DJ Property Solutions, LLC

Social Media is Increasingly Important to Marketing

Mon, 03 Oct 2011 12:35:59 GMT

A recent study by the Duke University Fuqua School of Business and the American Marketing Association found that Chief Marking Officers of U.S. companies plan on increasing their use of social media in their marketing campaigns in the future.

The current level of spending among the 249 CMOs who responded to the survey is about 7.1% of their marketing budgets, and they plan to spend about 10.1% on social media marketing next year. That number is projected to rise 17.5% over the next five years.

The director of the research project, Duke University’s Christine Moorman, said the study dispels the myth that social media marketing is just a fad, although the growth trend is more muted than markers expected a few years ago because of the recession.

Marketers are looking at a little different mix of metrics to justify social media as a part of the marketing budget than they were a few years ago. Financial metrics are less important now than customer relationship metrics.

Among the metrics that are considered site visits and page views are still the top indicators. Counting the number of followers or friends has jumped in importance as a metric compared to past CMO surveys. Counting the number of friends jumped to 34.1% of the respondents compared to 24% in the August 2010 survey. Counting the social buzz was marked as an important metric by 20.5% in 2011 and 15.7% in 2010. Sales or revenue per customer were relatively unimportant measures, and were even less important to respondents in 2011 than in 2010.

This survey is an important indicator that Agents and Investors need to pay attention to social media as an important means of marketing their services. Every brokerage and every real estate investment company needs not only a company website, but also a Facebook Fan Page, a blog with articles of importance to clientele, and a presence on sites such as LinkedIn and Twitter. In addition to counting site and page visits, measure the growth and success of the social interaction by counting new friends, pages liked or buzzed, repeat visits, as well as conversion rate from friend to buyer or client. Social media can increase buyer, seller and colleague contact lists rapidly and lead to acceptance of your company as the go-to expert in your area or niche.

How to Swim with the Big Fish

Mon, 03 Oct 2011 12:34:33 GMT

In the initial phases of a new industry typically there are many players and the small players often give rise to innovation. This was the case, for example, in the beginning of the auto industry where there were many hundreds of companies around the world. In a maturing industry business is generally characterized by just a few well financed and well structured competitors. The automobile industry has certainly matured to one where there are only about 14 players world-wide. The rest were acquired or died because they could not continue to compete with the big fish.

Because the real estate marketplace is so local, there is room for more big fish in each small market. How does a Broker get positioned to be one of the “big fish” in the local marketplace? The key to becoming a big fish is to act like one.

Many of the most successful brokerages are franchises of major national chains. Franchising provides a huge advantage to a brokerage because it assures that the business will be structured appropriately, meets all legal requirements, has standardized marketing, and can tap into an extensive national marketplace for referrals. These national models, however, are generic and are directed to meet typical consumer or commercial investor needs, and not so much specialized niche needs.

Independent brokerages can compete successfully with the big fish by first, matching the franchise brands in organization and marketing excellence, and then beating them within local niche markets. For example, independent brokerages that began working with distressed homeowners early in the housing crisis often got a huge head start over the more traditional franchise brokerages and have maintained the advantage in many markets in working Short Sales and in getting REO business from Lenders.

Brokers who have trolled the real estate Investor market have had to adapt their commission models and to make more outside the box offers on behalf of Investor clients than the traditional brokerages would normally allow. The flexibility of small boutique brokerages often attracts more business among Investors than do traditional agencies.

In summary, to swim with the big fish in your real estate market, plan on becoming the go-to agency within a niche of that market and plan structure and marketing to support that niche very professionally.

Don’t Get Charged with Fraud!

Mon, 03 Oct 2011 12:33:54 GMT

A Negotiator friend of one of our associates recently mentioned that he had received a visit from both state and federal regulators. The state regulator wanted to be sure that he was not practicing real estate without a license through his Short Sale negotiation business. The feds were concerned that there was no fraudulent activity with regard to how the distressed seller was treated. Fortunately, this Negotiator got a clean bill of health from both state and federal agencies.

This Negotiator offers a service for a specific fee, and that fee is charged to the Buyer, not the Seller. All the costs associated with the service can be documented and are related to the typical amount of time and effort spent on the negotiation process. Had this Negotiator asked for a percentage commission based on the sale price, he believes he would have been in trouble with the state for practicing real estate without a license. He also is careful to always work through the Agent who is representing the Owner and also any Agent working with the Buyer.

This Negotiator makes sure he has a limited power of attorney signed by the homeowner and a completed hardship package from the Owner before he sends in paperwork to the Lender. His written agreement with the Homeowner makes it clear that his fee is paid by the Buyer, not the Seller and that he is not representing the Seller as a Real Estate Agent. When the Buyer is lined up the offer goes in through the Buyer’s Agent, along with an independent inspection report that the Buyer pays for. That limited power of attorney and the disclosures that made it clear the Negotiator is not representing the Seller in the sales transaction and is not charging the Seller a fee are key to keeping this Negotiator free of a fraud charge.

Before taking on the role of Negotiator, consult an attorney and understand all state and federal laws regarding Short Sale transactions. Some states may require that a Short Sale Negotiator be a Real Estate Agent or Attorney while others allow independent service providers provided they follow specific rules that protect the distressed Homeowner. An easier and less time-consuming option is to use The Agents Advantage Short Sale Engine to automate the Short Sale process and to use our Negotiator team to get all your deals closed with Lenders. We stay on top of all regulations concerning the Short Sale process to assure that each deal will pass legal muster.

What Housing Proposal Would Grow 1 Million Jobs Annually?

Mon, 03 Oct 2011 12:33:11 GMT

The New Bottom Line, a campaign representing community action and faith-based groups, has published a report on how to resolve the housing crisis called “The Win-Win Solution.” The report concludes that the way to produce 1 million jobs annually with little, or no, impact on taxpayers would be to require lenders to implement an aggressive principal reduction program.

The New Bottom Line argues that the lenders have already been given a bailout that was designed to loosen up lending and give banks some cushion to deal with distressed homeowners. Lenders received $14 trillion in tax-funded bailouts. Homeowners received little to none of the benefit of the TARP program. Meanwhile, approximately 23% of all homeowners owe more than their homes are worth to a tune of $709 billion. The campaign calculated that $71 billion per year could be saved from mortgage expense and put back into the economy if the lenders implement a massive principal write-down program.

The cost to lenders to resolve this problem is just a drop in the bucket compared to the bailout they were given. It amounts to about half the amount that the top six lenders spent in compensation and bonuses in 2010 ($146 billion).

To calculate the impact on jobs the report relies on a study by Robert Pollin and Heidi Garret-Peltier “that showed that giving Americans a $1 billion tax break for personal consumption would create 14,800 jobs, which translates to$67,658 per job.” The assumption is that reducing monthly mortgage payments on average by $543 per month would have a similar impact as a tax cut on personal consumption. If $71 billion in annual savings is divided by $67,658 per job, then an aggressive loan modification plan should create 1.05 million jobs per year.

Some argue that there is a moral dilemma associated with a mass principal forgiveness program. That problem can be mitigated by including an equity share program that gives back some of the equity to Fannie Mae or Freddie Mac when the home is resold, or requires some form of repayment if the refinanced home is sold in less than a designated number of years. People who might otherwise take advantage of a principal reduction program will pass it by if the negatives outweigh the positives.

It comes down to whether we want to pay the price quickly and put a little more spending money into the hands of millions of American families in the process, or we want to slog it out for the long-term until the economy recovers on its own. If Congress decides on the slow approach, we need to be prepared to hunker down for many years to come. If Congress takes the initiative to make the fast approach happen this will have the same impact as a massive tax cut without the consequences on government programs.

More jobs will allow more people to buy new homes, cars and other goods and should soon bring about a sustainable recovery.

What’s Wrong with the President’s Refinance Program?

Fri, 16 Sep 2011 15:14:18 GMT

On the positive side of any effort to make refinancing easier and more affordable certainly when the financial burden is eased for families they are less likely to choose foreclosure as an option. They are more likely to ride out the years of a home mortgage being more than the value of the home and wait until some equity returns to the equation before selling.

On the other hand, if the government were to help fund a massive program of principal reduction, then the housing recovery could occur much more quickly because it would not only free up income for people who want to stay in their homes, but also price homes where those who want to sell can expect to find a buyer without the owner having to bring money to the closing table.

A massive refinance program only works on a piece of the equation—helping families to weather the current slow economic times. It does not help get the housing market back on track with sales, because approximately 25% of the homes in the U.S. will still be under water even after refinancing. Those who want to retire and downsize will still be stuck in place; those who want to move up to a larger home will be forced to stay put unless they are willing to sell their current home at a loss.

Millions of families could receive a meaningful principal reduction for the approximately $30 billion still unspoken for in the TARP fund that were originally allocated to help struggling homeowners.

We learned this week that approximately 4.5 million American families hold HELOCs that are dragging their equity into negative territory. What if some of the TARP funds were dedicated to settling these HELOC loans at 10% on the dollar with lenders, or even paying off the home equity line altogether with a low interest or forgivable unsecured loan? That would cut family expenses and free homeowners to consider selling the home on their own time table, not the banks.

Another proposal that is being touted as one that will directly help buyers to come back to the market is renewal of the Homebuyer Tax Credit. The National Mortgage Complaint Center maintains that home values will continue to sag unless a more or less permanent Homebuyer Tax Credit is initiated. The NMCC says that the credit should be raised to $15,000 and should be open to all qualified homebuyers not just first timers.

Who are the winners and losers with the Obama refinance proposal? Estimates indicate the GSEs will save about $3.9 billion, but the Federal Reserve will lose $4.5 billion, and private investors will lose about $15 billion if homeowners refinance out of higher interest loans now. In a deal that will potentially help 2.9 million homeowners, but will cost the government about $600 million and private investors about $15 billion, what’s the real likelihood this plan will make it through a spending-adverse, business-friendly Republican House of Representatives?

More Evidence Home Ownership is Endangered

Fri, 16 Sep 2011 15:13:43 GMT

We’ve commented before rather pessimistically about the viability of homeownership given the current environment of tight lending standards, low consumer confidence and continuing high unemployment.

We ran across another expert in the field of home ownership demographics, Cheryl Russell, who agrees that the long term trend is toward renting, not owning. Russell is a demographer, and the editor of a defining work on home ownership, Americans and Their Homes. Russell has made a career of studying the housing and general spending habits of Americans at every age group and finds them generally scared off by the whole housing crisis. She believes the effects will be with the housing market for at least the next twenty years.

Russell was one of the experts crying in the wilderness prior to the housing crisis describing with a demographer’s detailed analysis how there was complete lack of congruity between household incomes and housing prices, and she recognized that this mismatch would inevitably lead to the housing market crash. In the 1990’s, on the other hand, boomers were reaching their peak home buying age, and they were moving into the housing market in droves. Homeownership reached its peak. Then the mortgage industry “juiced” the market leading to hyper-inflated prices and then inevitably the bubble burst.

Right now, every age group is side-lined when it comes to the housing market. The 25-29 year olds are less able to buy than in previous generations, and they are deciding not to buy as a rule. The 30-34 age group is the key to the future of housing, and they are saying “no” to the market in record numbers. Both age groups, really for the first time in history, are saddled with heavy student loan and credit card debt. It will be next to impossible for either group to also save for a mortgage on top of their other debts.

The boomer group is stuck. They’d like to retire and move, but they can’t because of severely impaired home values and reduced retirement incomes. Russell says, "The percent of people who are 65-plus who have mortgages has increased to 27 percent….It went up from 18 percent in 1999. Many of these people are going to be struggling with mortgage payments."

Russell believes the saving grace is rentals. She predicts that single family residences that can rehabbed to include two master bedrooms will be the ticket out for boomers who currently have homes they’d like to sell. Many younger people will have the income and the desire to rent more spacious and upscale homes, but they’ll choose to go in with roommates who want equal accommodations.

While opportunities may be fading for Agents and Investors in selling to Homeowners, the outlook for selling to Investors who want to rehab and buy and hold will be expanding for the foreseeable future.

Why Short Sales Are on the Rise

Fri, 16 Sep 2011 15:00:26 GMT

The word has finally gotten out to the powers-that-be at the nation’s mortgage banks that Short Sales are an effective and less expensive way to eliminate a non-performing asset.

RealtyTrac reports that Short Sales are increasing as a percentage of total home sales in many markets. RealtyTrac reported particularly significant increases in Short Sales in California, Colorado, Georgia, Michigan, and Nevada. In Colorado Short Sales were 17% of all sales in the second quarter of 2011 compared to 10% the same time last year. In California the 2^nd quarter Short Sale percentage was 25, compared to 18% a year before.

Bank of America is on track to complete 100,000 Short Sales in 2011, more than double its output in 2009. Nationwide Short Sales peaked in 2009 at 16% of the marketplace.

A Wells Fargo analyst speculated that the reason for the increase in Short Sale business was because there are fewer bank owned properties for Investors to consider forcing more Investors back into the Short Sale market.

Selling via Short Sale is a clear advantage for Lenders. The average Short Sale sells at a 21% discount, according to RealtyTrac, while the average REO gives the Lender an average 40% hit.

A recent Moody’s study showed that Short Sales are a much shorter wait period before property is liquidated than a foreclosure, and foreclosure periods continue to get longer. That’s why Moody’s says Short Sales have increased dramatically as the liquidation method of choice for most Lenders. Short Sales have gone over the last two years from being only 8% of the loss liquidation market to 25% as of midyear 2011.

More efficient loss mitigation is cited by Moody’s as the main reason why Short Sales are now the preferred distress loan liquidation method for Lenders and their Investors. The process has gotten more streamlined while the process to foreclose has gotten longer and more complex. Months and even years go by when a Lender chooses foreclosure instead of cooperating in a Short Sale.

In the past loss severity averaged about 60% of the existing loan amount. Now, the length of time to foreclose is taking loss severities up, but the actual numbers are staying pretty steady because of the mitigating impact of more Short Sales on the numbers.

Meanwhile, liquidation by foreclosure timeline by January 2011 had reached 22 months compared to 17 months in 2010 and 15 months in 2009. The glut of foreclosed properties in many states combined with the uncertainty of legal action has helped to raise the loss severity dramatically. Participating in more Short Sales has been the one safety valve Lenders have had to help control the costs of foreclosure.

Is Mortgage Insurance a Thing of the Past?

