Home Sales Tank

Existing home sales plunged in December, falling nearly 17 percent from November in their largest month-over-month drop since record-keeping began. Meanwhile, December’s inventory represented a 7.2-month supply of unsold homes, notably higher than the 6.5-month supply recorded in November, the National Association of Realtors reported Monday. Although the monthly decline was larger than expected, the figures are much less jarring when compared with December 2008. Existing home sales remain 15 percent higher than a year earlier, while raw unsold inventory fell 11 percent from December 2008 to its lowest level since March 2006.

Although the monthly drop-off was steep, it had been expected for some time. Buyers scrambled to close transactions by November to qualify for the $8,000 first-time home buyers’ tax credit, which was originally set to expire at the end of November. The credit–which was later extended through June–worked to juice home sales figures in November at the expense of December. “The collapse in sales simply reflects the bringing forward of transactions to beat the originally planned expiration of the first-time buyer tax credit,” Ian Shepherdson, chief U.S. economist at High Frequency Economics, said in a report. Here’s a look at what the December existing home sales report means for homeowners, home sellers, and home buyers:

[See Getting a Mortgage in 2010: 10 Things to Know.]

For homeowners: Property owners who have watched home values at the national level drop roughly 30 percent from their 2006 peaks will see some optimistic-looking data in the report. First, the national median existing home price increased 1.5 percent, to $178,000, from a year earlier. That’s the first time median home prices have posted an annual gain since August 2007. Home values began stabilizing in the back half of 2009, thanks to increasing demand linked to cheap mortgage rates, more affordable prices, and Uncle Sam’s tax credit. However, the increase in median home prices is also tied the tax credit’s original expiration, which resulted in a larger percentage of sales to higher-end buyers in December, said Patrick Newport, an economist with IHS Global Insight, in a report. “Going forward, prices are likely to fall from December’s level because of rising foreclosures,” Newport said.

How much further will home prices fall? Mark Zandi, chief economist at Moody’s Economy.com, argues that home prices have another 10 percent or so to fall before they hit bottom in the third quarter of 2010.

[Also see Expanded First-Time Home Buyer Tax Credit Becomes Law.]

For home buyers: Those looking to purchase a home this year should be encouraged by the report, which signals that buyers will at least retain leverage in the real estate market through the spring season. Buyers already have a number of things going for them. The tax credit has been extended and expanded to include even current homeowners who close a transaction by the end of June. Thirty-year, fixed mortgage rates fell below 5 percent for the week ending January 21. And the housing bust has dragged home prices down to more affordable levels and reduced the risk of another crash. “You never know 100 percent whether you are at the bottom in prices, but prices are very stable right now,” said Zach Pandl, an economist at Nomura Securities. “Low prices, low mortgage rates, and stable price expectations are major positives and probably more important fundamentally than the first-time home buyers tax credit.”

But would-be home buyers should keep their eyes on mortgage rates, which are likely to head higher as the year progresses. The Fed was able to pull rates on 30-year fixed mortgages to historic lows by launching a program to buy up debt and mortgage-backed securities from Fannie Mae and Freddie Mac. The program, however, is slated to expire at the end of the first quarter. And if private buyers don’t step in, mortgage rates could increase significantly, perhaps by a half a percentage point, to 5.50 percent. But Pandl isn’t overly worried about this potential to drive rates higher because the Fed could always decide to buy more securities if need be. “[The Fed is] exiting the market but they also have been hinting that they can return if mortgage rates rise too high,” Pandl said. “And that’s a very credible [possibility] because they have bought so many [mortgage backed securities].”

For home sellers: Although home sales should rise from December’s depressed levels, those looking to sell property this spring will still have to have to work for it, said Guy Cecala, the publisher of Inside Mortgage Finance. “[Home sellers] should feel probably better than last year, but it was so bad last year that that’s not a real fair comparison,” Cecala said. “Anything is going to look better probably in the first half of this year than it did last year.” That means home sellers will have to price their home aggressively, ensure the property is in tip-top condition, and be willing to entertain offers that aren’t quite as strong as they would like. “I don’t think anybody is going to be raising their prices,” Cecala sad.

The Rich Can’t Get Loans

$8 million in assets – and can’t get a mortgage

By Les Christie, staff writerJanuary 20, 2010: 9:45 AM ET

Even refinancing a mortgage for their fancy digs or getting a new loan can be near impossible these days thanks to skittish lenders. And the higher the loan value, the more they worry.

