of course there’s always the financial incentive as well. With so many borrowers either falling out of or not qualifying for the modifications, a huge flood of properties are moving to REO (bank owned). A report from Clayton Holdings finds short sales cut risk severity by 13 percent more than REO sales. And in some states where the foreclosure process is more lengthy, short sale loss severities can be as much as 26 percent lower than REO loss severities. “I would say that’s generally accurate in what we see,” agrees Vernon. “It really comes down to time. The quicker you can facilitate the property moving.” The good news is, that will cut down on foreclosures. The bad news is that short sales, like it or not, are comps. They sell for less, and consequently bring down the values of properties around them.”

Strategic Homeowner Defaults Common in San Diego is a post from: Troubled Property Solutions | Loan Mods | Short Sales call 1-619-631-4546

Owners Stop Paying Their Mortgage Intentionally

A growing number of the people whose homes are upside down are intentionally stop paying their mortgage.  It’s what has been termed “strategic default”.  People who are in foreclosure are also not ashamed of it any more.  “Walk away” block parties where whole streets are deciding it’s not worth it to be upside down anymore are the new fad.

Homeowners are fashioning a sort of homemade mortgage modification, one that brings their payments all the way down to zero. They use the money they save to get back on their feet or just get by. It’s a Force me out if you can attitude. Any moral qualms are overshadowed by a conviction that the banks created the crisis by snookering homeowners with loans that got them in over their heads. “I tried to explain my situation to the lender, but they wouldn’t help,” said Mr. Pemberton’s mother, Wendy Pemberton, in foreclosure on a small house a few blocks away from her son’s. She stopped paying her mortgage two years ago after a bout with lung cancer.

Foreclosure procedures have been initiated against 1.7 million of the nation’s households. The pace of resolving these problem loans is slow and getting slower because of legal challenges, foreclosure moratoriums, government pressure to offer modifications and the inability of the lenders to cope with so many souring mortgages. The average borrower in foreclosure has been delinquent for 438 days before actually being evicted, up from 251 days in January 2008, according to LPS Applied Analytics. While there are no firm figures on how many households are on their way to passive resistance, real estate agents and other experts say the number of overextended borrowers taking the “free rent” approach is on the rise. More than 650,000 households had not paid in 18 months, LPS calculated earlier this year. These “free riders” are “the unintended and unfortunate consequence” of lenders struggling to work out a solution, Mr. Kyle Lundstedt, managing director of Lender Processing Service’s analytics group.

Loan Modifications Getting Tougher is a post from: Troubled Property Solutions | Loan Mods | Short Sales call 1-619-631-4546

More Paperwork on Loan Modifications – More Loan Mod Failures

Getting a loan modification through in San Diego is as tough as ever, and less than 1% result in a permanent fix that is beneficial to the homeowner.  Paperwork is critical if you want to avail the administration’s mortgage modification program. With effect from June 1, New Treasury Department guidelines require loan servicers to verify applicants’ income and financial hardship before placing them into trial modifications. This will make it much tougher to get temporary relief from unaffordable mortgage payments. But if you make it into a trial modification, you’re more likely to get long-term assistance, providing you send in your check on time. Of the 1.2 million people who’ve started trial modifications, fewer than 300,000 have received permanent assistance. Another 278,000 have washed out of the program either because they didn’t send in timely payments, hand in the required documents or meet the eligibility criteria.

Paperwork has caused all sorts of problems for the president’s signature foreclosure rescue program. In order to get the effort off the ground quickly, administration officials allowed servicers to place people in trial modifications before verifying that they were indeed eligible for the program. Many homeowners have been stuck in trial modifications for months and months while they wrestle with servicers over the documentation requirements. Many lenders have sent the property to foreclosure while the homeowner has been in the modification process. The financial institutions say that borrowers aren’t sending in the needed forms; homeowners contend the servicers are losing them. Many loans didn’t require much documentation when they were originated, which makes gathering the paperwork during the modification process that much more difficult, said Paul Koches, executive vice president at Ocwen. The pace of people entering trial modifications has already slowed as servicers have started requiring the paperwork in advance. Only 47,160 trials were started in April, down from more than 72,000 in February. Among the documents Chase and other servicers require are hardship affidavits, two recent pay stubs, a bank statement, a tax return, proof of occupancy and a 4506T-EZ form. 