Wed, 31 Aug 2011 14:17:29 GMT

A writer for Money and Markets, Gavin Magor, has tracked what has been happening recently in the mortgage insurance market, and it’s not a pretty picture. Only two insurers have shown a profit in the last two years: United Guaranty Residential (an AIG subsidiary) showed profits in 2011 and 2010 and Mortgage Guaranty Mortgage Company showed a profit in 2010. Losses in 2010 were an astronomical 154% of premiums earned for a loss of $2.4 billion.

Generally, anyone with a mortgage that is more than 80% LTV must pay for mortgage insurance until the mortgage is paid down to that 80% level. When a homeowner defaults, the insurer is responsible for reimbursing the lender/investor for the loss.

Weiss Ratings has recently reviewed and revised the 34 largest mortgage insurers including subsidiaries of MGIC Investment Corporation (MTG), Radian Group (RDN), Genworth Financial (GNW), PMI Group (PMI), American International Group (AIG) and Old Republic International Corporation (ORI). These six insurers wrote 80% of the $4.4 billion of premiums in 2010, and they accounted for 71% of the losses in 2010 ($1.7 billion). There is no improvement showing through the first quarter of 2011 where the losses were $618 million for these 34 providers, on track for another loss of $2.4 billion for 2011.

Nineteen of the 34 rated insurers are viewed as weak or very weak by Weiss, a rating system that has proven extremely accurate in predicting banks and insurers most likely to fail. Only six received a rating of Good. Losses are absolutely unsustainable, and Weiss says, it is only a matter of time before these weaker insurers decide to stop writing mortgage insurance for the vast majority of loans in order to keep from running out of capital.

Imagine the consequences if mortgage insurers fail to guarantee loans at the lower end of the scale—those with less than a 20% down payment. Alternative mortgages will become scarce and fewer people will qualify for loans. Homeowners will be unable to move up because they will not be able to find buyers for starter homes (except for cash buyer investors who will turn many of these homes into rentals.) The American Dream will become a thing of the past. The housing crisis will linger, and may get worse again.

What’s the solution? We know that direct bailout of failing mortgage insurers is unlikely. A small White House advisory group is working on strategies to shore up the housing market without massive bailouts. Another first time home buyer credit to assist with down payments is one idea being discussed.

The best option is for lenders to significantly step up loan modification programs, including principal reduction whenever that is the key to providing a sustainable reduction. Keeping more homeowners in their homes and resolving mortgage delinquencies before they lead to default will reduce mortgage insurer losses and begin to heal that industry.

Are We Headed Back into Recession?

Wed, 31 Aug 2011 14:15:57 GMT

CNBC’s John Melloy believes the debt debate may have just been a distraction from the main problem: the worsening economic situation in the U.S. and globally. He believes the stock market caught on to the threat of another recession last week and the markets took their most severe tumble since 2008 as a result.

The economy has virtually stopped growing. The bond market is acting as if we are already in another recession. The Gross Domestic Product (GDP) grew only 1.3% last quarter after it was predicted that it would grow by 1.8%. The first quarter GDP was downgraded to a growth of just .4%.

Jason Trennert of Strategas Research Partners believes the debt bill is a political accommodation, not something that will help the country’s economic situation, and might hurt it by severely cutting the government’s ability to stimulate the economy. He believes the debt bill increases the odds of recession in 2012 by 35% and in 2013 by 60%.

A conservative analyst who believes the U.S. will hit a “perfect storm” for recession in 2013 is Nouriel Roubini, one of the leading predictors of the 2008 crash. Roubini believes the government will merely “kick the can down the road” for the next 18 months and the poor economic condition will hit a point of no return in 2013. There will be massive economic drag in 2012 that will eventually begin to wear down corporate earnings. Corporate earnings have been the bright spot in the economy to date. Roubini believes the recession will be another world-wide problem. Even China is working on an economic bubble that will burst by 2013.

On the short term Roubini predicts that the GDP will continue to produce very low levels of growth at around 2% per year, and unemployment and housing will continue to hold back the economy. The debt crisis will eventually get out of hand world-wide and by 2013 no nation will be able to control the problem without severely cutting spending and raising taxes.

What does the prediction of another recession in 2013 mean for the housing market? If sufficient foreclosure inventory has been absorbed by that point, then there is a chance that the housing market could actually lead the country out of recession and that cash Investors could have a very substantial part in making that happen. On the other hand, with even more stringent lending requirements in place both first time home buying and home buying in higher cost markets will stagnate, as will new home building. There will be a resurgence of foreclosures and Short Sales as unemployment climbs again. This time, however, the government may provide a stop-gap by allowing former homeowners to rent long term, thus staving off some of the declines in home value that have plagued us as a result of the 2008 recession.

No one has a crystal ball to predict exactly when the next recession will come or its precise impact. On average they occur every 5 years, and 2013 would be the fifth year since the 2008 recession. We need to be prepared for the inevitable.

What is a Quiet Title Action and Why It May Save Your House

Tue, 23 Aug 2011 12:31:48 GMT

In judicial foreclosure states, also sometimes called Lien Theory states, a homeowner may bring action to “Quiet the Title” if there is any indication that irregularities in the loan processing or transfer of title process may have clouded the title. In Lien Theory states homeowners hold both legal and equitable title and therefore may bring an action as a plaintiff in a Quiet Title Action.

Since at least 75 to 80% of all mortgages have bifurcated the deed and the mortgage documents through electronic mortgage transfer, have failed to have documents properly notarized, or display one or more of other numerous documentation problems, there are a very large number of homeowners who may be able to argue successfully for rescission of the mortgage holder’s lien on the property and therefore uncloud the title. If the homeowner and his or her attorney have done their homework, they can come to court with written proof that the mortgage holder did not properly secure the loan.

This, of course, does not guarantee that every judge in every Lien Theory state will be sympathetic to the argument. The judge may still rule in favor of the lender—who in this type of case will be the defendant, not the plaintiff as in a foreclosure lawsuit. The court may allow the lender to submit amended documentation, or they may rule that the widespread practice of electronic reassignment of mortgage liens is, in fact, a legal transfer.

At the very least, a Quiet Title Action can buy some time for a family struggling to complete a Short Sale and can guarantee that once a Short Sale is completed there will no longer be any question about the legitimacy of the title. Frequently, a Quiet Title Action will induce a lender to be a little quicker and more generous in settling a Short Sale, or coming to the table with a more generous Loan Modification plan.

Given the mortgage documentation mess, it is a wise idea for anyone, at least anyone in a Lien Theory state, to file a motion for a Quite Title Action before trying to sell a property. It just may save the deal from being declared invalid sometime in the future, and it may become increasingly necessary in order to obtain title insurance.

In Title Theory (non-judicial foreclosure) states the strategy of quieting the title in order to possibly gain rescission of a faulty mortgage lien is not very likely to work because the mortgage holder retains the legal ownership (the homeowner retains just equitable interest) and the lender is the one who must bring any motion to Quiet the Title. A lender is hardly going to agree to this strategy if they have dirty laundry to hide.

Bank of America Starting Some Proactive Programs

Tue, 23 Aug 2011 12:30:00 GMT

Here and there one reads about some forward looking programs that Lenders are trying to get distressed homes off their books. Two such programs from mortgage giant, Bank of America, hit the news this past week.

Reportedly, Bank of America has been haggling with the federal regulators and state AGs to earn a reduced penalty for robo-signing infractions in exchange for a deal that will bring about more principal reduction agreements in first lien loan modifications for BOA clients.

On August 4 Bank of America issued a press release that announced its new principal reduction program. BOA will participate in the California principal reduction program on a matching basis with the federally funded “hardest hit” program. BOA has participated in a pilot since February and is now ready to move into full participation. The Keep Your Home California program will provide up to $50,000 in principal reduction and BOA will match up to $50,000 for a total potential reduction of $100,000 for California homes that are under water and where the homeowner has a bona fide hardship and is at a low to moderate income level.

When BOA is just the servicer of the loan the mortgage investor will need to approve the principal reduction. Fannie Mae and Freddie Mac loans do not qualify for the principal reduction program, but may be eligible for other types of loan modification assistance.

In some of the more blighted urban areas Bank of American is donating foreclosed structures and then bulldozing them in order to cut down on neighborhood blight. A Bloomberg report says that the mortgage giant is committed to donating up to 100 decrepit bank-owned units to Cleveland, another 100 to Detroit and up to 150 to the City of Chicago. In some cases the bank will contribute to the bulldozing of the uninhabitable property.

BOA completed 40,000 foreclosures in the first quarter of 2011 and many of these are in hard-hit inner-city neighborhoods. Many are homes worth less than $10,000 where it would cost more to fix up the homes in order to make them habitable than the homes would be worth. In these cases often removing the structures actually helps to stabilize the neighborhoods. Other lenders including JP Morgan Chase, Wells Fargo, Fannie Mae and Citigroup have either already donated homes back to cities or non-profit groups, or are considering such a program.

Working an FHA Short Sale

Thu, 04 Aug 2011 20:42:06 GMT

An FHA Short Sale is now one of the easier and most predictable processes around in the Short Sale world. It does require a little adjustment from the usual procedure.

Normally, first a Buyer is put under contract and then the process is started to qualify the Seller for a Short Sale. Often the first offer is not accepted and there is a lengthy process to find out what the Lender will approve. The Lender’s BPO is not done until that first offer is made, so it is often hard for an Investor or an end Buyer to know whether it is even worth making an offer. The process could be subject to the whims and experience level of the loss mitigator assigned to the file. Each Lender has its own set of rules and requirements. The process is long, complicated and uncertain.

Enter the streamlined FHA process. First, at least one owner has to be living in the home to qualify for an FHA Short Sale and the owners must be at least 31 days delinquent. By maintaining a resident owner in the property it is expected to remain in better condition than homes that are abandoned before foreclosure.

Next, the Seller must be approved into the Pre-Foreclosure Sale Program for hardships typical of most Short Sales. Once that form is received the Lender will order an “as is” appraisal and will use that number to draft an approval letter to the Seller on the HUD 90045 form. The form will specify the date by which the property must be sold in order to avoid going back into the foreclosure process.

The Seller will have 90 days to sell the property. For the first 30 days the maximum discount the FHA will allow will be 88% of the “as is” appraised value. There are strict rules as to which sales expenses HUD will pay on the Seller’s behalf. At 60 days the allowed discount will be 14%, and at 90 days the discount maximum will go to 16%. If the sale is not closed within that 90 period the Seller will lose the $1000 incentive that HUD will pay toward the Seller’s expenses and the Seller may be put back into the queue for a foreclosure. The Lender will also pay for up to $2500 for a second lien holder, but the first $1000 of that will come out of the Seller’s incentive. The Seller may pay up to $1000 of the Buyer’s expenses and forfeit the incentive in order to attract a Buyer. Sellers must also pay their own portion of property taxes, HOA fees and other liens or use their incentive for this purpose.

For the Investor the advantage is that the approved sales price and discount is known up front to take much of the guess work out of the decision whether to make an offer or not. The process should be faster than most Lender proprietary Short Sales. A disadvantage is that an Investor who plans to flip the property has limited room for profit when there is a second set of commissions and fees on the B to C sales side and has no equitable interest to begin marketing for an end Buyer until their offer is accepted by both the Seller and the Lender.

Investor and Agent: Common Goals and Interests

Wed, 03 Aug 2011 19:25:06 GMT

Investors are not always easy to work with from the viewpoint of the Agent. On the surface their goals are quite different. The Investor wants to maximize profit and take possession of property at the least possible expense. Agents want to maximize commissions and get the highest value possible for the Seller.

On second glance, the goals are not all that different. Where those interests intersect is in helping distressed Homeowners to make the best of a bad situation. Very often, an Investor will step in to a home that has been neglected because of lack of finances to make repairs when no end Buyer has been willing to take the property on. Sometimes a fairly simple rehab project is all that is required to make the home attractive to an end Buyer after an Investor has worked a little rehab magic. In a case of distress the common goal is to get a result that removes the Homeowner from a bad situation, gets the Lender out from under a losing property, makes the Investor a little profit and the Agent a commission, and provides an end Buyer with a good home at a reasonable price. By working together cooperatively an Agent who specializes in Short Sales and the Investor can help to get a distressed property back into productive use and provide a multiple win for all concerned.

Common interests also come in to play with bank owned sales. While the GSEs and Lenders will give preference to end Buyers, the fact is, the vast inventory of REOs will not be moved without the participation of Investors. Investors often work in bulk to move many units at one time. They often have the ability to scale projects to work on several deals at the same time whereas with individual Homeowners the purchase is one and done. Often Homeowners do not have the cash needed to rehab a foreclosed property while the Investor has private and hard money resources that can be put to one or more rehab project at a time.

The needs are growing in the rental market for Investor-Landlords. As much as we would all like to see everyone’s American Dream to include purchase of a single family home, the fact is, that dream will be on hold for many Americans for many years. A growing number of families will be renting homes and apartments for the foreseeable future. Helping the Investor-Landlord to find one or more properties that can be rented for good cashflow is a growing niche for Agents to explore.

Why Robo-Signing Crisis May Never Be Resolved

Wed, 27 Jul 2011 18:03:11 GMT

A Reuter’s investigative report reveals that during the heat of the housing boom between 2004 and 2006 more than half of all new mortgages were securitized and bundled into trusts that were owned in pools by large investors such as insurance companies, public retirement funds, and major public institutions. During that time many of the major lenders, including the largest subprime lender at the time, Countrywide, often failed to provide the note and mortgage documentation along with the assignment of the debt to the trust. Many of the original documents were shredded and simply no longer exist.

Sheila Bair, before she left office as head of the FDIC, called for an audit of such records. Others have been reluctant to take up the call for an audit fearing that the results would put the mortgage industry in a tailspin.

The shady state of documentation for so many of the loans from the mortgage boom period has led some mortgage holders to forge and otherwise create new documents to present to the courts to justify foreclosure. This documentation problem has certainly slowed down the foreclosure process, but it has not stopped it cold.

A second study by the Associated Press confirms that robo-signing goes on unabated despite state and federal investigations and an agreement in April with 14 major lenders promising that the problems that led to the document irregularities would be cleaned up. County officials in at least three states have reported that documents with known robo-signer names have been filed in the last several months. These documents contain the same name written in multiple handwriting styles.