“It’s amazing really,” said Susan Bruno, a financial planner with Beacon Wealth Consulting in Rowayton, Conn., “but it makes sense when you think about it.”

For one thing, many rich folks have fallen behind on their loans. About 12% of U.S. mortgages of $1 million and larger were late this fall, twice the rate for loans under $250,000 and nearly triple the default rate on million dollar mortgages 12 months earlier, according to First American CoreLogic Inc., a California-based research firm.

It was so simple to get jumbo loans just a few years ago. The wealthy barely had to pay a 0.2 percentage point premium over a conforming loan, according to Keith Gumbinger of HSH Associates, a publisher of mortgage information.

Lenders made the loans more expensive because they are too large to be bought or backed by the government through Fannie Mae and Freddie Mac. Today the increased risk is worth about 0.8 percentage points, although that is down from the high of about 1.8 points in late 2008.

“The pendulum has swung from one extreme to the other. Banks are going overboard,” said Lyle Benson, a financial planner and member of the executive board of the American Institute of Certified Public Accountants.

That includes asking the affluent for down payments well in excess of the traditional 20%, according to Bruno. Some lenders want loan-to-value ratios to be closer to 60%, even 50%, which means putting 40% or 50% down. Or, on a million-dollar home, having $500,000 ready to hand over.

And all the other underwriting aspects of the loan have to be in place as well, something that can be difficult to demonstrate with some wealthy clients, whose income and assets can be complicated.

One client of Benson’s, with $8 million in assets, wanted to refinance the mortgage on his primary residence.

A self-made man, he had sold a business and put much of the proceeds in a charitable remainder unitrust that paid him $150,000 a year. He took paper losses in his stock portfolio against that income, however, which lowered his taxable income. The cash flow stayed intact but the income he showed was much lower.

“The loan officer didn’t understand it,” said Benson, “and the bank declined the loan.”

Susan Bruno has a client who was turned down for a mortgage twice — despite an 800 credit score, more than adequate down payment and plenty of income.

The problem was that the client wanted to buy a second home. And because the client would not, could not, swear that he would occupy the home at least 75% of the time, lenders weren’t interested.

“Mortgages for second homes have been tough to get the past couple of years,” said Gumbinger. “A lot of second-home areas, like in Florida and Arizona, are among the most challenging markets.”

Plus, defaults on second-home mortgages are often handled differently than those of primary homes. The mortgage balances, for instance, can be reduced in bankruptcy court — “crammed down” in industry parlance — to their market values. That can wipe out a good portion of what borrowers owe, which banks hate. As a result, they often require a 50% down payment for second homes.

All in all, the wealthy simply have financial problems that we ordinary mortals can only dream of. Take the doctor client of Bruno’s with a home on 19 expensive acres of Connecticut countryside. He had more land than he needed and some time ago toyed with the idea of subdividing and selling it off.

Well, the market changed and he shelved the idea — but only after taking some preliminary steps. Last year, when he tried to refinance his mortgage, this rose up to bite him. His bank wouldn’t count the sub-dividable land, worth $8 million, as collateral because it was now a separate parcel.

“[His bank] only counted the house and a small piece of land,” said Bruno. “His lenders limited him to a loan of $1.3 million.”

For Bruno, that’s part of a trend of lenders falling back on rules and guidelines that make little sense sometimes when dealing with the individual cases presented by some high net-worth individuals.

“There’s no appropriate business judgment these days,” she said.

Aren’t you glad you’re not rich? 

Harder to Get Loans

NEW YORK (CNNMoney.com) — It’s going to be harder to get a government-backed mortgage from now on.

Looking to shore up its weakening finances, the Federal Housing Administration is set to announce stricter standards on Wednesday.

The FHA will also reduce the amount of money a seller can provide a homebuyer for closing costs, as well as tighten its enforcement of lenders.

“Striking the right balance between managing the FHA’s risk, continuing to provide access to underserved communities, and supporting the nation’s economic recovery is critically important,” FHA Commissioner David Stevens said in a statement. “Importantly, FHA will remain the largest source of home purchase financing for underserved communities.”

FHA loans have skyrocketed in popularity during the mortgage crisis since the agency backstops banks if borrowers stop paying. But housing experts are growing increasingly concerned about the agency’s ability to handle rising numbers of defaults. (Cash cushion shrivels for FHA.)

In November, the agency reported that its reserve fund has dropped to .53% of its insurance guarantees, well below the 2% ratio mandated by Congress and the 3% ratio it had last fall. The fund covers losses on the mortgages the agency insures.

