"More regulations from DC affect loan modifications and foreclosures"
Spring Home Buying Season Off To Early Start"
According to John Burns, CEO of John Burns Real Estate Consulting, real estate has “never been more affordable”. He backs up that statement by illustrating how the 3.5% interest rates are allowing home buyers to purchase more home for the same price as when rates were around 6.1%. Conversely, it’s also reflected in how little the average mortgage payment eats into our monthly budgets as a percentage.
He also predicts that home values will rise about 40% over the next two years because the Fed will not be moving on interest rates at all in the near future, and supply is beginning to dwindle.
So, does this mean we’re headed for a new bubble? Or, could this be the major correction the real estate market has been waiting for? Depends on who you ask, I suppose.
There are those who believe that this is just what the doctor ordered. Values are beginning to come back to normal. People are earning their equity back, and it’s a seller’s market again. Low interest rates have made all this possible so it must be good, right?
Well, yes and no. Low interest rates are definitely fueling the housing recovery but what we absolutely do not want again is another ginormous bubble that’s just going to leave us worse off than when we started. Quantitative easing and low interest rates are fine… until you have to pay the piper. Have you ever wondered why the stock market is doing so great in such a bad economy?
Low interest rates.
When investors can’t make a buck on traditionally secure long term instruments, like bonds and treasury notes, they have to park their money somewhere that's going to bring a return. But what do you suppose is going to happen if rates start shooting up again because inflation is out of control? There will be a mass exodus from equities and back into safer investments. Can you say “Geronimo”?
And what if these low rates begin to again artificially inflate the values of homes? It's like deja vu all over again. You see where I’m going here?
What we need is a smart Fed policy that can do the high-wire act of keeping rates low enough to fuel the recovery but not too low so that we don’t have runaway inflation. I agree, it’s a tricky gig and I don’t think I’d want to be in Ben Bernanke’s shoes right now.
That being said, we need to get while the getting’s good, so if 3.5% is going to be here for a little while this may be the time to make your move on a new home or refinance.
Well, the Feds are at it again, issuing even more rules and regulations aimed at protecting homeowners who may be facing foreclosure. It’s been almost a full-time effort just keeping up with all the mandates out of Washington, so we’ll try to give you the straight skinny here; unfiltered and in the simplest terms possible.
These new regs, which take effect in January of next year, are coming out of the Consumer Financial Protection Bureau. The one that’s going to probably have most people talking has to do with something called “dual –tracking”, which prevents lenders from foreclosing on borrowers who are actively seeking a loan modification. This rule requires lenders to seek other alternatives to foreclosure in order to assist the borrower, and if the lender is “tracking” the borrowers application for a loan modification they cannot file the first foreclosure notice until the borrower is at least 120 days past due.
So far, so good.
But the rule goes even further. If, after the house is scheduled to on the auction block by the bank, the borrower decides to apply for a loan modification, the bank must respond to the application as long as the application is received 37 days or more prior to auction. They also have to give additional time for the homeowner to find alternative ways of avoiding foreclosure if the loan mod is declined.
It’s easy to see how this could be used as a way for borrowers to use this time as leverage in either saving their home or having the time to make other arrangements.
The only problem for California homeowners is that this is what’s known as a “non-judicial” state and most people are not going to be given more than 37 days notice if there’s a foreclosure auction. So, unless these rules are going to uniformly applied to all “judicial” and “non-judicial” states, it could become confusing.
For a complete rundown on the new regulations, we recommend you follow this link for all the details:
One question we get asked all the time is, "When is the housing market coming back?"
Well, for Bay Area home owners that answer may already be self-evident as prices in many areas have soared more than 20% in the last year alone. While much of the news out of California has been bleak, Silicon Valley has been charging back with a vengeance. There have been the blockbuster IPO's like Facebook, and others not so well known, but there is also a recent phenomenon also playing a major role in the recovery: Chinese capitalists.