The problem is not confined to foreclosure documentation. New loans, refinancing, and assignment of loans have been filed in several states using common robo-signing allegedly forged names and signatures. Some of the suspect signatures include “Linda Green,” “Bryan Bly,” “Marshall Isaacs,” and “Crystal Moore.” These names are on hundreds of recently signed documents despite evidence that these individuals are no longer employed in the banking industry. False signature on mortgage documents and false swearing of accuracy are illegal and punishable by a prison sentence.

Despite the seriousness of the robo-signing scandal, it appears that no sanctions have actually taken place among the 14 banking industry companies that signed the government consent decree in April. Banking probes continue in at least five states, New York, California, Michigan, Delaware, and Illinois.

What should the Agent do if a client presents documents containing suspect signatures, or where critical documentation such as the note or mortgage is missing? If the client is having difficulty obtaining a Short Sale or a Loan Modification and faulty documentation is suspected, suggest that the homeowner contact their state Attorney General’s office or a local attorney specializing in foreclosure defense. When pressured, a lender with highly suspect documentation is likely to settle for a solution short of foreclosure rather than to risk a foreclosure backfiring in court.

The Plusses and Minuses of Strategic Default

Thu, 14 Jul 2011 22:51:33 GMT

The social stigma surrounding strategic default is beginning to break down as the pain of the last recession continues to drag on into a third year and a double-dip recession is threatened. People see their friends and neighbors move on with their lives following a strategic default and it causes others to wonder if it would be the best move for their own family situation. Sometimes, it is the best, most strategic move; sometimes it only brings pain beyond any initial calculation. The moral of the story is: understand the risks and benefits before taking the dive into strategic default.

If in your own quest for the best moral and ethical path, you are comfortable that strategic default is in the best interest of your own family, move on to consider the plusses and minuses.

There are some benefits to strategic default: It may make available for up to a period of two years the money that would have been spent making mortgage payments to save or invest in other ways. There is an almost instant sense of relief that good money is no longer being sent after bad. For at least a little while it seems as if you are able to move on, where before you felt trapped.

There are some very real negatives to consider, and some potential land mines that may not be felt for years after the strategic default:

1. Expect an immediate hit to credit rating. Expect as much as a 200 point decline in credit score. You may be able to negotiate with the lender to remove the late charges for the many months that it takes to negotiate the default. If not, these late charges against the credit record could go on for months and even years. If your business and family life depends heavily on obtaining new credit, then strategic default is not a good idea as credit will be impaired for at least six months up to as much as ten years.

2. Expect the Lender to sue for deficiency. In more than half the states the Lender is allowed to sue for deficiency and in most cases they win. Even in the states with rules against deficiency judgments the rules often do not apply to investment, non-owner-occupied properties. The protections may be voided if the mortgage is not the original one or if there is a home equity line of credit attached to the property. There are so many exceptions that it is in the end very likely that the Lender will pursue a deficiency judgment, particularly in the case of someone who strategically defaults.

The deficiency may not happen in the year or two after the default. The Lender may well wait a few years until the former property owner has had some time to rebuild resources. That’s when the Lender’s collection agents will swoop in to exercise the judgment.

Those who may choose to exercise a strategic default must first make sure that current and future resources are protected by having most assets held in and owned by a trust. If you do not own those assets, then they cannot be taken from you later in a judgment by a creditor or the IRS.

3. The third bad effect of a strategic default is the 1099 that will be filed for any forgiven amount of the loan. If the strategic default is for a homestead it may be possible to get this amount forgiven by filling out the appropriate IRS paperwork. If, on the other hand, the property does not qualify as a homestead and the defaulted owner has assets, then it may not be possible to get an exemption by virtue of insolvency. Again, by protecting other assets inside a trust, it may be possible to shield against a large tax bill for a forgiven loan.

It is vital that anyone thinking about executing a strategic default consult with a local tax attorney and accountant in get the best possible advice on the consequences that will apply in a given state and personal situation.

The New Trend to Watch in Real Estate: Rentals

Tue, 12 Jul 2011 15:40:43 GMT

The housing crisis is creating millions of renters out of individuals who were formerly home owners. The economic crisis has also delayed the move-up of renters into first time homebuyers because of consumer uncertainty about job stability and the difficulty of qualifying for loans. According to Zillow’s Stan Humphries, 1.2 to 2.2 million individuals are “transitioning out of homeownership and into the rental market” as a result of foreclosure or other life circumstances. Marcus & Millichap estimate the number of new renters being pushed out of home ownership to be around 2.5 million.

The National Association of Realtors® estimates that it will take the average borrower 14 years to save the 20% down now typically required for a qualified residential mortgage (QRM) under the Dodd-Frank Act. That will significantly delay new entries into home ownership.

The new trend toward renting is already having an effect on increasing rental rates and decreasing vacancy rates. Marcus & Millichap’s 2011 apartment outlook is very bullish on the rental marketplace. The first quarter of 2011 saw vacancy rates plunge 180 basis points to 6.2% year over year. Demand for rental units grew by 242,000 units, and yet only 74,000 new rental units were added to the marketplace during the past year. Effective rental rates grew by 2.3% year over year through the first quarter of 2011 to average rents of $1036, up from $962/month.

Conservative analyst, Mike Larson, however, warns that the growth in the rental marketplace is exploding too fast as the result of the easy availability of private investment capital. Many over-priced deals are being snapped up by hungry real estate investment trusts (REITS) leading to a rolling bubble of over-priced projects throughout the country. Larson advises investors to dump all REITS now because they have become severely over-priced.

One Tucson developer, Steve Quinlan of Miramonte Homes, believes the next big thing in rental housing will be in luxury rentals. Quinlan attributes the sudden surge in interest in large and luxurious apartments in the large number of former homeowners who strategically defaulted. These individuals bailed on their mortgages not because of financial need, but because of economic advantage. With the exception of the default on a home, their credit records are generally stellar. Based on the demand from former homeowners, Miramonte is building small luxury developments in several markets where the units are large (3 and 4 bedrooms), have two car garages and private backyards, much like the single-family residences that were abandoned by these potential renters.

The new rental trends are certain to spark new areas of opportunity for Agents who are tuned in to what is going on within their own local markets.

Helping Homeowners With Under Water Mortgages

Tue, 12 Jul 2011 15:36:05 GMT

Depending on your area of the country, from 10% to 60% of all homeowners have mortgages that are more than the value of the home. Nationally, on average, around 25% of all mortgages are higher than the home value. In the past there was very little a traditional real estate agent could do for this group. Now there are a few options, if the Agent is able to think outside the box a little. Not all of these options will yield a commission for the Agent, however, the Agent who proves knowledgeable and helpful in solving an under water mortgage issue is more likely to future business from that homeowner.

1. Loan modification. A homeowner who is having trouble paying their mortgage has the option of asking the lender for a loan modification. Refer the client to a non-profit housing counselor to determine if a modification is feasible and to assist in preparing the paperwork. Most modifications involve changing the loan to a low fixed rate mortgage and occasionally involve a principal reduction. Sometimes back payments can be put off to the end of the loan.

2. Short Sale. When a loan modification does not work, or in not appropriate for the homeowner’s circumstance, then a Short Sale may be necessary. Many lenders are showing greater eagerness to settle a delinquency with a Short Sale than to foreclose. Paperwork is becoming standardized, timeframes are in many cases becoming shorter, and loss mitigators are becoming more cooperative about settling for less than the full mortgage.

3. Buying the note. Some investors are finding it faster and less complicated to simply buy the note from the lender, and then to either negotiate a loan modification with the homeowner or to foreclose and resell the property to someone else. Lenders will often settle for 20-60% on the dollar for a note deal.

4. Rental. Owners who need to move, are unable to sell, and have the resources to hold on to the property, can consider renting out the under water property and waiting for the market to improve before selling. A variation is “rent to own” or “lease option” where the tenant pays a non-refundable down payment and has the first option to buy the property at a set price for a defined period of time.

5. Mortgage assignment. Many owners cannot afford to hold on to a property that is under water long term. In order to buy another property they need to be released from the ownership of the first property. This can be accomplished if a buyer can be found who will agree to continue paying the existing mortgage in exchange for the deed. While there is generally the possibility that the lender will call the loan due as a result, the reality of the situation is that few lenders will do so as long as the mortgage continues to be kept current. As long as the mortgage is at a reasonable interest rate and is not more than 10-20% above current market value, it is relatively easy to find buyers who have the income and financial stability to qualify, but would not otherwise be able to qualify for a traditional mortgage in today’s tight lending environment.

In most of these scenarios the Agent who works as a “matchmaker” between the distressed homeowner and a willing renter or buyer should be able to qualify for a fee or commission.

Negotiating: Knowing When to Escalate

Tue, 12 Jul 2011 15:34:43 GMT

In order to deal with more Short Sales and Deeds in Lieu of Foreclosure the major lenders have vastly increased their teams in loss mitigation within the past year. The level of training and general ability also greatly varies from lender to lender and employee to employee. Dealing with this variation in quality makes the negotiation process a challenge.

While we strongly recommend that it’s more effective to let our team of experienced negotiators handle the variable mob of new people on the lenders’ teams, we know that many of you like to negotiate your own deals. Here are a few tips to help you decide when to keep working with the loss mitigation specialist you’ve been assigned, or to buck the case up to the next level.

Each lender has a specific timeframe for each step of the Short Sale process. Find out what that normal timeframe is up front and track it for each case you do with that lender. If the response time goes past that expected date, send an email with a copy to the supervisor or the head of the loss mitigation unit indicating that the expected time for response has been passed and request that they get back to you immediately on the case.

Sometimes a negotiator will try to reach their designated lender contact several times with no response. In this case, contact the general information number for the Loss Mitigation or Short Sale department and ask if there is some reason for the delay such as the file being reassigned or closed without your knowledge. It is not unusual for lenders to close files without telling the homeowner’s negotiator. The most frequent reasons for closing the file are lack of documentation or a decision on the part of the lender that the offer price is too far apart from the amount the lender wants to receive. If those situations can be rectified, then you have a case for reopening the file.

If a lender’s team member is not giving the response that you know is normal policy or practice for the lender, or the loss mitigation team member is consistently late in giving a response, buck the concern up to the team supervisor or department head. If there is a deadline for foreclosure just weeks away, or a closing that is drawing near and you do not have what you need to move forward, then it is time to express your concern to a higher authority.

Whenever possible, of course, it is best to gain the trust and respect of the person originally assigned the Short Sale case file. Be consistent, timely, and unfailingly trustworthy and your cases will win approval faster and more frequently.

Getting the Seller On Board with a Short Sale

Tue, 12 Jul 2011 15:28:14 GMT

There is no question that working with homeowners in distress takes a particularly compassionate bedside manner. It also takes an Agent who is willing to “tell it like it is” in a way that will break through the shock and denial that often haunts a homeowner who has an underwater mortgage and needs to sell.

Here’s how the scenario so often plays out: The homeowner in an average neighborhood knows that a neighbor sold several years ago for $240,000, and Mr. Homeowner expects that he will make the same. He contacts an Agent who informs him that houses in the neighborhood are now selling for a maximum of $180,000, a 33% reduction in value. By July 2011 Mr. Homeowner’s mortgage is down to $201,000. If he sells at $180,000 he will owe about $18,000 in sales expenses and closing costs and another $21,000 in mortgage expense. There is no way he can bring $39,000 to the closing table.

If Mr. Homeowner can afford to hold on for awhile, he will be tempted to list at $220,000 and the house will languish on the market for months with little or no activity. That type of listing is generally not worth the Agent’s time, unless it is likely that the over-priced, unrealistic listing can soon be turned into a more productive Short Sale.

If Mr. Homeowner is financially distressed, or must move because of a new job elsewhere, he will eventually come around to the reality that the house must be sold as a Short Sale. It is likely to take some hand-holding to get Mr. Homeowner through the grinding process of organizing all the hardship documentation and arranging for a professional negotiator to work on behalf of Mr. Homeowner with the lender. That’s where the Agent’s expertise and ability to build rapport with the client will be needed.

The Seller’s Agent also needs to be able to explain to Mr. Homeowner why a Buyer offer that is lower than the area market value may be in their best interest. Often it is time-consuming to find an end Buyer who is willing to stick through the Short Sale negotiation process. Therefore, the best Buyer to allow the negotiation process with the lender to begin is an Investor-Buyer, who needs to be compensated for taking the time and potentially tying up some resources to get the Short Sale process started. That Investor-Buyer needs to be compensated for their time, effort and the risk that they are taking in the Short Sale. There must be some room for negotiation, and therefore the first offer is going to be something like 40-60% of market value. The approved Short Sale will probably be in the 15-20% range off of market value, but could be more if the lender is eager to get the property off the books.

Getting the homeowner to understand the practical reality of how a Short Sale is negotiated is one of the harder jobs for the Selling Agent. Homeowners need to understand that distressed homes are valued less than non-distressed property in the same neighborhood. Often selling to an Investor is the fastest way to get the distress situation cured so that the homeowner can move on.

Are Latest Case-Shiller Housing Stats a Reason for Optimism?

Tue, 12 Jul 2011 15:27:02 GMT

A month after the Case-Shiller home price index hailed the official start of a double-dip recession in the housing market, the housing index showed an uptick. The twenty market index showed a .7% increase in prices while the 10 city index showed a .8% increase, seasonally adjusted. Both indexes remain below their 2010 levels, the 20 city index by 4.0% and the 10 city index by 3.1%. There were new lows posted for several cities including Charlotte, Chicago, Detroit, Las Vegas, Miami and Tampa. On the other hand, Washington, DC and San Francisco each saw sizeable jumps in home values between March and April.

Robert Shiller believes there is some cause for optimism in that momentum is on the side of seeing a bit of a rally during the summer months. Still, the market is weak and in the doldrums. Don’t expect any rapid turnaround of home prices.

Agents should take some comfort in the seasonal thaw of the housing market and should make the most of it. The fact that there are still so many distressed homes on the market is a good indication that there will be many months to come of depressed prices and lower sales levels among non-distressed homeowners.

The significant shift that we see in the recent statistics is that instead of seeing a huge surge of REO properties on the market, the lenders will be making a much more concerted effort to resolve distress situations through loan modifications and Short Sales. When distress is solved short of foreclosure it saves time and money for lenders. Values do not sink as far when homes are sold via Short Sale compared to those that are repossessed by lenders and eventually sold as REOs.

For Agents who have been avoiding getting into the Short Sale market, now is the time to reconsider. Lenders are streamlining the Short Sale process so that in many cases these sales are taking place within 60 to 120 days rather than taking the six months to one year that has been common in the past.

