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What do you do if the homeowner just doesn’t want to sell their negative equity home?
I imagine this is rare, but it has come up more than once when a homeowner is faced with the point today where they can no longer afford their home or it no longer makes sense to keep paying on a negative equity home. They contact you, the Realtor and their Trusted Advisor, to explore options. For the most part those options have consisted of a Short Sale, trustee sale/foreclosure or loan modification exercise that ultimately fails to fix the problem. But, what if a homeowner could keep their home and owe no more than what its current resale value is? We are not talking principal reduction.
We are now late in the cycle of the mortgage crisis. First were the defaults of the sub-prime loans. Then came the Alt A loans. Now we are seeing the defaults of prime loans. With unemployment and underemployment high there is no relief in sight. At this point, these homeowners have tapped their savings and assets. The homeowner has run up their credit cards and now find themselves in dire financial straits. A short sale would be a great solution but they just do not want to or feel they cannot leave their property. Now there is a solution.
The last resort, using the biggest hammer available, also has the greatest social stigma…Bankruptcy. At this point the homeowner feels sick but, we are not talking everyday consumer bankruptcy. Current bankruptcy laws allow, in a strategic fashion, for the stripping of any negative equity subordinate lien. In other words, releasing the second or third mortgage from the property so that it is unsecured. Next the bifurcation or splitting of the remaining first mortgage into a secured portion that is up to the value of the property and an unsecured portion that is above that value and lastly, the discharge of all unsecured debt including the unsecured portions of the mortgage. The result is that the homeowner may be relieved of the residue of this mortgage crisis. They now will own a home with what should be an affordable payment and owing only what the home is currently worth. They now have the ability to restore their credit or to get some time under their belt to re-establish their credit.
With HAMP a failure and the weight of short sales and the subsequent reductions in home values, tough solutions must be considered. Not every homeowner should consider the bankruptcy solution but, the option is available.
Thomson Law, PLC is a full service law firm and has added to its practices a Strategic Bankruptcy Practice focused on assisting homeowners in this situation. We believe that Bankruptcy should be the last option but should not be dismissed from the discussion of options. If you have a client that faces a point today that can no longer afford their mortgage and owes more than their home is worth please call Thomson Law today. We will sit down with them discuss their situation so that all of their legal rights and obligations are understood so that they can make good decisions for their family.
For questions or comments about this or other articles please visit our
Doug Farnham (Central/Southern AZ)
(602)774-3753
Bob Verbic (Northern AZ)
(928)899-5765
The Loan Mod Myth
What do Successful Loan Mods and Unicorns have in common? They are both mythical creations. The difference is that Successful Loan Mods did exist at one time before HAMP, but now seem to have gone the way of the dinosaur. Although there is that rare individual that receives a “permanent” modification, there are also rare individuals that win the lottery. Even if a homeowner does get a “permanent” modification there is about a 50/50 chance it will result in an increase in their monthly payments.
The MSA’s (Mortgage Servicing Agreements) and PSA’s (Pooling and Servicing Agreements) between the lender (servicer) and investment groups, defines the number of loans that can be modified in a portfolio. Typically this number is less than 5%, which is why the lenders allowed some modifications and then stopped. There was no consideration that AAA rated securities would have the default rates occurring today and therefore there were no provisions to handle the mess we are in now. Most of the residential loans were securitized into mortgage backed securities and pieces sold to junior tranche owners that get paid only after the senior tranche owner has been paid in full. The effect of MBS distributions and any funds paid by Mortgage Insurers have created a situation in which investors are typically receiving 95% of market value from a foreclosure of a property.
You may notice that we have used quotes on the word “permanent”. That is the term used by lenders as it is defined in HAMP. The reality is that these loans in almost every modification are not permanent; meaning they are not fixed for balance of the term of the loan. Rather, the loan is modified for 3 to 5 years and then adjusts or returns to an increased interest rate. The 3 to 5 year period is just long enough to get the homeowner past the 2012 deadline for the Mortgage Debt Relief Act. This means that the homeowner could miss their opportunity for an exit without tax consequences by accepting a modification.
Another reason that the term “permanent” is illusory as it relates to loan mods is that many of the lenders will repeal the modification that was supposedly approved and granted. This leaves the homeowner unable to pay off the accrued, unpaid payments, interest and fees to prevent a default and the home will usually be taken in a foreclosure.
