Buying Arizona Real Estate » Loan Modifications

What do you do if the homeowner just doesn’t want to sell their negative equity home? – Thomson Law PLC

Tony Pomykala — Sat, 02 Oct 2010 15:29:51 +0000

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

blog. blog.MortgageMediationGroup.com

Doug Farnham (Central/Southern AZ)

(602)774-3753

DFarnham@ThomsonLawPLC.com

Bob Verbic (Northern AZ)

(928)899-5765

BVerbic@ThomsonLawPLC.com

www.MortgageMediationGroup.com

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Loan Mods and Unicorns – Thomson Law PLC

Tony Pomykala — Sat, 02 Oct 2010 15:17:04 +0000

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.

Short Sale Decision Tree

Stay or Go Calculator

For questions or comments about this or other articles please visit our blog. blog.MortgageMediationGroup.com

Doug Farnham (Central/Southern AZ)

(602)774-3753

DFarnham@ThomsonLawPLC.com

Bob Verbic (Northern AZ)

(928)899-5765

BVerbic@ThomsonLawPLC.com

www.MortgageMediationGroup.com

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The Upside of Short Sales

Tony Pomykala — Tue, 18 May 2010 20:01:22 +0000

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.

1. Lenders make promises and later deny or retract loan mod offers.
2. Temporary mods are often required but 3 to 5 months later they are told they do not qualify for a permanent mod.
3. 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.
4. 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.
5. 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.
6. 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.
7. “Permanent” mods are not typically permanent. In most cases the lower interest rates are only fixed for 3 to 5 years.
8. 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

dfarnham@tcmmg.com

Bob Verbic (Northern AZ)

(928)899-5765

bverbic@tcmmg.com

www.MortgageMediationGroup.com

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Loss Mitigation Programs

Tony Pomykala — Wed, 10 Feb 2010 16:35:59 +0000

An interesting email I received from Stan Van Dyk of Cash Funding Options:

Hi All:
Today, I’m going to show you how the government’s
moratoriums and loss mitigation programs have affected
foreclosures and shadow inventory.

Shadow inventory is made up of all the properties that are
in foreclosure or headed toward foreclosure that haven’t
hit the market yet. There are 7 million homes in this shadow
inventory category. What the government isn’t telling you
is that their moratoriums and loss mitigation programs
created a huge surge of foreclosures that are about to pop.

Their effort to decrease foreclosures has backfired.

According to the National Association of Realtors, there
were 3.6 Million unsold homes in September. You think there
are a lot of homes on the market now? There are 7 Million
more coming that the government has created in this shadow
foreclosure inventory. That’s 2 times the amount of homes
that are currently on the market now!

The government’s Making Home Affordable (MHA) modification
program and FHA’s Hope for Homeowners refinance program DO
NOT WORK for borrowers that are too wealthy or owe too much
on their homes. The number of foreclosures for high end and
luxury homes in increasing and there are a ton of luxury
homes in this shadow inventory.

So what does all of this mean to you as a real estate
investor?

Opportunity, a lot of opportunity to help high-end
homeowners by offering them a short sale while making a
killing in the process.

So when can we expect to see the surge in foreclosures from
this shadow inventory?

We are in the first phase of shadow inventory right now and
it will continue into 2010. The second wave will start in
2010 and will continue into 2011 because the national
foreclosure moratoriums ended in March and the government
intensified its HOPE NOW Alliance program as well as its
Home Affordable Modification Program (HAMP). These programs
were released in the first week of March but the problem
was that the servicers and lenders did not receive training
until the middle of June. Then, the programs had to be
updated because they weren’t effective and they became more
complicated to implement effectively.

This created a huge amount of people that have not paid
their mortgage and their houses have not been taken back by
the lenders yet. Basically the government only delayed the
inevitable foreclosure process but they made it worse
because all of the homes will be entering foreclosure at
the same time and with more debt owed on the mortgages.

This is the ultimate short sale environment. These homes
are ripe for the picking. Many of these homeowners have thrown
their hands up and have vacated the houses. These vacant
houses are gold for you as a real estate investor.

The third phase of shadow inventory will be borrowers that
have exhausted their options on long term government
sponsored payment plans, forbearances, and failed
modifications. These will show up in 2011 and continue into
2012 as their foreclosure timelines were delayed or reset
by the latest HAMP efforts.

