Posts Tagged ‘Foreclosure’

Home-Affordability-CalculatorFor the millions of Americans who lost their homes in a foreclosure or short sale during the recession, things are starting to look up. In addition to receiving a piece of the $3.6 billion settlement that banks are distributing to borrowers who were wrongfully foreclosed on, some homeowners are now becoming “boomerang buyers” and re-entering the market after a foreclosure or short sale.

Neal Katz, a mortgage agent at All Western Mortgage in Las Vegas, says he fields calls from a number of people wondering how long they have to wait before qualifying for another mortgage. “The biggest hurdle is time,” he says. “Time is the only thing that makes things better.”

Wait times vary depending on individual circumstances such as the size of the down payment and whether the buyer’s home was foreclosed or sold in a short sale. Those who’ve gone through foreclosure might wait three years for a Federal Housing Administration loan or seven years for a conventional loan, according to Katz. The wait time may be closer to two or three years after a short sale. In rare cases, a homeowner who sold in a short sale may be able to get a new loan right away if he or she hasn’t fallen behind on mortgage payments.

[Read: Why You Can’t Afford to Skip Renter’s Insurance.]

Programs aimed at helping borrowers re-enter the market through second-chance mortgages are popping up throughout the country, especially in cities like Las Vegas that were hit hard by the housing bust. Buyers who’ve left the market for several years and meet income requirements may be eligible for first-time buyer programs as well.

Going from owning a home to renting isn’t an easy transition for most people. “It’s very hard on homeowners when they have to go out and ask someone to rent them a house,” says Dianne Langston, a real estate broker in Solano County, Calif. “They’re ready to get out of the rental situation and be a homeowner again.”

Despite the ego blow, that transition time between mortgages offers a chance to save for another down payment and clean up any credit issues. Some people who’ve experienced foreclosure or a short sale also let other financial obligations slide out of frustration or resignation, Katz explains. Now’s the time to tackle those issues. “If you have a small collection account from a credit card, settle it,” Katz says. “Take care of all the other things you can to show the underwriter that you did the best you could. That way, the delinquencies are so long ago that it shouldn’t have an impact on your credit score anymore.”

[Read: Secrets of Successful House Flippers.]

Still, the fact that someone may qualify for a mortgage doesn’t mean they’ll immediately jump back into homeownership. Historically, only 30 percent of borrowers who defaulted on their mortgage in 2001 had taken out another mortgage within 10 years, according to researchers at the Federal Reserve Bank of San Francisco. The researchers also found that borrowers who terminated their mortgages not due to a default (for instance, paying off the house or switching to a larger or smaller house) returned to the mortgage market about two-and-a-half times faster.

Heather Harmon, a Redfin agent in Sacramento, Calif., sees some buyers waiting longer than they need to before buying again because of emotional reasons. “They’ve had to recover psychologically from the experience as much as they’ve had to recover financially,” she says. “You definitely see the buyers who are just mad about what happened. They blame it on circumstances, and they’re afraid of it happening again. In other cases, they’re really embarrassed. They feel exposed, and they’ve got to drag their financials back out again.”

Many people are depressed or discouraged after a foreclosure or short sale, according to Langston, because a house symbolizes their hard work and oftentimes the American Dream. “They don’t understand that it’s not the end of the line,” she says. “I always encourage people by letting them know that they can re-enter the marketplace.”

[In Pictures: 10 Ways Your Home Can Pay You Money]

Harmon recently worked with a couple in their 60s who bought a new home with a Department of Veterans Affairs loan two years after selling their previous house in a short sale. “They weren’t proud of it, but they’re picking themselves up again,” she says, adding that younger homeowners often have a harder time bouncing back from a short sale because of the impact on their kids and the desire to keep up with the Joneses.

While buying a house seemed nearly impossible for the couple thanks to the competitive local market and the longer closing time for a VA loan, Harmon says building a relationship with the seller and the seller’s agent helped the deal close. “We strategized our offer in a way to give the seller everything we possibly could give him because we were bound by the terms of the VA,” she says.

Housing Issues to Watch in 2013

By Nick Timiraos

Home prices finally hit a bottom in 2012, well ahead of many predictions that called for continued price drops this year.