Even if the homeowner is extremely lucky and gets a loan modification, that lowers their monthly payment, the issue of negative equity has not been addressed nor resolved. Unless and until the homeowner receives a loan modification that includes a reduction of the principal balance so as to eliminate or appreciably reduce the negative equity, the primary problem faced by the homeowner will continue to exist.
The reason it is important to understand the fallacy of a loan mod is that homeowners spend months or in some cases even years playing this game with the lender and may miss their best opportunity for a clean exit from the property through short sale. As a Realtor you may already be explaining this to homeowners, but we hoped that this information may help the homeowners you consult with to better understand their options.
Below are some other tools that can help a homeowner separate their emotions from what should be a strictly financial decision.
Doug Farnham (Central/Southern AZ)
(602)774-3753
Bob Verbic (Northern AZ)
(928)899-5765
Courtesy of Barb Savoy-Pacella ABR, CNRS, CHMS ~ Director of Business & Career Development, Keller Williams Arizona Realty www.PacellaGroup.com
There are many variables that can effect what seems to be our continuing ascension from what appeared to be the bottom, such as, “strategic default” by Alt-A borrowers; the expiration of the home buyer tax credits; and any other economic news that could cause buyers to have lack of confidence; however, setting the crystal ball aside and evaluating data for today, it would appear that with the exception of the luxury market, all other areas of the Valley are seeing improvement over this same time period last year.
Days of available inventory and days on market have decreased 20% over the past year, and although appreciation has been bouncing around over the past few weeks (as high as almost 10% and as low as 5%) this week Valley wide appreciation is at 7.4%.
Please view the two columns below to see the year over year appreciation by major city:
2009 2010
Cave Creek -22.6% -3.7%
Chandler -23.1% -0.8%
Fountain Hills -24.8% -5.9%
Gilbert -19.9% -4.1%
Glendale -44.8% 12.2%
Paradise Valley -13.2% -21%
Peoria -26.1% -2%
Phoenix -51.8% 23.1%
Scottsdale -21.9% -11.6%
Current Conditions in the Phoenix Market:
There are 26,374 single family detached homes actively on the market in MLS. That is an increase of 152 listings for the week and the second week in a row that we’ve observed an inventory increase during a time period when we would normally see decrease.
There are 33,489 active listings in MLS, which includes patio homes, town homes, condos and loft properties.
note: I received this in an email, and thought it was worth sharing:
For the last few months we have been writing articles to keep Realtors informed on issues relating to short sales. We have had comments from some Realtors that they are afraid to handle short sales because of the risks involved. But lets look at the future of short sales and the potential benefits:
- First, from the Realtor’s perspective, there isn’t much of an option. Since REOs and short sales account for 59% of homes sold in April, Realtors must be willing to take these listings. That percentage is expected to increase since there is a huge shadow inventory of homes that will be hitting the market in the next few months as lenders have stopped their moratorium on foreclosures after the beginning of the year. JPMorgan Chase Warns Investors about Strategic Defaults.
- Short sales becoming more socially and ethically acceptable to homeowners because of government programs like HAMP and HAFA that have legitimized this option.
- For homeowners that face a potential deficiency liability, a short sale gives another opportunity to get a release from that liability. If the lender will not allow the language necessary for this release, a short sale may still reduce the amount of that liability as opposed to a trustee sale.
- If a homeowner knows there will be tax implications as a result of exiting a home, that liability may be reduced through a short sale as opposed to trustee sale that will typically fetch a lower price.
- More and more homeowners are deciding to exit their property compared to a year ago when most were trying to keep their home through a loan modification. The reality that loan mods are a failed exercise and that lenders are not doing as promised has seemed to reach consumers. Here are 8 reasons that loan mods fail.
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- Lenders make promises and later deny or retract loan mod offers.
- Temporary mods are often required but 3 to 5 months later they are told they do not qualify for a permanent mod.
- Lenders continually request updated financial records. This is not just a nuisance but is a method used by lenders to extract further payments from the homeowner and try to determine available assets for lawsuits.
- After following the lender’s instructions to make reduced payments as part of a temporary mod, when the lender later rejects that loan mod that borrower is now in default and the lender can file for trustee sale.
- Most loan mods are only a forbearance under which the missed payments, penalties and interest are added as a balloon to the end of the loan, further increasing the homeowner’s negative equity.
- Failure to disclose the investor and their NPV (Net Present Value) calculations to the homeowner make the decisions of the banks seem unreasonable and counter to financial logic.