Are lenders collecting all these documents, only to use them against homeowners once the house goes to sale? Or to pursue a deficiency judgement?  With so many loan modifications failing, you have to wonder.

Are Investors Solving the Foreclosure Crisis? is a post from: Troubled Property Solutions | Loan Mods | Short Sales call 1-619-631-4546

Are Investors Part of the Housing Solution?

“Last year, when the rest of the nation’s housing was still reeling from recession, California started to show signs of life. Sales increased and prices stabilized, despite the fact that it was one of the hardest hit states with one of the highest foreclosure rates. California’s savior was investors. They came in fast, cash in hand, and started snatching up distressed properties at a fast pace. That interest appears to be waning. While sales of existing homes shot up across most of the nation in April, they fell in the West, down 6.2 percent. “The sales are lower because of lack of inventory on lower-priced homes,” says Lawrence Yun of the National Association of Realtors. “The California market was one of the first markets to go down sharply but also the first market to rebound.” The inventory of low-priced homes is low because of big investor demand initially and because banks are being very careful with REO (bank owned) properties, releasing them slowly onto the market so
as not to tank prices. But that’s not all of it. “We know the tax-credit has pushed low-priced houses up sharply and investors have backed away big-time in recent months, not wanting to compete with a bunch of first-timers and their Obama coupons,” says mortgage analyst Mark Hanson. “Perhaps this is the end of the demand cycle from first timers and investors who have had their fill.”

On the other hand, some of the numbers may be skewed due to the increasing prevalence of short sales, where the bank allows the home to be sold for less than the value of the mortgage. “The proportion of damaged foreclosed properties or so-called real estate owned (REO) sold during April plunged,” according to the latest Campbell/Inside Mortgage Finance Monthly Survey of Real Estate Market Conditions. “Damaged REO accounted for 15.4 percent of transactions in March, but only 12.8 percent in April. One reason for the drop in damaged REO may be increasing numbers of short sales.” Now that the tax credit is over, and foreclosures are moving through the bank pipelines more quickly, perhaps investors will come back in larger numbers. Prices are certainly low enough!”

Consumers Hold Their Wallets Tight

U.S. consumer spending was unexpectedly flat in April, a government report showed on Friday. The Commerce Department said spending was the weakest since September, when it fell 0.6 percent, after increasing by an unrevised 0.6 percent in March. Analysts polled by Reuters had expected consumer spending, which normally accounts for over two-thirds of U.S. economic activity, to increase 0.3 percent last month. Spending adjusted for inflation was also flat in April after a 0.5 percent increase the prior month, the Commerce Department said. Personal income rose 0.4 percent, the report showed, after rising by the same margin in March. Markets had expected income to rise 0.5 percent last month. The saving rate rose to 3.6 percent from 3.1 percent in March. Savings rose to an annual rate of $398.5 billion. The report also showed the personal consumption expenditures price index, excluding food and energy, rising 1.2 percent in the 12 months to April, the smallest rise since September
. The index, which is a key inflation gauge monitored by the Federal Reserve, increased 1.3 percent in March.

Mortgage Lenders Seek Relief on Bad Debt Repurchases

Mortgage lenders are seeking relief from Fannie Mae and Freddie Mac as the government-supported companies force them to buy back more soured debt, said John Courson, president of the industry’s largest trade group. The Mortgage Bankers Association has started to “aggressively” push the two companies and their regulator to ease up. Fannie Mae and Freddie Mac, propped up by unlimited taxpayer capital, should acknowledge lenders are unfairly absorbing too many losses, with unemployment that reached a 27- year high among the causes of defaults unrelated to loan quality. Last quarter, the companies forced lenders to repurchase $3.1 billion of loans, up 63 percent from a year earlier, after defaults surged to the highest since the Great Depression, according to regulatory filings. Bank of America Corp. and JPMorgan Chase & Co. are among banks that reported setting aside money to cover such demands.