While it still takes an experienced Negotiator to get the most out of the deal, it is possible for Agents who specialize in Short Sales to do very well in this climate of greater lender support for this solution to the foreclosure problem. There is also great satisfaction in knowing that you are helping many who are in distress situations that are beyond their control.

Are We Headed to Another Recession?

Tue, 12 Jul 2011 15:11:14 GMT

Many conservative economists are raising the warning signals that the U.S. economy may be headed into troubled waters again just two years after the end of the last recession. Normally, we see about five years between economic cycles. The relatively weak recovery from the recession of 2008 has caused some analysts to become concerned that the current rebound will be cut short.

Here are some of the reasons for sounding the recession alarm, according to Money and Markets analyst, Mike Larson:

--Personal spending in May gave the worst performance in 10 months.

--The Dallas Federal Reserve Bank showed the worst total for manufacturing in 11 months, down 17.5% in May. The New York and Philadelphia Federal Reserves also showed tanking manufacturing indexes.

--Home prices are hitting historic lows in many cities, and home sales continue to be anemic, despite the slight seasonal uptick.

--The Conference Board’s consumer confidence index fell in June to 58.5%, down from 61.7% in May.

--Banks and companies continue to hoard cash rather than spending on new loans, capital improvements or hiring.

--The government continues to stalemate on the debt crisis. The federal government’s plan to under-write the debt crisis did not work.

--The value of the dollar continues to sink as our debt partners begin to lose faith in the ability of the U.S. to contain its debt crisis.

In addition, the economic growth rate, according to Goldman Sachs, is sinking. Initially, it forecast a 4% growth rate for the U.S. economy in the second quarter of 2011; now it expects the rate to be half that. Macroeconomic Advisors expected the second quarter GNP to be at 3.5%, and now it expects it to be 2.1%. The Federal Reserve Bank has downgraded its annual projection from 3.9% down to 3%. Federal Reserve chief, Ben Bernanke, confessed this week that the “headwinds” may be stronger than they originally thought.

While few economists predict an out and out recession, many advise extreme caution. What should the prudent Agent or Investor do? Those who buy should buy low and expect a little more price volatility before things stabilize. Professionals in the real estate market should look for value for their clients. Ultimately, the more distressed property that can be brought back to performing status, the sooner the marketplace will heal itself.

Three Arguments Against Agent-Negotiated Short Sales

Thu, 16 Jun 2011 15:37:19 GMT

Most Agents working with distressed homeowners feel very protective of their client’s situation and want to do everything possible to make sure they get out with the best possible results. Some Agents feel that the best way of protecting the client is by controlling every aspect of the transaction, including the negotiations with lenders.

Whether you use an outside professional negotiating service, or you do the negotiating yourself, it’s important to keep track of results and to come up with a new plan if the process is not leading to consistent successes.

--Take a look at the number of Short Sales you have negotiated altogether. Unless you have personally negotiated dozens of them and have worked with the loss mitigation teams of most of the major lenders and servicers, you may not have enough experience to know the hidden negotiating traps.

--Count the number of Short Sales successfully completed against the total number of Short Sales negotiated. Is your success rate 66 to 90%? Unless you are closing two-thirds of your Short Sales or more, your client would be better served by a professional negotiator with a better success rate.

--Tally the amount of time you spend marketing deals where you are not negotiating a Short Sale versus the amount of time you spend on marketing and finding a buyer for the deals you do negotiate. Are you short-changing the marketing process by spending the time on the phone with a loss mitigator or in front of a computer screen filling out Equator forms?

The first argument against the Agent-Negotiator is one of effectiveness. Most Agents do not do enough of these transactions to have the kind of success rate that clients deserve when they entrust the Agent with a Short Sale.

The second argument against the Agent-Negotiator combination is one of priorities. The best and highest use of an Agent’s time is in marketing listings and finding buyers. That’s at the heart of professional real estate. Short Sale negotiating is more of a banking or a legal function and is more suited to someone with mortgage lending or legal experience.

Remember, if you try to negotiate yourself and you make a mistake, the results can be devastating for a family’s financial well-being. There are real liability issues in negotiating Short Sales. Are you sure that you are compliant with the FCC’s MARS (mortgage assistance relief services) regulations, and with the many different state and local compliance requirements? Are you familiar with all the new timetables and compliance issues that will soon be required for Fannie Mae or Freddie Mac Short Sales?

The bottom line is, don’t risk the liability of negotiating Short Sales on behalf of your clients unless you and your brokerage are compliant, effective and able to fulfill completely your real estate-related functions first and foremost.

Dealing with the Ornery Seller

Tue, 14 Jun 2011 13:21:13 GMT

We were reviewing some of the distressed properties in the area that don’t currently have Agent representation with one of the more experienced Agents in our market and we came across one homeowner the Agent wouldn’t work with because the owner is “just plain crazy.”

There is good reason to avoid individuals who are so alienated from society that they come to the door with a shotgun, or they are so reclusive they won’t even open the door. Some homeowners, unfortunately, are mentally ill or so depressed by their situation that unless a guardian is assigned to take care of their interests, nothing can be done to help them save the house.

Even some less extreme owner situations may not be worth the Agent or Investor’s time. Homeowners must show a certain amount of responsibility for filling out paperwork in a timely manor. They must be willing to follow the Agent’s advice on complying with the process. They will need to be willing to allow home inspectors, BPO Agents, other Agents and prospective Buyers to walk through the property with a 24 hour notice. The Homeowner who will not participate even in these limited ways with the efforts to save the home from foreclosure is probably not going to make a good Short Sale client.

On the other hand, almost all homeowners facing default are going to be in a state of depression, confusion, anger or concern. There are several things that a Short Sale Agent should try before giving up on the average distressed Homeowner who needs a Short Sale. It is worth some effort to get people who have genuine hardships past that state of confusion and on to a potential Short Sale. Here are some ideas that may help to take the edge off the ornery seller:

1. Identify the distressed owners in your area as early as possible and introduce yourself personally to them. The sooner you introduce yourself to the potential Short Sale seller as someone with the knowledge and experience to help them with a viable solution to foreclosure, the more likely you will be to get the listing. It will probably take three to seven contacts using a variety of marketing methods for your name to float to the top of memory once the Homeowner is finally ready to admit that they must sell in order to avoid foreclosure.

2. Be truthful and up front about the Homeowner’s options. If they have not sought the advice of a non-profit housing counselor or they might be able to qualify for a loan modification, give them the information they need in order to explore these avenues first. The Agent who is most helpful in providing all the options up front is the one the Homeowner will remember once the decision to go for the Short Sale is made. This is an important trust-building step that takes time, but in the end will solidify a relationship that is most likely to steer the Homeowner successfully through to closing.

3. Once the Homeowner is comfortable with the Agent and the Agent fully understands the Seller’s situation, then the details of what the Homeowner can expect can be laid out as necessary. Details like pricing, what to expect from the BPO, what may happen in the negotiations given the details of the lien-holders involved, what the Investor-Buyer’s expectations will be, all the steps required in the process—all these details will be confusing and overwhelming. Go over them over a period of time as each situation comes up answering all the Homeowner’s questions and concerns. If trust has been properly built, then the Homeowner will recognize that the Agent is steering the process in a direction that is in the Homeowner’s best interest and the process will go more smoothly.

Fannie Mae Issues New Delinquent Mortgage Standards

Mon, 13 Jun 2011 15:33:01 GMT

Fannie Mae has issued two new servicing guide announcements, SVC-2011-07 and SVC-2001-08 which detail the way delinquent loans are to be handled. These documents provide the guidelines that were announced as part of the Federal Housing Finance Agency's (FHFA) Servicing Alignment Initiative.

The first set of guidelines documents the timeframe for response to delinquent homeowners and compensation that will be offered servicers in order to manage the delinquent file. The timeframes from the day the case is referred to an attorney for foreclosure to the completion of the foreclosure process will vary from state to state and depends considerably on whether the state uses a judicial or non-judicial process. Timeframes on the chart at e-fanniemae.com varies from 120 days in most non-judicial states to 570 days in New York City. Fannie Mae will track servicer performance, making allowances for delays caused by bankruptcy, probate, military active duty, contested cases, etc. Compensatory fees will be required of servicers who get behind the timetable without a reasonable cause.

The second document details delinquency management and prevention strategies to be used by all Fannie Mae servicers. Servicers will be expected to contact delinquent borrowers early and often. The contact strategy is called Quality Right Party Contact, or QRPC. The servicer is to determine the appropriate borrower contact (borrower, co-borrower, or authorized third party), get to understand the issues behind the delinquency, and advise the borrower on foreclosure alternatives and look at all the options that are appropriate to the case before referring the case to an attorney for foreclosure.

Between the 45^th and the 60^th day of delinquency there is to be a property inspection. Other inspections are required closer to the date of foreclosure, especially for abandoned property, or to remain in compliance with state and local property statutes.

There are now strict call center rules for pick up and routing of incoming calls within specific timeframes and specific outbound calling guidelines for collection attempts. The guidelines dictate the number and frequency of calls to be made until some resolution is reached. There are also a Fannie Mae-produced series of letters to send to delinquent clients. Its sample delinquency letters are available to servicers at its e-FannieMae website.

There are additional specific communications to be sent to the borrower just before and after being referred for foreclosure. The borrower can still request a Borrower Information Package to request a foreclosure prevention alternative even after being referred to an attorney for foreclosure. Fannie Mae has designed a standard information packet to be used by its servicers.

It’s important for all Short Sale Agents, Investors and Negotiators to have a clear understanding of what clients are going to be facing when they go delinquent on loans that are underwritten or owned by Fannie Mae. In general, it should mean greater consistency among servicers, less time waiting for a response when we phone in for a client, clearer timelines and greater willingness on the part of loss mitigators to discuss alternatives to foreclosure.

What’s in Fannie Mae’s Crystal Ball?

Thu, 09 Jun 2011 14:16:27 GMT

Every quarter Fannie Mae economists try to project out national housing trends for the next two years based on what is happening this year and has occurred in the past two years. The April 2011 Economics and Market Analysis became available on April 11, 2011.

Actual data comes from a variety of sources: the Census Bureau, Federal Reserve, the Mortgage Bankers Association, the National Association of Realtors®, and other reputable sources of housing data. The projections are those of the Fannie Mae economists and its Mortgage Market Analysis panel of experts.

Here’s what Fannie Mae sees in its crystal ball:

Home sales will increase about 5.7% in 2011 over 2010. In 2012 Fannie Mae economists forecast that home sales will improve by 8.8% and by 5.2% in 2013. Home prices will decline by .9% in 2011 nationwide and will show a modest 2.2% gain in 2012 and an improving 5.3% gain in 2013. By the end of 2011 median new home prices will have declined about $6,300 to around $163,000.

The 30 year fixed mortgage rate will average 5.1% in 2011, and will gradually rise to 5.6% in 2012 and 5.9% in 2013.

In 2011 the percentage of refis to new loans is 40%, while in 2012 the refi rate will drop to 22% and in 2013 be about 23% of the total new loans accepted. Fannie Mae expects ARMs to represent only 6% of applications in 2011, but will climb to 11% of loan applications in 2012 and 13% of the applications in 2013.

There are, of course, some unknowns that could change the housing forecast:

--Very narrow housing finance rules could raise the mortgage rates, limit the options for adjustable mortgages, and lower the number of homes sold.

--The model assumes some continuing improvement in the unemployment picture and slow economic recovery. A change either to slower or faster recovery will impact the housing market.

--A more stringent settlement than expected between the State Attorney General group and the Lenders caught in the robo-signing crisis could delay even further the foreclosure process and delay recovery. On the other hand, if Lenders are required to settle more distressed properties with loan modifications, Short Sales or Deeds-in-Lieu of Foreclosure then fewer new foreclosures will be added to the backlog and the impact on housing prices should not be as long or severe.

Fannie Mae can be expected to consider any of these changes as they occur for their revised quarterly analyses.

Foreclosure is Everyone’s Problem

Mon, 06 Jun 2011 13:46:45 GMT

Many wonder why those who live and work in states that are not heavy foreclosure states should care about the foreclosure crisis. After all, about 78% of all foreclosures occur in only 10 states. Nevada, Arizona, California, Utah, Idaho, Michigan, Florida, Georgia, Colorado and Oregon are the leading distressed property states at this time.

Foreclosure has both local and national impact. Even states with few foreclosures will experience distress within those neighborhoods where foreclosures occur. A 2008 study for NeighborWorks America concluded that for every home that goes into foreclosure their neighbors lose about $5000 in value.

Most communities of any size has seen at least one neighborhood become pock-marked with abandoned and distressed homes. The NeighborWorks American report mentions a study from Austin, Texas, an area that by-and-large avoided the worst of the housing crisis, there were still blocks with vacant buildings that had 3.2 times as many drug-related calls to police, 1.8 times as many calls about thefts, and twice the number of violent calls as blocks that had no vacant buildings. Foreclosure breeds blight and blight breeds crime.

The foreclosure crisis has had a toxic impact on home buying and selling throughout the country. Consumers read about the high rate of foreclosure and the huge shadow inventory and it makes people cautious about putting their own home on the market, even when few of those problem properties exist locally. Consumers are now primed to expect a bargain no matter where they are when shopping for a home. The current slow-down in home sales has been blamed more on lack of consumer demand and the continuing foreclosure crisis than on the current state of the economy or unemployment levels.

The other national impact of the foreclosure crisis that is having a massive effect on home sales everywhere is the tight credit situation. Lending standards are much more stringent in response to the foreclosure crisis. Lenders can no longer afford to take a risk on borrowers with blemished credit records or without income that is consistent and easily documented. As a result, there are fewer qualified buyers of homes throughout the country. The regulation changes under review at the federal level to reform the nation’s housing financing are on course to tighten the credit standards even further. It is possible that next year at this time only 60% of the families that qualified for a home loan last year would still qualify under the new rules.

So, yes, the foreclosure crisis is everyone’s problem. It impacts the masses of people who now have to rent because they can no longer qualify for a home loan. It impacts everyone who plans to sell a home within the next several years and anyone who is looking to buy a home. It impacts every Agent or Investor trying to help distressed homeowners wherever they are located.