Federal housing officials, who took several steps to shore up the agency’s finances last year, promised to do more at a congressional hearing in December. The new announcement is the latest set of changes to FHA policies.

FHA is making these changes in order to bring its reserve fund up back up to the 2% ratio, Stevens said in a conference call with reporters. However, the agency also wants to make sure that the new rules don’t disrupt the housing market and don’t hurt FHA’s ability to assist the underserved.

The agency will increase its up-front mortgage insurance premium to 2.25%, from 1.75%. It will also ask Congress for the right to hike its ongoing premium, currently as much as .55% monthly. The agency will then shift some of the increase in the up-front premium to the ongoing charge.

Raising the premium is the best way to add to the reserve fund, Stevens said.

The move isn’t likely to hurt borrowers much, said Thomas Lawler, founder of Lawler Economic & Housing Consulting. Most homebuyers will likely finance it so it will only bump up their monthly payments by a little.

“This doesn’t increase the amount they need to bring to the closing table,” Lawler said.

The FHA will also require borrowers to have at least a credit score of 580 to qualify for the agency’s 3.5% downpayment program. Those with lower scores will have to pay at least 10%. However, this rule may have little practical effect since Stevens recently said the average borrower score is 693.

The new policy also will reduce the amount of money sellers can provide to homebuyers at closing to 3%, down from 6%, of the home’s price. That change will bring the agency in line with industry standards and remove the incentive to inflate appraisals.

Finally, officials plan to clamp down on lenders offering FHA mortgages. The agency will more closely monitor their performance, as well as seek legislative authority to require mortgage firms to assume liability for all loans they originate and underwrite. It will also publicly report lender performance data.

One thing the agency did not do is to broadly increase the downpayment requirement. Many industry observers said such a step is necessary to reduce FHA loans’ high delinquency rates. Borrowers with little equity in their homes are more likely to default or walk away.

The agency has seen a spike in delinquencies amid the mortgage meltdown. Some 14.36% of FHA loans were past due in the third quarter, according to the Mortgage Bankers Association. This compares to 9.64% of all loans.

“They are not addressing the fundamental issue — that FHA loans are too risky,” said real estate finance consultant Edward Pinto, former chief credit officer for Fannie Mae (FNM, Fortune 500) in the late 1980s. Borrowers “need more skin in the game.”

FHA did not increase minimum downpayments more broadly because its borrowers with credit scores above 580 were generally timely with their payments.

“The reason why we drew the line at 580 is that there are clear performance drop offs as you drop down credit score tiers,” Stevens said.

As banks have clamped down on mortgage lending, the FHA program has emerged as one of the few ways people can buy a home.

Banks are more willing to make FHA loans because they come with a federal guarantee to cover losses if the borrower defaults. And borrowers can more easily qualify for FHA loans because they only need 3.5% down and can have lower credit scores.

As a result, demand for FHA loans has exploded. The agency guaranteed more than $360 billion in single-family mortgages in fiscal 2009, which ended Sept. 30, more than four times the volume in 2007.

The agency insured about 30% of home purchases and 20% of refinanced mortgages in 2009. Nearly 50% of first-time homebuyers go through the agency. 

States Urge Foreclosure Action

NEW YORK (CNNMoney.com) — Cut loan principal for borrowers whose homes are worth much less than their mortgages. Attack the problem of option adjustable rate mortgages. Cut down on red tape.

Those are some of the ideas in a plan issued Wednesday by a group of state officials who have been working for more than two years to stem the foreclosure tide.

“Potential foreclosures are being built up in the system, said Tom Miller, Iowa’s attorney general. “The efforts really need to be more efficient more effective more timely on behalf of the servicers.”

Under the administration’s program, eligible borrowers can see their monthly mortgage payments reduced to no more than 31% of pre-tax income. So far, the effort has helped about 66,500 people, with another 787,200 homeowners in trial modifications.

Reduce loan principal: State officials say that servicers should cut the loan balances of homeowners, in addition to reducing interest rates and extending the terms of the loan. This is especially true in places where property values have plummeted. Reducing principal will make it less likely that homeowners will default on their modified loans.

Pay attention to option ARMs: More than 40% of these complex mortgages are delinquent. Even worse, over the next two years, many will adjust, driving up borrowers’ monthly payments. Servicers need to address these loans before they fall into foreclosure.