Freddie Mac, based in McLean, Virginia, had $4.8 billion of repurchase requests pending as of March 31, up from $3.8 billion on Dec. 31. Washington-based Fannie Mae hasn’t made a similar disclosure. The company is creating new upfront lender requirements to “promote improved loan delivery data that is complete, accurate, and fully reflective of the terms of the mortgage,” which should reduce future repurchase demands, said Janis Smith, a Fannie Mae spokeswoman. The so- called loan quality initiative takes effect June 1. The U.S. government seized Fannie Mae and Freddie Mac, which own or guarantee almost $5 trillion of U.S. housing debt, in September 2008, and has guided their actions during their so called conservatorships. They’ve drawn $145 billion in aid from the Treasury Department.

State Group Estimates 37% of California Foreclosures Involved Renters

The foreclosure crisis in California has taken a toll on not only homeowners, but a large number of tenants in the state. According to a new study from Tenants Together, California’s statewide organization for renters’ rights, at least 37 percent of residential units in foreclosure in the Golden State last year were rentals, directly affecting over 200,000 tenants – most of whom were displaced. Tenant Together’s research is based on California property records for every foreclosure in 2009, and the organization says its estimates are “conservative.” The report – California Tenants in the Foreclosure Crisis Report – concludes that while the largest percentage of renter-occupied foreclosed properties were single-family homes, the percentage of renter-occupied, multi-unit buildings is growing at a faster pace. The organization says this trend is likely to increase as more loan modification programs target owner-occupied properties, which are primarily single-fami
ly homes and condominiums, while multi-unit rental properties continue to fall by the wayside and into foreclosure. Tenants Together says that the new federal law Protecting Tenants at Foreclosure Act comes short of providing long-term security for tenants and has been mired by implementation problems arising from banks’ non-compliance with the new law. Among the various proposals, the report notes that ‘just cause for eviction’ laws are a particularly effective and cost-free way to stop the displacement of tenants whose lenders have been foreclosed on and provide greater stability to California communities.

Now on to our real estate education section…

Friday File – Assessing a Mobile Home Park

This week we have explored the commercial side of short sales with a special look at the use of mobile home parks as one easy entry into a frequently ignored alternative. For today’s Friday file we will show a quick and easy way to assess whether or not a mobile home park would enhance your portfolio. Not only are a large number of “mom and pop” parks wanting to retire but many larger properties are coming on the market thanks to REO and generalized foreclosures. Use these quick calculations to compare the cost and outcome:

1. Determine the Density. Expect an average density of roughly 4 to 10 units per acre. Long term residential areas tend to be less dense while part-time, resort and/or RV rental areas tend to be more dense.

2. Decide who will be responsible for utilities? If tenants will pay for the utilities, multiple the average monthly lot rent by 70. If the investor will pay for utilities, multiple the average monthly lot rent by 60. These are industry norms with a built-in “cushion”.

Tip: Average monthly lot rent for most mobile home parks average $250 to $400 per month. So, if you own a ten acre mobile home park that has 40 units and rents for $300 per month with tenants paying utilities, the park would generate an anticipated $12,000 per month multiplied by .70 or $8,400 anticipated monthly net.

3. Evaluate the “Break Even” point. As a general rule of thumb some mobile home park investors like to cap the cost at an arbitrary number such as $5,000 per $100 of lot rent (less for vacant lots) however, it’s often possible to find a diamond in the rough for significantly less especially if it has been poorly managed or the owners are looking to liquidate. Using the same example from above, a 40 unit park with rents of $300 per month would expect to sell somewhere in the neighborhood of $600,000 before taking vacancies into account. Discount for average vacancy rates, assess the impact of accelerated depreciation and other tax advantages plus down payment to determine your “break even” point.