Now, for many of us that term may seem like an oxymoron but the fact is that there are more millionaires being made in China than anywhere else in the world right now. It is a booming economy and these nouveau riche are looking for safe places to invest their money. Apparently, the word has gotten out that Silicon Valley is just such a place.
One of the big draws, besides the technology centered economy, beautiful landscapes and amazing weather, are the excellent school systems in places like Palo Alto, Cupertino and Los Altos.
There is so much enthusiasm for Bay Area real estate right now that bidding wars are taking place on many listings, a spectacle not seen for at least 10 years.
We're hoping that this upsurge will spill over to other parts of California, like Sacramento, but for now, the Peninsula and South Bay are leading the nation in a real estate recovery.
Now, with the election finally behind us, we can start looking ahead to the new year with a little more clarity on what to expect for the economy and the housing market. One of key changes in the real estate outlook that we’re predicting is an extension of the Mortgage Forgiveness Debt Relief Act.
Just a quick refresher, this law was passed by Congress in 2007 as a way to minimize the potential tax liability of homeowners who sold their homes by way of a short sale and had large amounts of debt forgiven by banks as a result. This legislation has helped to pave the way for millions of upside down borrowers to sell their homes without being penalized by the IRS for a deficiency that wasn’t their fault.
Although this law was scheduled to expire on December 31st of this year, there is already a bill moving through the Senate which would extend it to the end of 2013, giving borrowers another full year to take advantage of the relief. This bill also includes tax credits for remodeling and home construction. Because President Obama was re-elected, we anticipate that, if passed, he would sign this bill into law since he has previously signaled that he would support such legislation.
So, for all you Sacramento and Bay Area homeowners out there who are still on the fence about this whole short sale concept, this may be your chance to give it another look. We’ve had tremendous success negotiating short sales for our clients and can do the same for you. If you’re upside down in your home loan and are looking for a way out of your current situation, just give us a call. The consultation is always free.
Since the housing bubble burst several years ago, one of the greatest challenges for lawmakers and the marketplace has been how to assist borrowers who, through no fault of their own, found themselves upside down in their mortgages. There is still a backlog of about 5 million delinquent mortgages and one of the most popular remedies for these homeowners has been the Short Sale.
We’ve talked about short sales many times on this site and our blog but here’s a quick refresher: a short sale is when the lender agrees to allow the house to be sold for less than what is still owed. So, for instance, if someone borrowed $500,000 six years ago at the top of the market, and today that house is worth only $300,000, the borrower may accept a loss of difference just to get the bad debt off the books. Foreclosure is the worst case scenario, not only for the borrower, but also for the banks because it can end up costing them even more in the long run.
One of the only problems with the short sale option had been the fact that, traditionally, debt forgiveness has been looked upon by the government as taxable income. This fear of taxation kept the market somewhat stagnant with regard to short sales until the Congress passed the ”Mortgage Debt Relief Act and Debt Cancellation”, which essentially eliminated the tax penalty for short sale sellers. Once the public became aware of this loophole, the short sale business exploded.
Unfortunately, all of that momentum may come to an end as the Mortgage Debt Relief Act expires, along with the “Bush tax cuts”, on December 31st of this year. It’s hard to believe, but this is a mere 3 months away!
What that means is that if you are a homeowner who is considering a short sale, NOW is the time to get started on the process. Short sales can take time, but if the paperwork is filed and accepted by your lender prior to the expiration date, you can still take advantage of the tax savings. For many homeowners in Northern California that could translate into thousands of dollars in savings!
Although some are calling for the extension of this law, there are no guarantees that the Congress will act on it. We don’t know how the election in November may change the attitudes towards taxation and the real estate market, but we do know that waiting until the last minute is not a recommended strategy. The banks will be flooded with requests as the deadline grows closer, so the operative phrase at this particular moment is ACT NOW.
We at Granite Equity Group cannot stress this enough. If you have questions about whether a short sale is right for you, just pick up the phone and give us a call. We’ll be happy to advise you on your options depending on your particular situation. The call is free and so is the consultation.