Prices were up 6% from one year ago in October, according to CoreLogic CLGX +1.51%, putting them on track for their best year since 2005. Housing starts, which hit

a bottom three years ago, ramped up to their highest level in four years. Sales of new homes are running around 20% of last year’s levels, while existing home sales are up around 10%. Continued declines in homes listed for sale—particularly foreclosures—explain much of the improving price picture.

So will 2013 be the year of recovery or relapse? Evidence points more strongly to a continued rebound, albeit one that still has considerable headwinds and that varies from one market to another. This week, we’ll offer five areas of focus for 2013.

Don’t fear the shadow. For years, housing analysts have warned that a glut of delinquent mortgages—a so-called “shadow” inventory of eventual foreclosures—would overwhelm housing markets. That hasn’t happened.

On a national basis, the shadow inventory is still there, but it is slowly getting smaller. The number of homes that were 90 days or more past due or in foreclosure fell to around 3 million in October, down by more than 430,000 this year and nearly 1.3 million from the peak in 2010, according to Barclays Capital. Normally, there’s a “shadow” of around 800,000, which means the excess shadow supply stands at around 2.2 million.

Banks have slowed down their foreclosure processes and while those could ramp up in 2013, they’re unlikely to lead to a deluge of supply. Also, big declines in new construction over the past few years have pushed the current housing demand, however muted, towards absorbing the excess supply of foreclosed homes.

The shadow inventory is often discussed as a national phenomenon, but it isn’t really national anymore. States where banks have struggled to meet court-administered foreclosure processes have a significantly higher share of unresolved bad debt: around 5.9% of mortgages are in foreclosure in those judicial states, compared with fewer than 2% in nonjudicial states, according to Lender Processing Services.

Many housing markets “will swallow what foreclosures come to the market whole because we’re seeing inventory shortages develop, acutely,” says Jeffrey Otteau, president of appraisal firm Otteau Valuation Group in East Brunswick, N.J.

In New Jersey, which has the second highest foreclosure rate in the country, the bigger problem is that many foreclosures are concentrated in certain communities, particularly inner-city and rural areas. “Those markets are going to take it on the chin,” he says.

(MoneyWatch) Fannie Mae (FNMA) and Freddie Mac (FMCC), along with some of the nation’s biggest lenders, said Monday that they will suspend some foreclosures during the holidays.

From Dec. 19 through Jan. 2, 2013, Fannie will halt evictions of homeowners in a single-family property and in apartments with up to four units that are financed by a mortgage from the government-sponsored enterprise. Freddie, the nation’s other main provider of government-backed housing loans, will stop foreclosures for the same the type of homes from Dec. 17 through Jan. 2, 2013.

JPMorgan Chase (JPM) and Citigroup (C) said in statements that they also are temporarily ceasing foreclosures. JPMorgan said it would suspend all evictions beginning Dec. 19 through Jan. 1; Citi did not specify dates for its suspension.

Mixed news for homeowners facing foreclosure
Fannie Mae, Freddie Mac suspend foreclosures in storm-hit areas
Government suspending some foreclosures in Northeast because of Sandy
Fannie Mae announced on Monday that the agency is halting foreclosure evictions in support of families who have faced financial challenges. “The holidays are a chance to be with loved ones and we want to relieve some stress at this time of year,” said Terry Edwards, an executive vice president in Fannie Mae’s credit management division, in a statement.

Edwards said borrowers who are struggling with their house payments should contact Fannie as soon as possible.

Although the news is likely to bring a measure of relief to homeowners at imminent risk of eviction, the respite will be brief. Freddie noted that firms that handle evictions for the company will continue filing foreclosure documents, such as default notices, so evictions can resume after January 2 of next year.

Fannie and Freddie, which finance the housing market by purchasing mortgages from lenders, are government-owned. They were seized by federal authorities in 2008 after the agencies suffered massive financial losses stemming from the housing crash.

Following superstorm Sandy, both agencies said that they would suspend evictions and foreclosures in affected areas for 90 days. For borrowers with a Fannie loan, that foreclosure moratorium will last through Feb. 1, 2013, while for Freddie customers the suspension lasts through next February.

The Federal Housing Administration in November also halted foreclosures on federally insured homes in storm-hit areas of Connecticut, New Jersey, New York and Rhode Island.

Foreclosure activity has fallen in recent months. According to real estate research firm CoreLogic, 58,000 foreclosures were completed in October, down 17 percent from the year-ago period.