- “Permanent” mods are not typically permanent. In most cases the lower interest rates are only fixed for 3 to 5 years.
- If a borrower decides to exit the property after receiving a permanent loan mod, it may be too late to receive the benefit of the Mortgage Debt Forgiveness Act (through 2012) creating a tax obligation that the borrower may not have faced, if they made their decision earlier.
Based on the results of loan mods to date, it seems a reasonable assumption that the whole process is not to help the homeowner, but to keep the homeowner making some kind of payment.
In the last HAMP report released in December of 2009, it is easy to see why homeowners need alternatives to loan modifications. In AZ only 4,137 homeowners have received a permanent modification. Nationally, out of 3.5 million homeowners that should have qualified, only about 66,000 received permanent mods and about half of those homeowners had their monthly payments increase.
Here are some tools that may be able to help homeowners decide whether or not a short sale is their best option.
Last chance to register for the free “Short Sales Exposed – Insiders Tell All Seminar“ on May 19th, 9:00AM to 12:00PM at the Scottsdale Center for the Performing Arts. Click here for more info or to register.
Doug Farnham (Central/Southern AZ)
(602)774-3753
Bob Verbic (Northern AZ)
(928)899-5765
Courtesy of Barb Savoy-Pacella, ABR, CNRS, CHMS Director Business & Career Development ~ Keller Williams Arizona Realty
The Phoenix market certainly has it’s ups and downs, but one thing has been VERY consistent over the past year. Properties listed over $400,000 only account for 7% of what has been selling for the past year. In the month of April, 73% of all properties sold were listed under $200,000; and approximately 20% of what sold was in the mid-range between $200,000-$400,000.
Has the market hit bottom? The median sales price has fallen 52% from the market high of June 2006, however, it is up 10% over this same time period last year.
Equity sales held 40% of the inventory that closed in March, matching the 40% held by REO sales, while short sales made up 20% of the market.
The absorption rate (the number of pending listings versus the amount of available inventory) is 27.7% Valley wide, which is very promising when the historical percentage over the past two years is reviewed.
Current Conditions in the Phoenix Market:
There are 25,935 single family detached homes actively on the market in MLS. That is an increase of 370 listings for the week.
There are 32,034 active listings in MLS, which includes patio homes, town homes, condos and loft properties.
from Rebecca Roberts, Mortgage Banker with The Lending Company, Inc.
Advising Short Sale and Deed-in-Lieu Clients 2010
If you are working with a client who has had a short sale or a deed-in-lieu in their past…or you are listing a home and your sellers may have the same issues…Fannie announced new waiting periods, as of July 1, 2010, before being eligible for another loan. The waiting period is defined as “from the date of the pre-foreclosure to the date of application”.
- Fannie defines ALL Pre – foreclosure events as any one of the following:
- Deed-in-Lieu
- Preforeclosure Sale
- Short Sale
- Full Foreclosure retains a 5 yr waiting period
New Waiting Periods Effective July 1, 2010
Preforeclosure Event
|
Current Waiting Period Requirements
|
New Waiting Period Requirements
|
| Deed-in-Lieu of Foreclosure |
4 years
Additional requirements apply after 4 years up to 7 years |
- 2 years – 80% maximum LTV ratios
- 4 years – 90% maximum LTV ratios
- 7 years – Standard LTV ratios
|
| Preforeclosure Sale |
2 years |
| Short Sale |
No specific policy currently exists |
For extenuating circumstances, for all 3 event scenarios, it’s a 2-year waiting time and 90% LTV.
Rebecca Roberts Mortgage Banker
The Lending Company, Inc.
6910 E. Chauncey Ln. Ste. 220 Phoenix, AZ 85054
Phone: 602-791-6262 Fax: 866-559-9097
License: NMLS #231543 – BK0909441
rroberts@thelendingco.com
www.thelendingco.com
 
It appears as though we have another week of “the good, the bad, and the ?”
The good
The absorption rate Valley wide in all price ranges is 28.4%.
In the price ranges under $175,000 the absorption rate is 30-40%
Valley wide there is a 4.5 month supply of inventory (seller’s market)
The bad
The absorption rate drops into the teens at the $375,000 threshold
The absorption rate drops to single digits at the $800,000 threshold
In the luxury price ranges ($1,000,000 and over) there is a 17.2 month supply of inventory
The ?