We’d like to pass along some good news just received from Bank of America. They are now offering what they call, “enhanced relocation assistance.” This is available only to qualified homeowners who initiate a Preapproved Price Short Sale through their bank. Upon doing so, you could be eligible to receive from $5000 - $30,000 in relocation assistance whiling eliminating the remaining balance on your mortgage!
Of course, there is plenty of fine print along with terms and conditions that must be met but this is a nice spot of good news for those who qualify. Imagine successfully short-selling your home, being debt-free on the mortgage, AND letting BofA pick up the tab for your move!
We think it’s well worth looking into, so we’ve reposted some of the press release below for more detail. Call us at Granite Equity Group if you’ve got questions or would like to apply for a short sale on your home.
There was a lot of excitement about HARP, the Home Affordable Refinance Program, when it was first launched back in March of 2009. It was created to assist the nearly 5 million borrowers with upside down mortgages to refinance into a fixed rate loan and a reduced monthly payment. Unfortunately, the program didn’t really live up to all the hype because of all the fine print and various hoops that were necessary to jump through in order to qualify for the program. For example, a homeowner would have to be able to show a loan-to-value ratio of between 80% and 125% in order to be eligible. But in many markets, like Sacramento, homes lost as much as 50% of their value making it impossible to qualify. As a result, less a million borrowers nationwide were able to refinance through HARP.
The new and improved HARP program, known as HARP 2.0, took effect on December 1st, 2011 and starting in 2012 became available to borrowers with an LTV of more than 125%. This is a major game changer for homeowners with underwater mortgages, especially in Sacramento and the Central Valley region.
There are other changes to HARP that make this upgrade a winner:
One requirement that hasn’t changed is that your mortgage must be held by either Fannie Mae or Freddie Mac, which most are, but if you’re not sure just call us at Granite Equity Group (916-560-3731) and we can help you find out. We can also help you to find out if you meet the other eligibility requirements.
We’re very excited about the new HARP 2.0, and if you’re a homeowner looking to get out from underneath of your upside down mortgage you should be too. We believe that this new and improved HARP could give a lot of frustrated borrowers the break they've been waiting for. Click here for more details on HARP 2.0
We’ve been hearing a lot lately about President Obama’s plan to assist homeowners in an effort to stabilize the current housing market. There seems to be some recognition on the part of banks and the Federal Government should step in and take an active role in fixing a problem that their policies and practices helped create, and we think that’s a good thing. If you’re a homeowner who is underwater in your mortgage, behind on your payment, or hoping to refinance, this could be welcome news for you.
In an effort to keep Sacramento homeowners well informed, we’ve looked at some of the key aspects of the President’s plan and how it might make a difference for your situation:
This plan so far has broad-based support, including the California Association of Realtors and the National Association of Realtors. You can view the full details of this plan on the White House website.
All of us at Granite Equity Group like to take this opportunity to wish our clients, partners, friends and families a very happy and prosperous New Year!
We’re excited about 2012 and are looking forward to more growth and expansion during the coming year. Interest rates are at historic lows and lenders are relaxing ever so slightly to make home buying a possibility for even greater numbers of people.
For buyers, the entire region is chock full of incredible homes and properties selling for excellent values. The short sale market is also in full stride with more and more sellers taking advantage of this very popular and effective option.
The Sacramento area has so much to offer, which is why we’re confident and optimistic about the future of our local market. Housing prices may rise and fall but one thing that remains constant is the geographic advantages this region has to offer. Perfectly situated between the Bay Area and Lake Tahoe, we enjoy some of the best what California’s famous for; weather, fresh local food, entertainment, shopping and outdoor recreation.
We’ve met lots of new people this year, including clients and partners, who have been a part of our growth. We hope your year brings everything that you wish for and we appreciate the difference that you’ve made in our business and in our lives.