Foreclosure and Bankruptcy Don’t Always Wipe the Slate Clean

Thu, 26 May 2011 22:24:49 GMT

One of the myths that distressed homeowners seem to believe is that when they file for bankruptcy, or they let the house go to foreclosure, they will be rid of some of the nasty hangover liens that plague the property. Unfortunately for some of these homeowners, non-payment of a homeowner’s association fee, a HELOC loan or a tax lien may just relieve the problem temporarily. Eventually the lien will come back to life nastier than ever to haunt the former homeowner in years to come.

It is critical that the Agent or their negotiator talk specifically about these additional liens and make it clear what is most likely going to happen to them during the course of a Short Sale and to contrast that with what will happen if they are not addressed and the property goes into foreclosure or the owner files for bankruptcy. In many cases the negotiation that takes place as part of a Short Sale may be the best deal that will be offered for the write-off of large portions of these additional liens.

Homeowners are liable for fees such as the HOA dues until such time as ownership is transferred over to the bank or a new party. These fees cannot be wiped out in bankruptcy. Even if the former homeowner has long since turned over the keys, if the property is sitting in some shadow inventory the HOA may still be accumulating under the original owner.

It is very much in the homeowner’s best interest to have the Short Sale negotiator come to a settlement with the HOA for payment of a fraction of the amount owed. A similar opportunity to have a professional negotiator go to bat for the homeowner may not come along except during the Short Sale process.

Similarly, a HELOC is really a secured consumer loan and it survives the sale of a property in foreclosure or bankruptcy. Having a Short Sale negotiator on the homeowner’s side gives the best chance at a reasonable settlement at a fraction of the original debt amount.

Convincing your Short Sale client that they are on the best possible path in trying to sell prior to a foreclosure may get a little easier when you dispel the myth that these types of debts will fall away in a foreclosure or bankruptcy. It is far better to deal with them up front during the Short Sale negotiation and then come up with a plan for the payment of the agreed upon settlement with participation from the Investor/Buyer or the Agent if needed to supplement what the homeowner has available to pay at closing.

Freddie Mac Housing Outlook is Guarded

Fri, 20 May 2011 11:45:43 GMT

The latest Freddie Mac economic outlook report was published last week. The report, titled “Better, But Still Not Good Enough,” by Freddie Mac chief economist, Frank Nothhaft, indicates how strongly the sick housing market is tied to the continuing high unemployment rates.

Despite 244,000 jobs added in April, the most in almost a year, the improvement in the job market is not happening fast enough to reabsorb all the jobs lost since the recession. April was the 27^th month where the unemployment rate has topped 8%. At least a quarter million jobs per month must be created in order to make a significant dent in the economy.

Extended periods of unemployment have a detrimental effect on the financial stability of households. The single most important factor in the rise in delinquencies among prime home loans has been unemployment or significant loss of income among workers who have previously been very stable and reliable in repaying their loans. Extended periods of unemployment have also contributed to the high levels of redefault for those who were initially accepted into the Making Home Affordable loan modification program. Even though the improving job market will mean fewer new delinquencies will occur in the housing market, the extended periods of unemployment for those who have already lost their jobs will lead to an extended period of high levels of serious default and continued high levels of foreclosure.

Nothaft also observed that housing prices have not bottomed yet in many markets, although he believes they are close to their nadir. Freddie Mac’s Home Price Index declined 2.8% between December 2010 and March 2011 and will continue to decline as long as the market is dominated by distressed property.

On the positive side, the report notes continuing extraordinary affordability in the housing market spurred on by low mortgage rates and low housing prices.

While the economy will be spurred on with accelerating job growth in the second half of 2011 Freddie Mac expects continuing high levels of unemployment and long term job loss combined with high levels of serious mortgage delinquency.

The housing market just can’t seem to catch a break!

NAR Angles for Reliable Housing Finance Market

Fri, 20 May 2011 11:43:59 GMT

Few would argue with the fact that the financial market for housing has been sick for a very long time. First, too lax standards allowed almost anyone who was breathing to purchase a home. Now, even highly qualified professionals with high credit scores who just don’t have W2-type income are getting denied. Members of a housing panel at the Legislative Meetings and Trade Show of the National Association of Realtors® believes it is time for the pendulum to swing somewhere between these two extremes.

The housing market needs reliable financial backing in order to recover, and panel members expressed the opinion that the current proposals to eliminate or greatly curtail the GSEs are simply naïve. David Katkov, executive vice president and chief business officer of the PMI Group said that, while private financing works in other countries the United States housing market is simply too big and complex to survive on private financing alone. Steve Brown, NAR first vice president nominee for 2011, said that without a viable replacement for Fannie Mae and Freddie Mac the housing market will be severely restricted and will cost much more for consumers.

NAR officials also questioned the latest provisions of the Dodd-Frank Act, which was signed into law by the Obama Administration in July 2010. The Act greatly limits mortgage options outside the QRM (qualified residential mortgages) standards of 20% down payment and no more than 28% of gross income devoted to mortgage payments. FHA and VA loans will be exempt from this standard, but few other exceptions exist for those who cannot meet QRM standards. The Act also requires 5% of the risk to be retained by lenders on securitized loans in order to discourage risky lending practices.

According to an NAR study 60% of recent home buyers put less than 20% down. It takes the average worker 14 years to save the necessary amount to make a 20% down payment on a median-priced home. The NAR would like Congress to come up with a QRM exemption that will include an array of fixed and ARM loan instruments that require between 5 and 20% down and include mortgage insurance. The NAR argues that properly crafted and underwritten, these types of loans can be safe and will insure that enough people can qualify for loans to spur growth in the housing industry again.

Do you believe the housing industry can recover without government intervention in the housing financial markets?

We’re Officially in Double-Dip

Thu, 12 May 2011 13:18:04 GMT

According to Clear Capital’s national home price index the housing market has officially hit bottom—again. Nationally prices have dropped .7% below previous lows recorded in March 2009. Prices have declined 11.5% over the previous nine months, the fastest decline since 2008.

The West, Northeast and South regions have all officially crossed the double-dip line according to Clear Capital’s HDI. The Midwest region may not be far behind. All major MSA’s tracked by the HDI were in decline quarter over quarter.

There is strong evidence of the impact of the huge shadow inventory of foreclosures on market pricing. This combined with the worse than usual slowdown in sales over the winter has led to the double-dip situation.

REO saturation nationwide has increased to 34.5% of total sales volume. In mid-2010 the REO portion of the market was closer to 20%. This REO saturation even exceeds the increase that occurred in 2008 when REOs reached about 32% of the total market. Both 2008 and now the increase in REO sales precipitated a decrease in home prices.

Clear Capital is concerned that the impact of REOs on the marketplace will continue to depress home prices through 2011. During the last decline in 2008 home values were turned around by the economic stimulus. We have no such government intervention awaiting us this time.

While this is depressing news for the average homeowner and Agent, for those Agents and Investors focused on this distressed marketplace it means that a new round of distressed homeowners is in the offing. Now is a great time to market to neighborhoods that have experienced heavy price declines because of high foreclosure activity and other distress situations. Recognize that there will be a greater willingness on the part of most lenders to mitigate loss through some measure short of foreclosure. The Short Sale specialist Agent or Investor is perfectly placed to be able to help those homeowners who can no longer afford to stay in a property that is worth less than the mortgage that they are paying and want to move on in their lives by selling through a Short Sale.

FDIC Releases its Report on Foreclosures

Wed, 11 May 2011 12:36:12 GMT

The FDIC’s examination of foreclosure practices in the banking industry was released. The report shows that a majority of the foreclosure activity in the U.S. between 2006 and 2011 has been among the top 14 FDIC insured lending institutions, and all 14 have entered into consent orders with the government to clean up these practices. The FDIC reviewed the foreclosure procedures in the role of the back-up regulator all insured depository institutions.

The investigation found that foreclosure processing problems have been far more common at these large institutions than at community banks and other smaller lenders. It was the large agencies that were examined specifically, although the results should be noted by all lenders.

The lenders what were selected for study included eight national banks regulated by the Office of the Comptroller of the Currency (Bank of America, Citibank, HSBC, JPMorgan Chase, MetLife, PNC, US Bank, and Wells Fargo);

two institutions regulated by the Board of Governors of the Federal Reserve System (GMAC Mortgage, LLC, an affiliate of FDIC-regulated Ally Bank, and SunTrust); and four thrifts regulated by the Office of Thrift Supervision (Aurora Bank, OneWest Bank, Sovereign Bank, and EverBank).

The problems that the FDIC found include: inadequate staffing to handle the onslaught of foreclosures; affidavits were signed without reading the documents; affidavits indicated that they were being executed under oath when they weren’t; and servicing fees were in a few cases incorrectly calculated both in favor of and against the borrower. The study found relatively few instances of where some aspects of the original mortgage and note paperwork was missing. All servicers were lacking in good internal audit and quality control procedures.

The report is quite critical of MERS and LPS handling of mortgage transfers. Both are accused of “engaging in unsafe or unsound practices that exposed the member institutions to unacceptable operational, compliance, legal, and reputational risks.”

Best Foreclosure practices are outlined:

--Foreclosures are to be brought in the name of the note-holder;

--Foreclosing entity must be in possession of the note and have valid documentation that shows any change in ownership;

--A good faith effort to find the note should take place before filing for a lost note affidavit;

--All attestations must be legal according to the laws of the jurisdiction where the mortgage is held;

--Specific protocols are outlined for what should be included in the foreclosure notice;

--Any practice of giving bonuses to attorneys or servicer staff based on the number of foreclosures that are processed should be stopped.

Handling a Short Sale Deficiency

Thu, 05 May 2011 14:52:32 GMT

No homeowner likes to face the prospect of paying on a deficiency judgment or having to agree to a non-secured promissory note in order to get a Short Sale approval from a lender. The reality of the matter is, in some cases a deficiency will need to be paid by somebody if the homeowner wants to avoid foreclosure, particularly if the homeowner has other assets.

Deficiency is the difference between what the Lender nets in a Short Sale and the amount remaining on the mortgage and includes also the amount of shortage in paying off second mortgages and other liens against the property.

An Agent or Investor should never promise that they will negotiate away any deficiency, although skillful negotiators are often successful in considerably reducing the amount that will be required to settle the loan.

Agents should also recommend that homeowners take the lender approval letter to their legal counsel in order to discuss their options. An approval letter is a legal document and should be explained by a competent attorney, not an Agent. If the language in the approval letter is unclear concerning the deficiency, the legal counsel should get that clarified for their clients.

Except with a few certain lenders a one lien-holder Short Sale is generally going to be handled by issuing a 1099 for the tax liability rather than a deficiency. Lenders cannot demand both a deficiency payment and issue the 1099 (which will get the debt off the lender’s books).

Second mortgages and mortgage insurance are different situations. When the second mortgage comes at the time the first mortgage is negotiated (purchase money second) it is generally released with a 1099 and no deficiency. On the other hand, a HELOC is technically a secured consumer loan and that almost always triggers an attempt by the holder to collect the deficiency. In a foreclosure the lien position is wiped out, not the debt itself. Therefore, going through foreclosure is not going to wipe the HELOC off the map either.

What a skilled negotiator is often able to do is to get the amount of the debt on a second mortgage or other types of liens reduced to between 5% and 20% of the value of the loan. Some lenders will give a choice between a reduced cash payment, and an unsecured promissory note for the full balance.

The other situation that generally triggers a deficiency is mortgage insurance. Whether the private mortgage insurance (PMI) is borrower-paid and is included up front on the mortgage records or is lender paid (MI) and not spelled out on mortgage documents, the lender is almost always going to ask for a deficiency or a promissory note in order to continue covering this insurance for the lender’s benefit.

One strategy for taking care of these deficient liens is to ask the end buyer to participate in paying off these liens. In some cases the transactional buyer (the B buyer and an A to B/B to C sale process) will have enough leeway in their net profit to absorb the negotiated settlement costs of a lien. As long as this expectation is built into the discussion up front with the buyer, it can often be built into the deal on the buyer side of the HUD-1.

Where Home Affordability Rules

Wed, 04 May 2011 12:48:32 GMT

Deutsche Bank has published its list of the most affordable metropolitan areas in the U.S. A major factor in determining affordability is the calculation of whether it is more cost-effective to buy a home or to rent in the area.

Now is a good time to break out the marketing campaign to attract renters in the following cities, all of which are deemed more affordable for home ownership than for renting right now. Here are a few ideas for getting out the word:

--Send a post card campaign to lists of renters in A and B class rental communities showing how to calculate the rent vs. buy decision and listing your qualifications as a buyers’ agent.

--Host an open house for prospective home buyers at your agency or some neutral location such as a local library or bank community room. Briefly go over the benefits of home ownership compared to renting and tips for becoming financially qualified for home ownership.

--In conjunction with a local mortgage broker offer free home ownership readiness analysis and pre-qualification for prospective new homeowners.

--Write articles on the subject of home affordability in your area on your blog; offer a give-away item on your lead capture site that offers rent-buy analysis in exchange for a prospective buyer’s name and phone number.

There are neighborhoods in almost any community where it will be easy to demonstrate affordability compared to renting. The following metropolitan areas are especially ripe for this type of advertising:

Atlanta: Rents exceed mortgage payments by as much as 50%.

Buffalo: This market is fairly stable and has good job prospects.

Cleveland: Rents exceed mortgage payments by about 25% right now.

Jacksonville: Rents exceed mortgage payments by about 20%.

Las Vegas: As the foreclosure capital of the country, there are a lot of great deals available in Las Vegas.

Memphis: Neighborhoods are being cleaned up and being made available for new developments.

Orlando: One of three Florida cities where it is notable less expensive to buy than to rent.

Rochester, NY: The second largest city in New York, and one of the most affordable in the country.

St. Louis: Rents are 23% higher than the average mortgage payment.

Tampa/St. Petersburg: Retiring baby boomers are discovering the affordability of Tampa/St. Pete for owning compared to renting.

Study your own area to determine where home ownership has the edge in affordability and target that area for your buying and selling activity.

Preparing Buyers for Ownership

Thu, 28 Apr 2011 18:38:06 GMT

One of the tragedies of the mid-2000s bubble is that anyone and everyone were getting qualified to own a home. Many of those people had iffy job stability, low credit scores, and little savings. When the crash came there was nothing to fall back on when a job was lost or exotic mortgage products skyrocketed with higher rates. Now those folks are in worse condition than ever and may never be able to qualify again after suffering a foreclosure.