As you can see, the biggest mass of foreclosures hasn’t
even hit us yet!

Call us to see how you can help and profit from the the credit and housing crisis.

Thank you,

Stan Van Dyk – Managing Partner
Cash Funding Options
4625 S Lakeshore Dr Tempe, AZ 85282
888-341-3802 Toll Free 602-314-1025 Office 480-516-4364 Cell
480-240-1316 e-Fax
Stan@CashFundingOptions.com http://www.cashfundingoptions.com/

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The Phoenix Real Estate Weekly 12/31/09

Barb Savoy — Thu, 31 Dec 2009 16:29:08 +0000

Courtesy of Barb Savoy-Pacella, ABR, CHMS
Director of Business Development
Keller Williams Arizona Realty

Happy New Year!

To view homes for sale, or for additional information about the Phoenix, Arizona market, visit www.PacellaGroup.com.

What a difference one year makes!

As we reflect on 2009 and anticipate 2010 here are some things we know:

* 94% of all properties that sold in 2009 were listed under $400,000.
* In the final weeks of 2009, we began to see the average sales price per square foot increase slightly.
* Valley-wide there is a three month supply of inventory for properties listed under $100,000
* Valley-wide there is a five month supply of inventory for properties listed under between $100,000-$300,000.
* Leading into 2009 short sales represented 1% of properties selling in any given month. By the close of 2009, that figure has risen to 20%.
* Alt-A 5 year ARM loans started re-setting in the fourth quarter of 2009.

What does the 2009 data lead us to anticipate for 2010?

* There is a perception of value and greater affordability in the lower price ranges.
* Lenders are being incentivized to reduce the time required for the short sale process, and we are likely to see substantial short sale inventory.
* The average price per square foot has been creeping up, but that could be unsustainable if Alt-A borrowers begin defaulting on loans.
* Lenders are targeting borrowers with Alt-A loans that are re-setting to counsel them regarding short sale, rather than foreclosure.

Current Conditions in the Phoenix Market:

* There are 26,637 single family detached listings currently active in MLS today. That is an increase of 99 listings over last week.
* Total listings (including condos, patio homes, town homes and lofts) currently active in MLS 34,218.

Wishing you a safe and prosperous New Year!

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Treats, Not Tricks, Await Those Who Act Now!

Tony Pomykala — Sat, 17 Oct 2009 18:42:21 +0000

Treats, Not Tricks Await Those Who Act!

Last chance, last dance, last call. All sayings conjure up images but one thing remains constant. Miss the opportunity and it’s gone. Home loan rates recently hit all-time lows, and if you don’t act now, you could miss your chance to save thousands of dollars over the life of your loan!

According to Freddie Mac, interest rates recently dropped to all-time lows in some categories, and within a hair of all-time lows in others. We will likely never see rates at these levels again. If you missed the chance to refinance earlier this year, you just got a do-over. Don’t miss out a second time!

Why Act Now?
While the reasons to act now are numerous, here are just a few.

No one, not even George Washington, had a chance to borrow money at these rates…but you do!

The Federal Reserve implemented a mortgage-backed securities buying program to artificially lower rates, and that program is nearing its end. The originally scheduled end date was December 31, 2009. While this deadline has been extended the amount of purchases remains the same, which means the level of participation will wane, decreasing by half as much. Rates will be forced to levels seen before the program started, likely near 6.50% and in short order.

Inflation, while currently contained, is likely to show its ugly head as all the stimulus from Washington continues to pour into the system. The end result will be increasing inflation pressure across the board, which will cause all interest rates to rise.

Don’t Miss the Boat Here
Sydney Smith, an English clergyman from the 1800′s once said, “Regret for the things we did can be tempered with time; it is regret for the things we did not do that is inconsolable.”

It is likely that interest rates at these levels will never be seen again in our lifetime. Take advantage of them today while you still can so you’ll never have to look back and say, “I wish I had….” If you took advantage of this opportunity earlier this year, congratulations! If not, call me so we can discuss your situation.

Likewise, if you know someone else who can benefit, be it a family member, friend, or co-worker, please have them call me or let me know who they are and I will reach out to them. This could be the greatest gift you could offer someone this year.

I look forward to speaking with you soon, but if not, I hope you have a Happy Halloween!

Christopher Holmes Prospect Mortgage 5301 N Pima Rd #130 Scottsdale, AZ 85250

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