All the best,
Tim Leingang & Garrett Rease
There’s great news to announce this month for California homeowners considering a short sale. New legislation, SB 458, was just signed into law by Governor Jerry Brown, which prohibits banks and other lending institutions from pursuing borrowers for any losses incurred as a result of doing a short sale. So, as of July 15th, if the bank provides approval in writing for your short sale they are effectively forgiving that portion of the debt that is lost in the transaction. No more deficiency judgments, no hassles, just a clean slate.
This is very big news for a number of reasons. Many potential sellers have been sitting on the sideline because of their concern over whether the deficiency would follow them long after the sale and lead to additional financial hardship and credit issues. With a relatively slow moving market, this could open the door for more buying and selling to take place, giving the Sacramento real estate market the shot in the arm we’ve been waiting for.
For those who have been considering a short sale, one of your major potential setbacks has been taken off the table. I know some people still have other concerns, but when facing a potential foreclosure, we believe the short sale option is the lifeline that many homeowners are looking for.
Just look at the benefits:
If you’ve recently been turned down for a loan modification, are suffering a financial hardship and are underwater on your mortgage, you may want to explore the short sale option. Now with the law on your side it pretty much eliminates any downside risk, and we think that’s a very good thing.
If you're a homeowner looking to sell your home but find yourself in the unfortunate position of being upside down in your mortgage, what are your options? For many it's simply of matter of hunkering down and riding out the storm until real estate prices work their way back up to pre-crisis levels. Considering that housing values in Roseville and other surrounding areas are nearly half of what they were just five years ago, when the buying boom hit it's peak, that may take a while.
So, what if you're not in a position to wait? What if, for reasons beyond your control, you absolutely must sell your home? Maybe you've recently been laid off, or have experienced some other form of hardship like a divorce or death of a spouse. Maybe your adjustable rate mortgage just reset and you simply can't afford the payments any more. I don't mean to be morose, but these are real life situations being experienced by thousands of real people in our communities every day. You may know one of them, or you may be one of them yourself.
As a real estate broker, I'm constantly asked for advice on these types of problems and the good news is that there are solutions out there if you know where to look.
The worst thing a person can do is to do absolutely nothing. If you can't make your payment and are in pre-foreclosure, you don't have to wait for the "inevitable" and just hope for the best. The fact is, the banks want to resolve your problem almost as much as you do. If you look at it from their perspective, they don't want you to be foreclosed on. That's a costly and time consuming process. And they certainly don't want for you to just walk away. Their goal is to recoup as much of their initial investment as possible, and the best way of doing that is by working with you, the borrower.
Many borrowers, especially those in adjustable rate mortgages, have been able to renegotiate their mortgage terms through loan modification. Banks still continue to modify loans, but the requirements are somewhat stricter than they were a couple of years ago after the market collapsed. You still need to "qualify" for the payment you're attempting to renegotiate, so a solid income and work history are a must. Otherwise, they look at it as just putting off the inevitable.
Let's say you don't qualify for, or don't need, a loan modification. What then?
That would be the point where I would recommend looking at a short sale. A short sale is when the bank agrees to let you sell the home for less than what you owe on it. So, let's say you bought a house in Roseville five years ago for $450,000 and today your real estate agent tells you that the best you could hope to get is only $275,000. That's a difference of $175,000! You know there's know way you could come up with that kind of cash at closing, but you absolutely must sell the home, so you tell the bank you want to do a short sale.
Here's what the bank is going to want from you:
First, they'll want to know why you absolutely must sell the home. What is your hardship? This has to be explained in a hardship letter. It can't have anything to do with not liking your neighbors, or the neighborhood, or you just need a bigger place, etc. They want to know that a short sale is the only thing that's going to save you from being foreclosed on. Examples of hardship include unemployment, divorce, bankruptcy, medical bills and death.
Second, they will need to be shown that the house is worth less than what you owe on it. This can be done very easily by using what’s called a BPO (Brokers Price Opinion). The professional real estate broker does their analysis primarily by using apples-to-apples comparisons of recently sold homes in the immediate area. The bank may also order an estimate from a licensed appraiser.