Limit required paperwork: Many homeowners are not receiving permanent modifications under the president’s plan because they haven’t submitted all their documents. Treasury Department officials should reduce the amount of paperwork borrowers are required to file and speed up the debut of a central portal where homeowners can submit the forms. The portal is currently set to launch at the end of March.

Expand counseling and mediation efforts: State should expand their housing counseling and mediation programs, which require homeowners and servicers to meet before the completion of the foreclosure process.

Suspend foreclosure proceedings: Treasury officials should amend the president’s program so that the entire foreclosure process is halted when a borrower applies for the president’s program. Currently, only the sale is stopped.

Help the unemployed: Treasury officials and servicers should do more to assist the unemployed so they do not fall into foreclosure. A growing number of borrowers with good credit backgrounds are behind in their payments because of the weak economy. 

Short Sale in Real Estate

Short Sale in Real Estate With Housing Assist of America Short Sale Experts

LOS ANGELES, Jan. 12 /PRNewswire/ — The Obama administration has worked long and hard to find a solution for troubled homeowners facing foreclosure. The reality of the situation is that “only about 4% get long-term mortgage help” reports CNN. Citigroup experts say government’s current solutions so far have been ineffective at keeping people in their homes. They anticipate that “lenders could foreclose on another 8 million loans as the economy worsens.” For this reason Housing Assist of America (www.HousingAssist.com) has created a short sale in real estate program that will help all homeowners who are having trouble making their mortgage payments. The short sale program consists of 6 steps which begins with the short sale process and ends with the final goal of stable home ownership.

The 6 step road to economic recovery program helps homeowners at no cost. Among the six steps are free short sale, free credit repair, and a plan to purchase a property within a year. The 6 step short sale program has proven to help homeowners who are facing foreclosure or are in the midst of being delinquent on payments. Homeowner Delores May states, “The 6 step program has helped get me out of the red and on to a better future. There is finally a company that has stepped up and helped me out.”

The road to economic recovery is made to help homeowners in all situations. With the amount of foreclosures on the rise, homeowners are looking for a viable solution to their problems, and when comparing short sale vs. foreclosure, there is clearly no comparison what the better route is anymore. The 6 step road to economic recovery program has already helped hundreds of homeowners get rid of negative debt. Analysts from CNN are stating that 2010 is the “year of short sales.”

According to RealtyTrac, nearly 2 million housing units in the U.S. are in foreclosure or bank-owned, and millions more are likely to join them. Metro areas such as Los Angeles are anticipated to drop another 19.41% in the year 2010, according to Economy.com . The advice that many experts are giving homeowners is to get out while you can; this is a time to capitalize on the opportunity to short sale. Homeowners can take advantage of the 6 step program offered by www.HousingAssist.com .

Option Arm’s

Option ARMs

A detonation of foreclosures will result from option ARMs set to reset to higher payments.

These unusual mortgages permitted homebuyers to come to closing with diminutive money and prefer, monthly, how much to pay: interest and principal, interest only, or a minimum amount less than the interest due.

Of course, the last alternative is the one 93% of option-ARM buyers selected, according to a new report released this week by Standard & Poors.

But ultimately, everybody has to pay the piper.

Almost all 350,000 option-ARM borrowers are indebted more than when they initial bought their homes thanks to the unpaid interest amass. And most of the loans written during the first big wave, which started in 2004, are getting ready for their five-year reset, when they become typical amortizing loans. Moreover, some newer loans will reset early if the collected interest has pushed the loan-to-value ratio above 110% to 125%.

That means borrowers have to start paying very huge prices for their homes. In one situation delineated in the S&P report, the payment on a $400,000 mortgage rises from $1,287 to $2,593.

25% default rate

But that doesn’t just spell bad news for borrowers. A few industry cynics say the threatening non-payment problem could have the power to damage the hopeful housing market revival. “The crux of the matter is that as soon as these mortgages recast, the history is that they will default,” said Brian Grow, one of the S&P report’s coauthors.

And the newer the loans, the worse they will perform, the report said. The last year that any option-ARMs were issued was 2007. In the first 20 months after issuance, this era of option-ARMs had an average default rate of just over 22%.

That includes all option-ARMs issued in 2007. But if you compute default rates for only 2007 option-ARM borrowers who are now submerged, the default rate jumps to 25% after just 20 months, according to S&P.

So, while there may not be lot of these terrible loans out there, their high default rates will have a great effect on housing markets, adding to already engorged foreclosure inventories and prices are driving down further.

Fizz markets

And the markets where they’ll produce the most foreclosures are still among the most vulnerable in the nation.