Agents are often the first line of defense in determining whether a prospective buyer is qualified to be a homeowner. Unfortunately some, including many who tried it and failed during the recession, will never be able to qualify for home ownership again. Others, with some counseling and help, can get back into the game. A knowledgeable Agent can make all the difference between success and failure in preparing buyers for ownership.

Here are things that an Agent can do to get potential clients ready to buy a home:

1. Suggest a HUD-qualified housing counselor or a mortgage broker who is willing to work with clients to analyze FICO scores and suggest ways to repair credit. Credit scores must now be in excess of 620 for any hope of getting a loan approval. Credit records are often riddled with errors. Debtors can substantially improve credit scores inside of six months to one year by writing to each of the three main credit agencies, Experian, Equifax, and Transunion to clear up any errors. The creditors must respond to verification inquiries by the credit agencies within 30 days, and if they do not then a derogatory notation that has been formally questioned must be removed.

2. Those hoping to qualify for a mortgage must also be very careful about paying all bills on time. In the past it was possible to obtain a mortgage with one or two late payments on the record. Now each ding is counted against the debt to income ratio and quickly tilts the decision against approval. Counsel clients who are not initially able to qualify to be very careful about paying every debt (or at least all those reported to the credit companies) on time.

3. Encourage clients to set aside savings each month for as long as it takes to be able to pay 20% down on a conventional loan. Buyers gain a lot of choice and flexibility when they can qualify for a conventional loan. For those who cannot raise the cash or maintain the credit by themselves, consider taking on a co-signer to the loan. Parents and grandparents are often willing to take on the financial risk, particularly if the home is highly affordable compared to a rental and is a good investment.

Sometimes it will take several years to cultivate a potential client into one who eventually buys. This is not much different than the situation we were in prior to the loosened credit standards of the 1990’s and 2000’s. The Agent with some patience will find the clients who have been helped past the credit crisis coming back to buy with a much higher likelihood of success.

What Determines Foreclosure Experience the Most?

Fri, 22 Apr 2011 12:34:19 GMT

When a homeowner decides to stop making house payments, what determines their experience with the foreclosure process more than any other? Their lender, you say? Good guess, but incorrect… The key factor in determining what will happen to the homeowner is their state.

Lenders have fairly similar practices when it comes to processing defaulted loans and foreclosures. Some of that is regulated, and even more is about to be regulated in the aftermath of the robo-signing scandal. If the homeowner draws an inexperienced or uncooperative loss mitigator it is usually possible to buck it up the line to get a different person. So lender practices are not usually the telling factor on how the homeowner will be treated in a foreclosure.

The processes that dictate how the delinquent homeowner will be treated and how soon will depend on whether the state where the property is located files judicial or non-judicial foreclosures, and the specific state laws associated with foreclosure.

The timeframe that can be expected for foreclosure varies greatly from state to state, and judicial states almost always take longer. A recent Standard & Poor’s study shows that timelines for processing foreclosures is approximately twice as long in judicial than in non-judicial states. The S&P study also finds that approximately three times as many homes in judicial foreclosure states stay in the pre-foreclosure process to an 18 month mark compared to non-judicial states.

If a homeowner finds an irregularity in the paperwork in a judicial state it can be brought up by the homeowner appearing at one of the pre-foreclosure court hearings, while a homeowner in a non-judicial state will need to file a lawsuit in order to bring paperwork and other problems to the attention of the court and in order to stop the foreclosure process.

State laws also dictate whether the creditor can file a deficiency judgment in order to make up the losses on a defaulted loan. Whether or not a deficiency judgment is allowed is related to whether the homeowner has recourse or a non-recourse loan. In general non-judicial states trade off faster settlement of the foreclosure for ability to file for a deficiency judgment, and the mortgage will dictate a non-recourse loan. Those living in judicial foreclosure states are much more likely to see the lender petition the court for a deficiency judgment, which is an unsecured money judgment, because the mortgages for property held in judicial states are generally resource loans.

There are many other factors that relate to what the troubled homeowner can expect depending on their state and locality. Some states have federal funds to help unemployed homeowners pay the mortgage. This may prevent or forestall a foreclosure. Some cities and states have imposed regulations to require housing counselor intervention or attempts to resolve the situation with a loan modification before a foreclosure can be filed. Sometimes these locally and state-mandated programs resolve the delinquency before it reaches foreclosure.

While the treatment of troubled homeowners should get equalized somewhat as regulators put in place a foreclosure review process, the state will always dictate the specific laws that govern the process.

Helping Military Families Get Their Due in Distress

Tue, 19 Apr 2011 19:03:03 GMT

One of the problems being discovered in the aftermath of the mortgage documentation controversy is that some lenders have ignored active service member legal rights.

The Service Members Civil Relief Act of 2003 (SCRA) Section 303 assures that active military personnel, and in some cases their dependents, cannot be foreclosed upon while in active duty or for 90 days following active duty without a court order. There is also an automatic 90 day stay in all court and administrative proceedings related to the service member.

The obligation must have started before the active call-up of the service member and be secured by a mortgage or trust deed. The “sale, foreclosure or seizure of the property for a breach of the obligation” can only be validated through a court order granted before the sale of the property.

Lenders for credit cards, mortgages and other debt instruments are also obligated to reduce interest rates to no more than 6% during the life of the service member’s active duty. Lenders are also forbidden to accelerate the payoff of loans during the service duty period.

For those who are renting the service member can terminate a lease without penalty if going into active duty. The service member tenant cannot be evicted during the active duty without a court order.

Penalties for violating the laws regarding service member financial relief can be charged with a misdemeanor, and they must make restitution for the illegal seizure of service member assets.

In January 2011 Freddie Mac issued a rule to its servicers that it would give at least a nine month moratorium on foreclosures following active duty of a service member with a loan backed by the VA or another GSE through 2011.

Other lenders have not been so cognizant of the SCRA requirements or sensitive to the particular vulnerability of military families. In January JP Morgan Chase was charged with violating the SCRA by overcharging some 4000 active duty military families on their mortgages and foreclosing on 14 military families.

Marine Captain Jonathan Rowles had been charged by Chase as much as 10% while he was on active duty. Chase now admits that it was slow at implementing the interest changes for active service members like Rowles. When Rowles fell $15,000 behind in his payments Chase foreclosed. Chase has now set up a $2 million fund to refund charges to military families who were overcharged, and have promised to give back foreclosed properties. Rowles says that this in not enough.

There have been similar cases reported. Recently the New York Times reported that the Justice Department was investigating Saxon Mortgage, a subsidiary of Morgan Stanley, for foreclosing on around two dozen military families between 2006 and 2008 allegedly in violation of SCRA.

Because of low pay, frequent moves, and disruptive long tours of active duty it is difficult for many military families to maintain consistent financial stability. The economic downturn which occurred just as the military effort abroad was heating up has left military families reeling trying to make ends meet. The SCRA financial benefits are a way of recognizing the special service to country of our active military and their families as well as the particular economic vulnerability of our men and women in service.

Why Can’t Americans Get a Loan?

Fri, 15 Apr 2011 15:02:12 GMT

The Federal Reserve has done its share in keeping interest rates low for the last several years. In the past low rates was a sure way to entice would-be homeowners into the market. Having a home is still the American dream, but fewer and fewer people can achieve that dream.

The Federal Reserve indicates that nearly a quarter of the people who apply for a loan are turned down—and that’s when they apply. Many more don’t even bother to apply because they know they would be denied. Millions have damaged credit scores because of a foreclosure or bankruptcy, or both. Those with as much as one late credit card or mortgage payment in the last two or three years will be turned down. Many know that standards for approval have been tightened and are discouraged from trying.

The average credit score for those applying for a loan with Fannie Mae or Freddie Mac underwriting has risen to 760 from 720 a few years ago. The average FHA score has gone from 660 a few years ago to 700. Very few loans are actually made to those with scores under 620 even though it is theoretically possible to get a loan approved down to 580.

The higher down payment requirements are also stopping potential homeowners from applying for a loan. The median down payment is now 15%, while during the boom years a loan could easily be secured zero down. Now most programs require a conventional 20% or more down. FHA and VA loans are among the few exceptions. Now FHA loans are more expensive because of higher mortgage insurance requirements.

It used to be that sellers could give larger concessions to help buyers reach their down payment needs. Now those with less than 10% down can only receive 3% seller concessions; those with more than 10% down may be able to get up to 6% in seller concessions. On a $200,000 loan with 10% down a buyer may be able to get $6,000 paid by the seller, but will still need to have $14,000 in hand to bring to the closing table. In this economy that is a lot of savings.

The 20% down payment requirement is even more of a burden. On an average-priced home of $190,000 that is a hefty $38,000! In a state like New York or California where the average home price could be $500,000 or more, the down payment issue is nearly an insurmountable problem in bringing new people into the housing market.

New bank regulations have been proposed which will require banks to keep in-house 5% of riskier loans, such as those with less than 20% down. This will have the effect of discouraging banks from making loans with less than a 20% down payment, and that will knock first time home buyers right out of the market.

The immediate impact may be minor, since the GSE’s and FHA are exempt, and therefore 90% of the mortgage market will not be impacted right away. On the other hand, the government will be reducing the role of Fannie, Freddie and FHA over the next five to seven years, and at that point, the impact of the new rules on the mortgage market will be significant.

In the future, the mortgage market appears to be gearing up to look more like the market of the 1970s and 1980s than the 1990s and 2000s—for good or ill.

Getting Social

Wed, 13 Apr 2011 17:27:59 GMT

Even Google has come to the conclusion that social media is important to determining the importance of online content. Savvy Agents and Investors can benefit from the trend.

Right now Google is implementing +1 on search results and ads so that searchers can let others know which bits of information they like best. The +1 likes can be shared in GChat, Gmail, Google Reader, Buzz, and will soon be available for Twitter. Eventually, Google will include the option to post the +1 symbol on pages and other content. Google has posted a short video about the Google +1 button.

Here are two critical but simple ways that Agents and Investors can gather in the social buzz:

1. Make sure that all blog posts have several social media buttons embedded so your readers can bookmark the articles they like best and can buzz it up with their friends and social network. Wordpress.org has around 216 social media widgets right now to add to your basic Wordpress blog. Right now the most popular widget for sharing is the “Sexybookmarks” that shows the major social media icons arrayed across the bottom of the screen with the message “sharing is sexy!” If sexy is not in keeping with your blog—don’t worry; the right combination of icons and style has been designed and are waiting for you to download the plugin.

2. Build a Facebook fan page. It is not enough to have a personal FB page and not one that is specifically dedicated to your business. It is also not sufficient to simply build a business fan page that has the busy look and feel of a typical Facebook profile. First, start building a fan page in a way that makes it easy for readers to identify and respond to a call for action. Specifically, give away something valuable in exchange for name and email information so you can use the Fan Page for list-building and long term relationship-building. Secondly, use the Fan Page for branding. Your Fan Page should be easily distinguished from others in your market. Third, build an interactive relationship with your fans by asking questions and soliciting opinions.

Making social media work for you is more a matter of doing the right things once to set up your social media system and then dedicating small amounts of time to letting the fan base know what is new, unique and interesting that is coming down the pike for your company, and involving the fans in sharing their opinions. It need not be an overwhelming burden.

It’s the Details that Count in Working with Loss Mitigators

Thu, 07 Apr 2011 12:24:27 GMT

Here are just an accumulation of some tips and tricks that may make your Short Sale negotiations a little more successful:

1. When dealing with Bank of America on approval of an end Buyer please take note that they have begun rejecting 401k statements as legitimate proof of funds. They want to see the money in a savings or checking account. The reason BOA is giving is that no one knows what the stock market will do and funds shown in a 401k today may not be there tomorrow.

2. A growing trend among Lenders is for all of their negotiators to contact homeowners or their representatives by phone only. They can receive documentation by email, but some Lenders no longer allow their negotiators to send out anything by email. Chase, specifically, has set this rule recently for its negotiators. The reason seems to be a matter of liability. They are less likely to be sued over something that is indicated verbally than some statement put in an email.

3. The magic phrase to be looking for when an approval letter comes is “full lien release.” These words mean that the Lender will not be seeking further financial restitution from the Homeowner.

4. When the end Buyer is getting an FHA loan keep in mind that FHA will only allow a 1% concession based on the loan amount, not on the purchase price. That might seem like a small difference, but it might scuttle a deal if the paperwork is not done correctly. For example, on a $200,000 purchase price with 10% down, the 1% concession would be $1800, not $2000.

In general:

Pay attention to details. If you get something wrong on the HUD-1 it could cause you to have to start a Short Sale all over with some Lenders (most notoriously, Bank of America).
Always be courteous and follow Lender instructions and requests. They may be frustrating and seem down-right idiotic sometimes, but don’t take that out on the Loss Mitigator. In most cases the problem will be with a company rule, not something the Loss Mitigator has direct control over.
Avoid all the hassle and potential for error by using our negotiation services. Using our negotiators will save you 40 or 50 hours of fax and phone work with Lenders and will probably increase the likelihood that the Short Sale will close quickly and with a positive outcome for everyone concerned.

Are Servicers Playing Fair with Loan Modifications and Short Sales?

Tue, 05 Apr 2011 14:03:21 GMT

The Center for Responsible Lending (CRL) has drafted a report entitled “Fix or Evict? Loan Modifications Return More Value than Foreclosures.” The title says it all in terms of what CRL researchers found out about servicer behavior when it comes to really helping homeowners avoid foreclosure. Servicers routinely do what is in their own best interest, not in the best interest of the homeowner, and not in the best interest of the investor who holds the note.

Between 2009 and 2010 foreclosures outpaced loan modifications by 12 to 1 for both proprietary modifications and HAMP modifications. Loss rates for investors when a foreclosure is the route that is taken to solving a delinquency are very high: around 49% of the original investment value for a prime loan, 59% for an alt-A loan, and 75% for a sub-prime loan.

Servicers are supposed to evaluate what is the best course of action—a modification, a Short Sale or foreclosure—using a net present value (NPV) test. Based on actual and projected capacity the servicer is to compare the expected cashflow from a modification against the alternatives. The option giving the note investor the best return should be the option that is selected.

The CRL researchers compared the relatively low number of approved modifications against the expected results, including in the model the expected and actual default rates that have occurred with modifications. Under almost all the scenarios run by the researchers loan modification was the option that resulted in the most financial benefit for the investors.