Third, the bank will want to verify that you have no assets that could be used to offset their expected losses. Do you have a 401K sitting around? How about that condo you inherited ten years ago? It’s all fair game and will be part of the bank’s due diligence in determining whether to allow the short sale.
Fourth, they will require that you have a legitimate offer from a qualified buyer. Although some buyers may want to take advantage of your distressed situation to make an unreasonable offer, a good buyer’s agent will understand that the bank is also trying to mitigate their losses and keep the offer in line with the fair market value. That’s why it is always important to deal with only reputable licensed real estate agents for a short sale, or any sale for that matter.
If, after satisfying these basic requirements, the bank agrees to the short sale, the process proceeds very much like any other real estate transaction. Always make sure to get your approval in writing before taking it to the next step.
I often get asked about the tax implications of short sales and, for most people, this is not an issue at all. Thanks to the Mortgage Tax Debt Relief Act of 2008, you are generally not liable for taxes on losses from short sales as long as the mortgage was a purchase money loan and you didn’t take equity out of the house to spend on things other than home improvement.
Recently, the state of California went one step further in 2010 when it passed SB931, which protects borrowers from banks seeking a deficiency judgement in order to collect unpaid balances from short sales. In short, if the bank approves the short sale in writing, then they are not allowed to pursue you for their loss.
As for credit damage, with some fiscal discipline, good work history and steady income, many borrowers can be back in the real estate market within just a couple of years. While the bank will report that the closed account was “Paid in Full for Less than Agreed”, this is far less severe than showing a foreclosure which can stay on your report for seven years.
I hope you’ve found this information helpful, and if you have any questions about short sales and want to find out if it’s a good fit for your situation, just give us a call.
All the best,
Right now there seems to be a lot of confusion about what’s happening in the Sacramento housing market. Is it up? Is it down? Is it sideways? What does the future hold? At our recent golfing fundraiser that seemed to be the conversation of choice while waiting on deck for the next tee shot.
Since I’m not a professional fortune teller, I try to avoid predicting the future. But as a real estate professional, however, I can tell you what’s working and what’s not working right now. And if I’ve learned anything from my years in this business, having seen all the ups and downs, is that there are always – and I mean ALWAYS – great opportunities if you know where to look.
The housing market is a little bit like the stock market in some ways. Regardless of which way the market is going, there’s always someone making a profit based on the direction it moves. And like the stock market, people can make money selling long and they can make money selling short – which leads me to my topic.
If anyone were to ask me right now, what’s the best opportunity for buyers (and sellers) in today’s real estate environment, I would have to say the “short sale”. There has absolutely never been a time like this for people who are looking for a bargain on a home and want to create some instant equity for themselves. There’s also never been a time like this for sellers who are upside down in their mortgage and looking for a way out of the situation.
Banks are normally not in the habit of just forgiving hundreds of thousands of dollars in debt to their borrowers, but, as the saying goes, “Drastic times call for drastic measures”. For them, it really comes down to the idea of the lesser of two evils; one being foreclosure, the other being a short sale. Either way, they’re going to be writing off losses, the only question is how much do they want to lose?
The short sale has turned out to be the Win/Win for just about everyone involved. The buyer wins by usually getting a deeply discounted price for a new home. The seller wins by avoiding foreclosure, getting out of an upside down mortgage and suffering much less damage to their credit than what would’ve resulted from being foreclosed on, and they can get on with their lives. The bank wins by cutting their losses, and the real estate businesses win by having a wonderful new opportunity to offer. Let’s not forget to mention how the communities and neighborhoods benefit by all the economic activity that is generated by a housing market that’s moving.
If you happen to be one of those people who are upside down in your home and suffering a financial hardship, the short sale could be a very viable alternative to foreclosure. And if you’re a buyer, you need to get while the getting’s good. For Sacramento’s real estate market, that’s the long and the, uh, short of it!
Look for my next blog on How to Qualify for a Short Sale.