4. Add in the cost of appreciation, rentals and other ancillary services such as laundry, RV lots, sales of mobile homes, rentals of mobile homes, wi-fi or other potential sources of income.

Many investors are surprised to learn how affordable and easy investing in a mobile home park can be; it’s just one quick example of another alternative to breaking into commercial real estate investments. This week, perform a quick search for a small mobile home or RV park to see what’s available in your area. Remember, it’s easy to trade free lot rent for an on-site manager to keep the headache and hassle down while rapidly increasing the income and appreciation.

Short Sales Increase over Bank Owned Sales in April is a post from: Troubled Property Solutions | Loan Mods | Short Sales call 1-619-631-4546

Short Sales are on the Rise!

According to Campbell/Inside Mortgage Finance Monthly Survey of Real Estate Market Conditions their survey found that  short sales represented the largest portion of the distressed property housing market in April, accounting for 17.9 percent of all transactions. And as short sales surged, the portion of damaged REO transactions fell to 12.8 percent in April from 15.4 percent in March. With distressed borrowers increasingly turning to short sales as an alternative to foreclosure, the proportion of damaged foreclosure properties, otherwise known as REO, sold during April plunged, according to the latest . The survey found that According to the survey, first-time buyers accounted for 43.4 percent of April’s home purchase transactions, a significant drop from March’s figure of 48.2 percent.

This early departure was unexpected, as these buyers had until the end of April to sign a home purchase contract to qualify for an $8,000 tax credit. But a National Association of Realtors practitioner survey showed a different story. According to this survey, first-time buyers purchased 49 percent of homes in April, up from 44 percent in March. The survey also found that investors accounted for 15 percent of transactions in April, down from 19 percent in March, and the remaining sales (36 percent) were to repeat buyers.

This is good news for San Diego homesellers.  If you are in San Diego and need out, call us at (619) 631-4546.

Barlays Report: Countrywide Picks Up Pace Resolving Troubled Loans is a post from: Troubled Property Solutions | Loan Mods | Short Sales call 1-619-631-4546

Bank of America – Countrywide Loans

Bank of America liquidation and modification rates on formerly Countrywide-serviced residential loans have edged higher in the past few months, with a larger percentage of mortgage restructurings encompassing principal forgiveness, according to a study just released by Barclays Capital. The research firm examined loans within residential mortgage-backed securities (RMBS) serviced by Countrywide, now Bank of America Home Loans, and found that while historically, Countrywide-serviced deals have claimed lower-than-average mod rates and long liquidation timelines, that has begun to turn around in the past few months. Barclays reports that constant default rates (CDRs) on pools of mortgages serviced by the once-subprime leader have improved, primarily due to faster roll rates, as well as rejections from Home Affordable Modification Program (HAMP) trials, which allow the loan to proceed to foreclosure.

Analysts at Barclays expect Countrywide’s liquidation rates to continue to increase as more HAMP trials are resolved in the coming months. Many of these resolutions, though, do include transitions to permanent loan restructurings. Barclays says HAMP conversions have also boosted modification rates for Countrywide, and the research firm found that debt forgiveness mods now make up 10 percent of the servicer’s modified loans, up from 0 percent in January. The research firm says it as seen “continuous improvement” in current to delinquent rolls and falling 60-plus day delinquencies. Barclays says there have been important changes in servicer behavior in the Countrywide camp.  HAMP rejection rates for Countrywide loans have shot up in the past few months and now constitute 36 percent of all resolved trial mods.  According to the Treasury’s latest HAMP progress report, Countrywide/Bank of America is servicing approximately 215,000 active trial mods and has finalized near ly 57,000 permanent loan restructurings.