CRL estimates that by 2014 a total of 13 million foreclosures will have taken place if they stay on current pace, a direct loss to investors of $1 trillion. The direct loss in property value to neighboring properties of foreclosures by 2012 will have reached $1.9 trillion. The report argues that much of this loss is unnecessary because other less devastating options are available and are clearly not being used even when cost-justified.

Some have blamed the investors for not approving loan modifications, particularly when the loans are securitized. Studies have simply not found that to be the case. Loans have been modified in about the same percentage for securitized and non-securitized loans. The study results also indicate that the redefault rate is not to blame for low loan modification rates. The redefault rate under different scenarios was calculated in to the NPV equation in the CRL study and loan modification still came out the winner most of the time.

The report concludes that the low loan modification rates are not due to servicers acting in the best interest of the note investors but are instead most likely linked to servicer self-interest along with poor borrower preparation and lack of communication between borrower, servicer and investor. CRL encourages the government to step in with regulations that require the servicer to explore thoroughly all options before proceeding to a foreclosure, and to share their net present value findings with both investors and borrowers. The incentives given to servicers presently for holding on to defaulted loans must also be studied further and fixed.

Goodbye to McMansion Living

Fri, 01 Apr 2011 17:21:53 GMT

One of the themes that came out of the recent Fannie Mae report series on renting vs. buying is that fact that large homes are a dying breed. People just aren’t buying those larger homes any more.

There are solid demographic reasons for the shift away from mega-houses. The average household size is quickly declining, as is the number of married couples with children in the general population. It is the married with children group that is 2.5 times more likely to own than to rent, and that group is on the decline.

In 1990 56% of all households included a married couple; in 2009 that percentage was down to 50%. In 1990 49% of all families had children under 18; in 2009 that percentage was down to 46%. The average household size was 2.6 people in 2009; 2.7 in 1990; and 3.3 people in 1960.

The demographics are driving down the size of new homes. Between the height of the bubble in 2006 and Q2 2010 there was a 6% decline in the square footage of new homes being built, whereas between 1978 and 2006, according to the Fannie Mae Trends 2 report, median new home size rose 36%.

Younger respondents seem to be more likely to move because of space issues. With the percentage of the population composed of larger families in decline, the demand for housing to accommodate larger families will also decline.

The recent financial meltdown has brought about significant changes in the housing market sooner than the projections might have anticipated and one of the segments that is most impacted is the luxury home market, those homes costing over $750,000. At one time there was a frenzy to trade up to McMansions. Now only 1% of the sales in February were for homes of $750,000 or more.

Are these trends temporary where we’ll see the rise of new McMansion neighborhoods as soon as the financial crisis lifts, or is this a more permanent trend? According to Paul Emrath, National Association of Homebuilders, not all of the change in home size trend is temporary: “Part of the current home size decline may again be a temporary recession-related phenomenon, but part can also be attributed to trends in factors like the desire to keep energy costs down, amounts of equity in existing homes available to roll into a new one, tightening credit standards, less emphasis on the pure investment motive for buying a home, and an increased share of homes sold to first-time buyers. Not all of these trends are likely to reverse themselves immediately at the end of a recession.”

Fannie Mae Studies Rent or Own Decision Process

Wed, 30 Mar 2011 11:35:52 GMT

Fannie Mae has published several reports on the behaviors, economic conditions, demographics and lifestyle considerations that go into making the rent or buy decision.

The reports are based on several themes. Theme 1 is about ownership aspirations. Theme 2 covers lifecycle housing choices and demographics. The economics of owning vs. renting is reported in the Theme 3 document. The impact by racial, ethnic and immigration factors is reported in Theme 4.

The study is based on a combination of rent vs. buy research, a telephone survey of 2,041 random respondents and 1,566 focus interviews conducted in July and August 2010 in Washington, DC and Phoenix.

Different motivating factors impact those who buy versus those who rent. Buyers are most highly motivated by lifestyle issues or by stages of life issues. That is, those who are married and have kids are the most consistently going to consider home ownership a necessity. As people age they also experience increasingly higher levels of home ownership. Older people have accumulated the resources to make home ownership more financially possible. The driving motivating factor for those who are renting is financial ability. Those with financial issues will continue to rent even if they aspire someday to own.

The vast majority of home owners and half of the renters believe that they would be better off owning than renting. Even the Great Recession has not shaken the dream of the typical American to achieve home ownership. It may simply take renters longer than was once the case to reach the home ownership goal. A total of 66% of the respondents felt that home ownership is a safe investment over the next 5 years while only 16% felt the same way about stock market investments.

It is clear that most prefer to live in a house than in an apartment. Even renters find single family home life more satisfying than multi-family living in many instances. The current trend of more single family homes coming back into the market as rentals could end up changing the dynamics of home ownership over time. We don’t know yet whether moving into a single family rental will sufficiently satisfy renters who prefer a single family home life style, or whether economic issues will become the determining factor in whether these people eventually buy or continue to rent.

Home ownership aspirations remain high across all ethnic and racial lines. For minorities the incidence of home ownership seems most related to affordability and ability to qualify financially. In 2009 76% of Caucasians who responded to the surveys were home owners. The same applied to 63% of the Asian-Americans, 55% of multi-racial individuals, 52% of American Indians, 51% of while Hispanics, 50% of Pacific Islanders, 47% of black non-Hispanics, and 34% of black Hispanics. Because ethnic and racial minorities do not own homes to the same extent as their white counterparts, and because the percentage of minorities in the population is growing, it is expected that home ownership will fall by 4% by 2050.

The study shows that the American desire for homeowner ship and the belief systems around whether they are better off financially and in terms of lifestyle by owning a home does not vary substantially by race or ethnicity, age or income level, nor do studies of separate cities show much difference in believe system from city to city. What does vary is the ability financially to achieve and hold on to home ownership given the current financial crisis and anticipated crises in fuel availability. Affordable housing issues must be addressed in many parts of the country if we are going to continue to see expansion in home ownership.

The Truth about Finding a Mortgage or Refinance Loan

Thu, 24 Mar 2011 12:36:05 GMT

There has been so much negative news about getting a loan that once might think that no one can qualify. The rules for underwriting a loan have definitely tightened up, but millions can still qualify, and there are still a number of special programs to help those who are more credit-challenged.

The FHA recently announced that they would accept applicants for loans down to 580 credit scores. Previously, the FHA credit floor was 620. While those who want to qualify with a down payment of 3.5% will need to have the higher credit score, those with 580 scores may be able to get FHA loans as long as they put in a 10% down payment.

The impression that many Agents and Buyers have that it is difficult to find lenders who will accept applications down to FHA limits turns out to be true. A 2010 National Community Reinvestment Coalition study found that only 5 lenders had policies that allowed for underwriting loans for applicants with credit scores as low as 580. That study also showed that 65% of lenders refused to handle loans for people with credit scores below 620 and 22% would not take applications for those with credit under 640. Some community leaders believe that turn-downs based on credit scores that are between 580 and 640 could be considered racially discriminatory, but mortgage specialists point out that lower credit scores are highly predictive of whether the mortgage will be successful.

Another mortgage truth that is little understood is that there are still options for people who are having trouble paying the mortgage because of unemployment. While the government’s foreclosure programs are under heavy scrutiny for elimination, they are still in place. Legislation to end these programs may not pass the Senate, or the President may choose to veto any effort to eliminate the foreclosure-fighting government programs.

One in particular is directed to help unemployed homeowners in the hardest hit unemployment states. There are programs in place in at least 19 states to help unemployed homeowners by providing up to $3000 per month in mortgage payments for up to 36 months.

There are also loan modification possibilities for homeowners who are behind on their loans. So far about 3 million homeowners have received a loan modification. A little-known option for those who are current on loans but up to 15% upside down on the mortgage is a Short-Refi. This particular program has only helped 245 homeowners since it was started several months ago, but it is still on the books for those who need to refinance and do not have the equity to qualify.

Financing Alternatives

Wed, 23 Mar 2011 16:55:11 GMT

Finding financing for clients is one of the most difficult challenges in the current real estate climate. The Agent who thinks outside the box is likely to find some solutions that go beyond the traditional lenders. Homeowners willing to think outside the box can also profit despite the slow market.

The alternative that is growing in popularity is owner financing. Buyers who need owner financing in order to qualify for a home are plentiful because at least 50% of potential homeowners cannot get a traditional home loan. People without W2 and other verifiable income don’t qualify for traditional lender financing. People with damaged credit or previous foreclosures or bankruptcies won’t qualify without credit repair and several years of waiting. Fewer people can make the higher down payment standards that most lenders require.

Many owners can’t sell, or can’t sell quickly enough, without offering financing. In many communities days on market for a traditional sale exceeds six months. Those needing to sell faster can get an edge up on the competition by offering owner financing.

Between 25% and 27% of all homeowners nationwide owe more than market value. A technique that is gaining recognition as an effective, if unconventional, way of selling a home that has no equity is called “mortgage assignment” where the house is sold subject to assignment of the mortgage to a new buyer. Other people become responsible for paying mortgages all the time and lenders rarely exercise a “due on sale clause.” Homeowners and Buyers who consider this option need to know that that acceleration of the loan for assigning the mortgage to someone else is a possibility, although a rare one. Buyers who can’t get traditional financing are often willing to pay 10% to 20% above market value for the privilege of being owner financed.

Owners with more equity might consider a “rent to own” or “lease option” instead. Unlike “mortgage assignment” the deed is not transferred until the Buyer’s option is exercised. The option payment is generally non-refundable but can be applied toward the down payment if the option is exercised. Until the Buyer finds financing and exercises the option they make rent payments.

Another approach if there is some equity is to “wrap” the existing mortgage with a second or with a mortgage with a higher interest payment that provides a little higher payment than the mortgage that the owner is continuing to pay. Again, there is a small possibility that the original mortgage holder will call that first mortgage due if permission is not gained to create the wrap.

Tax advantages go with whoever is named on the deed, so for an assignment of mortgage that would be the new Buyer and for a rent to own the current owner gets the advantage until the option is exercised. If the rent to own Buyer defaults before they exercise the option to buy contract the owner only needs to evict and all option and rent payments are forfeited. If someone who has been assigned the mortgage is now the deed holder then a foreclosure will be needed to take back the property if he or she defaults.

Owner finance is not an ideal solution for most individuals in need of selling a house. Sometimes it is the only way a property can be sold in a reasonable period of time and at a reasonable price without hurting credit or missing payments. It becomes, in effect, the best of a number of negative options.

Centering a Real Estate Business on Investors

Fri, 18 Mar 2011 12:41:31 GMT

One of our associates talked with a Real Estate Agent this past week who is about to open her own brokerage with a business model centered on services to Investors. She looked at the agencies already open and concluded that few other agencies in the MLS area have Agents who are focused on serving the needs of Investors, and brokerages do not have policies that recognize Investor needs either.

Agents looking for a niche would do well to analyze the market to see whether there is a similar opening for an Investor-friendly brokerage in their own area.

Here are some of the considerations that could make working with a boutique Real Estate Agency attractive to an Investor:

1. Quantity commission reductions for repeat services. Unlike retail homeowners Investors are likely to use a good Agent’s service over and over in order to buy and sell investment property. Brokerages make up the difference in commission by repeat and quantity business.

2. Expertise in marketing to and servicing distressed homeowners. Understand that the sooner the Agent can get to the distressed homeowner the more likely a solution will result short of foreclosure. It’s also important to start a listing at a price that is realistic within the marketplace and, if that means beginning the process for a Short Sale, that should be done as soon as possible.

3. Develop an extensive Buyer’s List that distinguishes between different types of buyers. Transactional buyers are Investors who will buy subject to an acceptable Short Sale approval and the ability to find an end buyer. The advantage to working with a transactional buyer in a Short Sale is they will generally stick with the Short Sale throughout the process and get the process started. Buy and hold Investors look for good wholesale rental deals and generally can buy quickly for cash. Rehabbers will buy wholesale and sell retail after a property is fixed up. Obviously, some retail buyers also look for bargains from distressed properties and belong on the Wholesale Agent’s Buyer’s List. All of these types of buyers will have different expectations, look for different types of distressed property, and have somewhat different pricing expectations.

4. Be prepared to think outside the box. The norms for retail Agents are often just the opposite for wholesale Agents. The highest price is not necessarily the best price. The nicest looking house is not always the house that will bring Investors flocking to buy. Selling fast and making up in quantity of deals what is lost in size of commission is the model that the Investor-friendly Broker will use.

Stock Investors are Flocking to Real Estate

Thu, 17 Mar 2011 12:43:50 GMT

Hedge fund manager, David Ackman, a noted contrarian investor, has started building his portfolio of single family homes. He is certainly not alone among big-time stock investors who are beginning to look at the real estate market to diversify. Warren Buffett is another well-known investor who has begun to add real estate holdings—in his case by adding to his portfolio a manufactured home builder and several real estate brokerages.

Why is Ackman concentrating on the single family market?

First, prices are down to historic lows. In some areas prices are at levels that have not been seen since the late 1990s. While prices have not stopped falling in areas that continue to be hard hit with foreclosure, other areas, including many cities along the coasts and inland job powerhouses in Texas, have appeared to turn the corner on the price decline and are primed for at least modest appreciation.

Second, the supply of distressed property available at wholesale prices remains high and will be around for a long time. At least 11 million homes are in some form of distress: homeowners have under water mortgages, they may already be in pre-foreclosure, or the homes have already been foreclosed and are in the inventory of homes that are bank-owned. Overall, prices have been pushed about 34% lower since the height of the housing market in 2007, and most of that price fall is the result of large numbers of distressed property in many markets.

Third, the cost of borrowing for real estate is lower in many instances than the cost of a margin account for stocks. Well qualified investors can still get loans for commercial real estate and for holding small numbers of residential real estate. Private money is also readily available for real estate investors right now, often at attractive rates.

Fourth, the long term prospect for investing in real estate is positive for appreciation because building has not yet kicked in in most markets. As jobs increase and people start moving again demand will outstrip supply in many communities. In those cities there will be upward pressure on home prices and rents in response to demand. There should be at least a three year window when prices will increase before supply begins to catch up in communities where building has been curtailed for years.

Contrarians like Ackman and Buffett usually peg their investments right by going in the opposite direction from the average investor. They buy low and sell high by getting in to markets that are still unpopular with the majority. Right now the housing market is one of those unpopular investment classes that are ripe for the picking by contrarian investors.