Option ARMs were most popular in fizz markets — California, Nevada, Florida and Arizona — where double digit home annual price amplify put the cost of buying a home out of reach.

Actually, 60% of these loans went to residents of California and other Western states, places where prices have drop the most, according to report coauthor Diane Westermarck. “The geography is depressing for these products,” she said.

Many borrowers in these places could only pay for a home if they chose the option ARM. Many counted on continued hot market conditions to add value to their homes. The extra equity could then be tapped to pay their bills.

We all know how that worked out.

Home value in many of the markets where option ARMs are most concentrated have fallen 30%, 40% or more. When the loans recast, most borrowers will find themselves harshly underwater.

“Because borrowers of [options ARMs] are in a much worse position,” said Westerback. “You’ll see defaults rising very rapidly.”

And most option ARM borrowers will not be good candidates for refinancing or mortgage adjustment because their loan-to-value ratios will be distant too high. Under the administration’s Making Home Affordable program, for example, mortgages with balances that go beyond 125% of the home’s value are not suitable for help.

Not so white lies

There is one more modest problem that many option-ARM borrowers seeking refinancing would face: “Upwards of 80% of were stated-income loans,” said Westerback.

These are the so-called “liar loans” in which lenders did not substantiate that borrowers make as much money as they said they did. Lenders may be unable to modify mortgages because many of the borrowers’ profits could not stand up to the examination. Borrowers may also not want to go through back again because they could be held officially liable for intentional inaccuracies on their original applications.

Add to those conditions the still flimsy economy and high unemployment rates, and you have a formula for calamity. 

Short Sale With Ocwen

Do you owe more than your home is worth? Is your loan with Ocwen? If you are considering doing a short sale with them we can help.  We have negotiated several successful short sales with Ocwen, allowing the owners to be released from any further deficiencies.

If you have a loan with Ocwen and are considering a foreclosure or short sale, contact Housing Assist today!! We can discuss your options, and find out if a short sale is the right move for you.

Short Sale With Select Portfolio Servicing/SPS

Do you owe more than your home is worth? Is your loan with Select Portfolio Servicing/SPS? If you are considering doing a short sale with them we can help.  We have negotiated several successful short sales with Select Portfolio, allowing the owners to be released from any further deficiencies.

If you have a loan with Select Portfolio Servicing/SPS and are considering a foreclosure or short sale, contact Housing Assist today!! We can discuss your options, and find out if a short sale is the right move for you.

Wells Fargo Short Sales

Wells Fargo Short Sales

Wells Fargo will work with you in a short sale. However, just as with any other lender the process can be boring at times. Here are some tips to avoid a bit of the hassle.

Situations that help!

You can qualify for Wells Fargo Mortgage short sale if you in debt far more than what your actually costs. However this is applicable only when you have single mortgage currently. If you have loans with two separate lending agencies then you are applicable for Wells Forgo short sale. If you hold two mortgages with Wells Fargo then you will find it little easy to figure out the situation. However, this will happen only if and when you present a clear case that you cannot afford the current mortgages. Also when you hold mortgages with different lenders (not Wells Fargo) then the process of getting a short sale through them is much tougher. That makes sense logically as Wells Fargo is incurring a loss which they didn’t take on in the first place!

You will not get the cash

When you perform a short sale with Wells Fargo you are not going to get any of the money. It will directly go to Wells Fargo. This is in spite of the fact that the amount quoted is much lesser than what the home is worth! However, convenient way is short sales to get away from the rigors of mortgage payment. At least you do not have to end up paying the whole amount and it is any day better than a foreclosure which can be disastrous on your credit score!

Negotiation is possible

If you are worried about getting affected by a short sale then there is hope now. Wells Fargo allows you the option of negotiating with them to prevent a foreclosure from leaving a black mark on your credit report.

Getting an agent is a great idea

Short sale process can be a long drawn out affair. Therefore doing it all by yourself and negotiating the terms can be a very harrowing experience. The best way you can avoid this by hiring an agent. This agent needs to be motivated to go the long distance with you and present the case in your favor. Often short sales take really long to happen and hiring a good agent can work to your advantage.

Keep a record

Make sure to keep a record of any conversations or written communication which gone with Wells Fargo. You could tape the conversation or note it down. Also note down names of people with whom you have spoken to at Wells Fargo. That way you have evidence if they deny anything they have promised you have evidence. It will also reduce chances of dissimilar facts being stated by different agents in Wells Fargo.

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