Still, foreclosures remain elevated. Between 2000 and 2006, when the bubble in housing prices started to deflate, an average of roughly 21,000 foreclosures were completed each year. Roughly 1.3 million homes, or 3.2 percent of all properties with a mortgage, were in some process of foreclosure as of October, down from 1.5 million in the same period last year, according to the firm.

Foreclosures- the bane of housing

Foreclosures have been a drain on the housing sector for several years now and banks have been under fire by state and federal agencies and sued by homeowners for illegal foreclosures. The shadow inventory looms over the real estate market and threatens to keep damaging prices over the coming years.

Banks have a solution

The banks have come up with a clever solution. Banks have found a way to avoid keeping a foreclosure home on the books, pay taxes to the local government, pay staff to maintain the files, pay a Realtor to list and sell the property, and hopefully regain a portion of the value of that bad investment.

Instead, they’re sending in the bulldozers and donating the land to the local government. No more taxes, no more toxic asset, the urban renewal group in the city gets some land, and homeowners aren’t threatened by a foreclosure sitting on the market for months, impacting their values. This is happening by the hundreds across the country with JPMorgan Chase nearing their 2,000th donation.

It seems like a win-win-win situation, right? The government gets land, the banks dump a bad asset and the neighborhood isn’t plagued by a foreclosure.

Where this works

In certain neighborhoods like Detroit and Cleveland where the bulk of this is going on, the asset is in a declining area and the homes would not likely have sold for a fraction of their worth. The areas are undesirable and turning into ghettos. But what if this theory takes hold nationally and a city like Flower Mound, Texas sees bulldozers in an otherwise healthy neighborhood?

Former homeowners

Although to the banks it is irrelevant, how do you suppose the former homeowner feels? The bank would rather demolish their home than have a few missed payments.

More importantly, it has to be asked- what about the banks that judges are ordering (well after the fact) the bank to give back the home as it was illegally foreclosed? Loopholes are being found by the dozens and legitimately illegal foreclosures are being punished. What then, if the home is gone?

What about the homeowners that were told they could not get help with a modification unless they miss two payments, they miss those payments per the bank’s instructions, then the bank says they’re not eligible for a modification because they missed payments, and by the way, they’re now subject to foreclosure? Boom, demolition.

Government’s role

Distrust of government is extremely high right now and many will question the city’s intentions with their newly acquired land. Will cities use this new land for green space or will they put in two small affordable housing units where one standard home used to be? Or will zoning change?

Why the plan makes sense (with a caveat)

Demolition of foreclosures and donating of the land to the local government makes sense, it is mostly a win situation, but only in certain areas of certain cities. If vacant foreclosures are turning into crack houses, then bulldoze away, but we should be careful to encourage demolition of endless foreclosures in areas that it could potentially damage. This can’t become the norm, it must remain the exception.

According to’s 2010 Year-End Foreclosure Sales Report, nearly 26 percent of all homes sold during the year were foreclosures, up 3% from 2008 and down 3% from 2009. The average sales price of foreclosures in 2010 was 28% less than non-foreclosure home. California, Nevada and Arizona lead with the highest percentage of foreclosure sales nationally.

“Foreclosure sales in the fourth quarter faced the twin headwinds of the expired homebuyer tax credit — which began to stifle sales volume during the third quarter — and the foreclosure documentation controversy, which hit in the fourth quarter and temporarily froze sales of foreclosures from several major lenders,” said James J. Saccacio, CEO of RealtyTrac.

Traditional media is proclaiming that with a quarter of all sales being foreclosures, the weakness in the market is evident, but we would argue that 26% of all sales in the year being foreclosures (discounted or not) means some of the glut in foreclosure inventory is being snatched up and hopefully some buyers now have some equity rather than the other end of the spectrum of buyers that are upside down the minute they set foot in their home.

We anticipate that foreclosure and short sales will continue to perform well as buyers become more aware of the process and the successes outnumber the negative stories. Existing homes suffer from a poorly performing foreclosure market if inventory sits still and drives down values, so healthy sales (although difficult to compare to existing home sales when buyers are shopping) are good for the overall housing sector. It should also be noted that given a rise over the years of foreclosure sales, perhaps the shadow inventory isn’t quite as scary?