The Good, Bad and Ugly about Fannie Mae and Freddie Mac

Thu, 10 Mar 2011 17:26:24 GMT

Are you a foe or a fan of mortgage giants Fannie Mae and Freddie Mac? The GSEs have their share of supporters and detractors. It is clear that significant change will take place over the next five to seven years in the size and influence that these agencies will have, and they may even be scrapped altogether.

Federal mortgage assistance began in the 1930’s as a response to the Great Depression and has been greatly expanded over the years to include buying mortgages on the secondary market and providing loan guarantees so that private investors will feel safer investing in these types of securities. The Federal National Mortgage Association (Fannie Mae), specifically, was founded in 1938 with the purpose of securitizing mortgages in order to expand the secondary mortgage market. The Federal Home Mortgage Corporation (Freddie Mac) was started in 1970 to further expand the secondary mortgage market. By increasing the secondary market these entities increase the supply of money available to fund mortgages. Currently the GSEs support 90% of all mortgages written in the U.S. Most agree that this is too much influence in the mortgage markets, and it is too expensive to maintain.

In June 2010 both Fannie and Freddie were delisted from the NYSE because the value of each stock has fallen below the $1 per share mark for over 30 days. They were put under public conservatorship in September 2008 to stabilize the financially strapped mortgage giants. The GSEs have continuously required financial boosts from the Treasury Department to stay in business since they began to take on an increased role in buying up non-performing assets from the nation’s lenders in order to free up capacity for these lenders to make more loans.

The Administration has proposed severely limiting or eliminating Fannie Mae and Freddie Mac within the next seven years and the debate is ongoing in Congress as to which of several options is most appropriate. Of those economists who have weighed in on the future structure of Fannie Mae and Freddie Mac there seems to be some consensus that they should remain with a role as loan guarantors but should be limited as mortgage holders except perhaps in the most dire economic circumstances. In the current budget crisis most agree that something must be done to reduce the public expense associated with maintaining the GSEs.

The paring down of Fannie and Freddie, however, will cause some inconvenience and pain for the average consumer. Among the expected changes if Fannie Mae and Freddie Mac are considerably reduced:

1. The 30 year fixed mortgage may become a thing of the past. The 30 year mortgage has been a standard since the 1950s and it is in danger of becoming an expensive novelty if the GSEs no longer participate in loan guarantees. Longer terms make mortgages more affordable.

2. Private mortgage insurers will cost more, as will closing costs. It may become impossible to lock in a loan without an added fee. Down payments will be higher than they have been under government-backed programs.

3. Mortgage rates will go up. Estimates of the extra cost to mortgage buyers are from one to three points.

4. Many argue that without the GSEs recessions such as the most recent one would be much worse.

Change is going to happen in the impact that the GSEs will have in the future. The degree of change and timing are yet to be determined.

Making the Short Sale Buyer Stick

Tue, 08 Mar 2011 13:13:20 GMT

Agents often identify the problem of keeping the Buyer on the hook through the long and arduous Short Sale process as one of the most frustrating things about working on distressed sales. The situation is not hopeless; there are proactive ways to cut the likelihood that the Buyer will walk before getting to the closing table.

First, when the Short Sale is anchored by an Investor-Buyer who plans to quick turn the property, that Buyer has every incentive to stick with the sale until the process is complete. That Buyer is only likely to pull out if the approval comes through with a price that will not lead to any profit with a resale to an end Buyer. Often even when the profit has evaporated the B Buyer will simply bow out in favor of that “C” Buyer perhaps for a small assignment fee rather than to see the Short Sale fail.

If at all possible hold off on identifying an end Buyer until the Short Sale has been approved or perhaps after the Lender’s BPO is in place. As long as the end price is attractive for a 30 day sale the end Buyer can be recruited quickly near the end of the process. This method should especially be possible to use for properties that will be attractive to buy and hold Investors.

If you are looking for a retail end Buyer then a longer period of time may be needed to attract that person, and there are several questions that should be asked in order to assess how likely the Buyer is to stay the course. These include:

1. How soon the Buyer needs to be in the property. If the timeframe for possession is soon, then a Short Sale is probably not the right property for them to consider.

2. Is the Buyer flexible about the price and terms? If the Buyer is limited in what they are able to bring to the table, then a Short Sale is not the best vehicle for them because the Lender rarely accepts the initial offer. If the Buyer can’t afford to wait beyond April 17 they may be stuck with higher mortgage insurance expenses that could add hundreds of dollars each year to the cost of the loan.

3. Does the property have a lot of repairs and can the prospective Buyer afford to make them? There will be little to no possibility of negotiating with the Lender or the Seller to make these repairs before the sale is completed.

4. Can the prospective Buyer stand to wait perhaps months on end with little information about what is going on and little control over the situation? Buying a Short Sale is not a game for the impatient or the control freak.

5. How much does the Buyer really want the house? Are there many other houses that would match their needs at a reasonable cost, or is this “the one” they want?

If your prospective Buyer can pass the test with these five questions, then chances are strong that they can wait out a Short Sale even if the time to close is months away.

The Web is Your Best Friend When It Comes to Marketing

Fri, 04 Mar 2011 22:04:05 GMT

These days over 80% of all buyers start their home search online. Sellers also often begin their effort to find the right Agent and to compare home prices by doing online research. In today’s competitive climate the difference between a successful Agent and one that is unable to attract any business often comes down to online marketing.

A good website adds to credibility and helps to brand you. Even if as an Agent you are included in a brokerage website, have your own independent site as well to help brand yourself and make your services stand out. It’s neither expensive nor highly technical to create a website these days using a simple Wordpress or similar blog template.

The website should include your unique sales proposition or slogan that tells the community something about your focus, specialty or unique service. An “About” page should go into more detail about your focus and your credentials. Include testimonials from satisfied clients with your credentials or on a separate page. Your current listings and listings of recently sold properties will also be included on the site. If you don’t have your own listings currently perhaps another Agent from the same brokerage will allow you to co-list one or more of theirs.

Make sure you have a contact form on the website. In order to get people to contact you it is helpful to have a give-away that will be useful to either the home seller or the home buyer. When you get a contact make sure that you follow up. A quick follow up with a personal phone call or email will demonstrate that you are a real person and that you care about discovering how you can meet the needs of your contact. By adding these contacts to your buyers’ or sellers’ lists you have an opportunity to follow up regularly by sending out a periodic newsletter or email messages with tips that will be useful to the buyer or seller. This way, even someone who is not ready to buy or sell immediately will still have your name top of mind once they are ready to take action. Make sure that you have their verified opt in before beginning regular communication via email.

In order for the site to receive good search engine ranking do a little keyword research and make sure that the descriptions that you use on the home page and your other active pages include the exact keywords that people in your area search when they are looking for an Agent to either list property or buy property in your area. Google Keyword Tool is one free source of information for real estate terms that are searched most highly in your area. Look for “long-tail” keywords (multiple word keyword phrases) that fit the focus of your website but are still searched frequently enough to draw regular traffic to your site. Ideally, the keywords that are targeted will attract 80 searches a day or more. (This may not be possible in a smaller market.)

Another key to ranking highly in the search engines is to keep your website freshly updated with new information. Include a news feed, or add headlines from your blog on a regular basis. Keeping a blog or a newsletter is a good way to be seen as an authority in your field and the “go to” person for the kinds of services you specialize in. Ultimately, that is what you want to achieve with your website—the credibility of being widely recognized as the best Agent in your market segment.

Now is Not the Time to Get Discouraged

Thu, 03 Mar 2011 17:06:36 GMT

Reports from the NAR indicate that Agents are getting weary of the constant struggle to sell homes in a market where fewer people can qualify for a loan even when homes have rarely been more affordable or interest rates lower. At the same time at least 5 million American homeowners are still in danger of a loan default. The need has never been greater for the expertise of those trained to bring home sellers together with home buyers.

Now is not the time to throw in the towel; it’s time to think outside the box. There is no question that Agents are greatly needed to walk homeowners through the Short Sale process and help them organize hardship files. Agents need to stay in close touch with the Short Sale process to make sure that lenders stay on track. They need to make sure the lender’s BPO Agent gets all the information they need to make an informed decision on the price.

While values continue to go down, and will continue to do so as long as do much distressed property is on the market, any Agent who take the opportunity to fill up the pipeline with as many Short Sales as possible will eventually reach a point of perpetual deal flow. It is possible to make up with quantity what has been lost in quality deals.

Short Sales do not need to be the scourge of the real estate business. By working with a professional negotiating team much of the more frustrating part of the process can be farmed out to experts who are used to working with Lender Loss Mitigators. Frustrated by Buyers who can’t wait through the long Short Sale process? Switch your tactics to use an Investor Buyer as the one who waits through the process. Investor “B” Buyers have no reason to back out of the deal. The more deals they have in the pipeline, the better. Getting the process started with a “B” Buyer provides some time to find the right end Buyer once the price is approved and it is clear what the final profit spread is likely to be.

If Short Sales aren’t your thing, perhaps REOs will be. These two distressed property types represent 30-50% of the home sales in many markets. In fact, according to Campbell Surveys HousingPulse survey, January sales were 49.6% distressed homes. Agents who specialize in these areas will find that business and job security are good and will continue to improve for several years to come.

Improving the Foreclosure Help Process

Thu, 24 Feb 2011 13:54:09 GMT

There are some lessons to be learned from a recent Nevada Association of Realtors (NVAR) survey of distressed homeowners in that state. The report from the study, “The Faces of Foreclosure,” really helps to put the human element into the foreclosure equation and brings some clarity into what is going wrong with the process.

Nevada is a particularly useful laboratory for this research because Nevada has led the list of foreclosure states almost since the beginning of the crisis and has almost five times as many foreclosures as the national average. In the fourth quarter of 2010 one in every 31 Nevada residences had some sort of foreclosure filing according to RealtyTrac.

The August 2010 survey reached 500 Nevada homeowners in who had received at least one foreclosure filing in the past 12 months. Almost half had lost their home by the point of the survey, 16% had been helped to avoid foreclosure and 30% were still in the process.

Of these homeowners 86% had attempted to get in touch with lenders about their distress situation. Real Estate Agents were contacted 40% of the time, so obviously Agents play an important role in getting help for these people. Only 23% had worked with a foreclosure counselor.

Attempts to get lender help were met with numerous obstacles and 58% said that they received no help on alternatives to foreclosure from their lender. Only 12% found their lender very willing to help. The biggest problem was finding someone consistently who could deal with the problem authoritatively. Clearly, there is a need for lenders to increase both quality and quantity of staff capable of making some decisions about appropriate foreclosure alternatives.

HAMP hasn’t helped these distressed homeowners. Only 3% reported that they received positive help through the HAMP program, while 7% said going through HAMP actually hurt them and 15% said HAMP made no difference in the process. Only 41% of the respondents had even heard of HAMP and only 25% had used this program. Another 5% said they didn’t qualify for HAMP and 24% said they knew of the program but didn’t use this process.

The government’s HAFA Short Sale and Deed-In-Lieu program, HAFA fares even worse. A whopping 61% of the respondents didn’t know about HAFA, while 10% said they used the program and only 2% said they’d been helped by it.

Homeowner experiences with Short Sales of any kind have not been encouraging. While 35% of the respondents had tried a Short Sale, only 10% had been helped by the Short Sale, 9% said it made things worse and 16% said it made no difference. The biggest problem cited to failure by 56% of respondents was the complexity, slowness and confusion generated by Short Sales. A total of 61% of those surveyed said that simplifying the Short Sale process would have helped them, and this is one of the biggest take-aways from the survey.

Lender processes must be streamlined and particularly those that relate to Short Sales. NVAR’s report agrees that there is no one magic bullet that will stop foreclosure, but servicer attention to make the process faster and easier and to have one authoritative point of contact within the lender’s operation for each distressed homeowner would help. Lenders must make every effort to contact distressed homeowners and make a clear assessment of realistic alternatives to foreclosure very early in the distress process. Eliminating or reducing deficiency judgments is another way lenders can get more distressed homeowners through the process.

What can Short Sale Agents do? Off-loading as much of the contact with lenders as possible and assisting with preparation of hardship documentation are two positive steps. Make sure the negotiator handling the homeowner’s case is highly trained and experienced. These negotiators will have the greatest success getting to the lender decision-makers and coming out with a successful deal.

5 Ways to Ban Boring Advertising

Thu, 24 Feb 2011 13:51:55 GMT

The newspaper is riddled with boring Agent ads that fail to differentiate one Agent from any other. Each day each person is exposed to about 3,700 marketing and sales pitches. What most people see is boring and utterly forgettable. What you must do with your ads is to stand out from all the overwhelming clutter of messages.

The Agent ad that annoys me the most are the business card ads in the local paper is some slight variation of this: there is a picture of a perky Agent with the slogan, “Pam knows real estate.” As a licensed Agent I would hope so! The problem is, presumably every Agent “knows real estate.” What is Pam’s specific niche or specialty? Is she a Short Sale specialist? Does she work exclusively with luxury home sellers? What is her unique sales proposition?

Here are five ways to stand out from the crowd and to amuse, inform and make your services memorable in the minds of potential clients:

1. Don’t assume that you are your customer. What you like may not be what they like. You may be uncomfortable with over-the-top or amusing advertising, but your clients will remember it. If you are unsure, do a number of different advertising pieces and track response.

2. Look for ideas in obvious places. One of the most memorable to come out of the Internet marketing field in recent years, for example, was a napkin that a marketer used to scribble a flowchart of his process to make money. He copied the napkin and gave away the image as a give away in exchange for sign-ups to his list.

3. Also look for advertising opportunities in less obvious places. A well-known Investor in a beachfront community sells luxury homes by holding crazy open house events that feature him being shot out of cannons or doing motorcycle stunts. Marketing expert, Rich Schefren, calls this over-the-top form of advertising “outrageous advertising.” These types of spectacular events attract plenty of press. When you score a feature article in the local press, an interview on local TV with B-roll (a short segment with your message), or you simply put that video out on YouTube, your message can go viral quickly.

4. An ad can be turned into an “advertorial” and put out as a news story, even if it is not specifically featured as such in the press. Copies of that advertorial can be sent out in mailings to potential clients as part of your credibility package.

5. Don’t be afraid to create and use a “swipe file” of the best examples of advertising that may work for your situation. As long as the ad is in a different market, avoids using trademarks of someone else, and is changed to fit your situation, there should be no copyright or trademark difficulty.

You’ll find that using a little imagination to separate your advertising from all the rest is both fun and a much more effective than the vast majority of ads from the competition.