Appreciation is down from 9.4% two weeks ago to 5.9% today. That may seem discouraging at first glance, but is much healthier than a steep incline that could be followed by a steep decline as we’ve seen historically.
Alt-A loans (borrowers who had good credit but chose stated income loans) that originated during the peak of the market just began re-setting in the fourth quarter of 2009. It is unknown how many of those borrowers 1). over stated their income at loan origination, 2). how many are still earning the same amount of income, and 3) how many who are able to afford the homes they purchased will strategically default.
Inventory is continuing to decrease, but appreciation is declining, which defies the law of supply and demand.
Current Conditions in the Phoenix Market:
There are 25,568 single family detached homes actively on the market in MLS. That is a decrease of 1405 listings for the week.
There are 32,645 active listings in MLS, which includes patio homes, town homes, condos and loft properties.
Courtesy of Barb Savoy-Pacella, ABR, CNRS, CHMS
Director Business & Career Development
Keller Williams Arizona Realty
www.PacellaGroup.com
(480) 767-3009
Courtesy of Barb Savoy-Pacella, ABR, CNRS, CHMS
Director Business & Career Development
Keller Williams Arizona Realty
www.PacellaGroup.com
(480) 767-3009
I hate to sound like a broken record (if you are under the age of 35, records were vynil discs that were used to store music prior to CDs, i-pods or MP3 players, and they sometimes became broken or scratched and repeated the same lyric over and over), but distress is playing a major factor in the inventory and movement of our market. Areas that have already experienced a high level of distress and are now moving through their inventory are beginning to see appreciation, while those who have not experienced a high level of distress are not. To illustrate, please note the percentage of distress and resulting appreciation in the following major cities:
percentage distress – annual appreciation
Chandler 67% -0.5%
Gilbert 64% -4.9%
Glendale 63% 8.4%
Mesa 75% 5.3%
Phoenix 67% 20%
Scottsdale 24% -3.1%
Surprise 74% 8.3%
Tempe 41% -6.6%
Valley wide, the price ranges under $350,000 are experiencing a seller’s market and have less than 5 months of inventory. The price ranges under $200,000 have less than 3 months of inventory.
Current Conditions in the Phoenix Market.
There are 26,169 single family detached homes actively on the market in MLS. That is a decrease of 804 listings for the week.
There are 33,415 active listings in MLS, which includes patio homes, town homes, condos and loft properties.
It was only a matter of time.
As of this writing, in the million dollars and over market there are now 57 foreclosed, lender owned luxury homes – some bonafide mansions – for sale now in metropolitan Phoenix (including Scottsdale and Paradise Valley). Luxury estates recently valued near 10 million dollars, being sold in the mid 3′s!!!
Yes, this is the market that had held longest resistance to the housing bubble burst, but it’s time has come. If you have been in the market for an incredible luxury home, there are some incredible steals now. Deals that will make your jaws drop.
Check them out here.
Tony Pomykala
602-290-6217
Sunrise Investments
www.ArizonaMansions.com
Courtesy of Barb Savoy-Pacella, ABR, CNRS, CHMS Director of Business & Career Development ~ Keller Williams Arizona Realty ~ www.PacellaGroup.com
The Market Optimism May be Contagious!
As reported by Peter Corbett in the Arizona Republic on April 15th, according to a University of Arizona forecast, the Valley’s new-home market is on its way to recovery.
The UofA Economic & Business Research Center report predicts that new-home permits in metro phoenix will jump 54% over last year and that permits will more than double next year.
Also on the plus side is affordable housing. Data shows that six out of ten homes sold in the fourth quarter of 2009 were affordable for families earning the Valley’s median income.
Valley-wide, residential re-sale appreciation is hovering at 9.4%, up from -41.7% at this time last year.
Valley-wide active inventory:
17% are foreclosures
43% are short sales
40% are equity sellers
Valley-wide monthly sold inventory:
51% are foreclosures
17% are short sales
31% are equity sellers
Scottsdale active inventory:
7% are foreclosures
24% are short sales
69% are equity sellers
Scottsdale monthly sold inventory:
24% are foreclosures
16% are short sales
60% are equity sellers
Current Conditions in the Phoenix Market:
There are 26,973 single family detached homes actively on the market in MLS. That is a decrease of 374 listings for the week.
There are 33,940 active listings in MLS, which includes patio homes, town homes, condos and loft properties.
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