Landmark Settlement with Mortgage Lenders Provides Relief for Some Struggling Home Owners

Note to Sellers:  $25B National Settlement on Rob-Signing Scandal - How It May Affect the Value of Your Home

Limbo makes for a very unpleasant place to live, and that is exactly where thousands upon thousands of homeowners have been over the past year since the scandal broke.  Now that virtually every state including Florida has signed off on the $25B settlement ($8.4B earmarked for Florida), the court system is no longer encumbered by this pending litigation and the backlog of foreclosure proceedings will likely decrease as the pace of finalizing the processes get undereway again and accelerate.

The second page of the article in today's Miami Herald gives us a hint as to the potential impact this may have on the number of foreclosure properties that may come on the market:

"There are also more than 250,000 homes stuck in Florida’s lengthy foreclosure process, more than any other state in the country. The settlement may shorten the state’s foreclosure timeline — currently above two years — as banks will no longer be held up by charges of robo-signing. Still, several of the homes in foreclosure are so far behind on payments that even if banks reduce the amount owed, the homeowner will not be able to catch up."

"Several", in my opinion, may be a kind choice of words used to describe the vast number of homes whose delinquent mortgage balances are beyond the home owners' ability to bring current.  If balances are not able to be satisfied either by full payment or some other installment agreement reached between the lender and the home owner, the banks will likely take posession of the homes and re-sell them as REO properties.  Needless to say, the homes will likely be sold at substantial discounts which will affect the value of surrounding homes.  This can affect future appraisals and will probably create a higher number of short sales.  End result:  the price of your home may come down.

Bottom Line:  If you are currently selling your home or plan to sell in the near future, pricing your home as competitively as possible today to get it sold now will produce greater net proceeds than waiting for the unintended consequences of this court settlement.  

Read more here: http://www.miamiherald.com/2012/02/09/2634050_p2/landmark-settlement-with-mortgage.html#storylink=cpy

Common Sense Isn’t Common Practice

It used to be that there was logic applied in the world of mortgage lending. An appraiser determined the value of a home by the axiom, “what a reasonable buyer would pay a reasonable seller”. An underwriter weighed the plusses and minuses of a file (after analyzing the income, the assets, the credit profile and the appraisal) and made a judgment call based on their experience.

Loans with sizable down payments used to be more flexible with how income was documented or what quality of credit was required. Even the decision of what made up “good credit” has been reduced to a FICO score. Determining the risk of a loan affected its approval or denial. Further, loans deemed riskier were given less favorable terms (higher rates and/or costs or larger down payments).

But today, everyone has tried to quantify everything and put everything into a matrix. Credit scores are numerical, and the number determines eligibility and cost. Gone is the concept of explaining why you have defects in your credit. We don’t care why, we just look at your score. Appraisers now are being scored and their data being scrutinized to a level most would find mind-boggling. Amenities that make a home worth more for a particular buyer (like a pool or upgraded basement) are virtually ignored. Underwriters have primarily become fact-checkers and quality control as a computer software program underwrites the vast majority of mortgages today.

Gone is common sense. It has been replaced by numerical formulas and a cover-my-behind, justify-everything-with-data mentality. Basically, the pendulum has swung too far. It used to be that lending was too easy (see the subprime debacle), but now we have eliminated too much of the human element. We need common sense back.

People who have saved 30% for a down payment know what they can afford monthly. Don’t they?

People who had a medical challenge two years ago that is not likely to reappear should not have a twenty year credit history destroyed. Should they?

People aren’t likely to overpay for a home with so much inventory and all the media exposure about falling prices. Are they?

Bring back some common sense when we need it most!

Tips To Present a Stronger Mortgage Application

by Dean Hartman on October 6, 2011 ·

As underwriting guidelines for lenders become more stringent, we need to re-examine what a good mortgage application looks like. As home buyers begin their search for a home, there are a few items they should be aware of that they can do to help get their loans approved (with the best possible terms), and, at the same time, lessen some of the stress that goes along with the mortgage process.

1. Income documents

Most lenders want to see a full month of paystubs and two years’ complete Federal Tax Returns. Assembling them ahead of time and holding on to every paystub you get is a good idea even before you find a home and/or submit your mortgage application because it will save you time later. Moreover, looking at those documents and being prepared to explain any deductions that show up is crucial. Child support, alimony, garnishments, and Unreimbursed Employee Expenses are often crippling factors that, if explained and dealt with upfront, can make your loan approval smoother.

2. Asset documents

Most lenders will scour your bank accounts for the two months prior to going to contract. They are looking for large deposits because large deposits can signal a new loan that wouldn’t show up on your credit report yet. What’s a “large deposit”? Typically, any deposit that would represent more than your income can support. If you make $5000 a month, after taxes you likely net $3800 (or $1900 a bi-weekly pay period). Therefore, deposits in excess of that will need to be explained and documented. Sold a motorcycle? Have a paid receipt and motor vehicle documents in place. Received a gift? You will need a Gift Affidavit, proof of the donor’s ability and transfer of the funds. Any and all questions should be discussed with your loan officer.

3. Credit Score Optimization

Do your best to curtail your use of credit as it relates to your available credit lines. Target a cap of 30% of usage of available lines to get the best scores. Do NOT cancel credit cards. That will lower your amount of available credit, thereby raising your percentage of usage. That will damage your score. Do NOT shop for a car, explore life insurance, apply for a new credit card or increase the limits on your current cards because the running of your credit by people in other industries will also lower your credit score. Most importantly, don’t do anything that will require having your credit run without first discussing it with a mortgage professional who knows the impact it could have.

4. Appraisal Concerns

It’s unlikely you will make an offer to purchase without checking out comparable home sales. It’s also likely you received that type of data from the real estate agent you are working with. Make sure your agent prepares the same information for the appraiser. Data about similar sales, similar homes currently on the market and maybe even cost estimates for any repairs or improvements anticipated can preempt future problems with appraised values and conditions.
Overall, it is recommended that you hold onto copies of everything financial, think before allowing your credit to be run and work with an agent and loan officer who can use their experience to put your loan application in its best possible light…as soon as you start thinking about buying a home.

Is a Foreclosure Home a Better Deal than a Short Sale?

A recent article from the Tampa Tribune shows an alarming trend where displaced homeowners apparently have vandalized their homes as a final gesture of derision in the face of foreclosure.

While potential savings may seem somewhat higher with foreclosed homes (40% less than market value is the national average, but your local market may be higher or lower) as opposed to short sales (21% below market value on average throughout the US- again, local markets may prove otherwise),  the cost of renovation and repair on a foreclosure property may prove to be a more expensive proposition.  Also, lenders may opt to deny financing for homes that appraisers deem "uninhabitable".  Now that many lenders are looking more favorably on short sales, buyers should carefully consider a short sale.

Below is a copy of the September 2nd article from the Tampa Tribune: 

Foreclosed homeowners take out revenge on properties

TAMPA, Fla. – Sept. 2, 2011 – Some foreclosed homeowners are taking out their anger on the homes they are forced to leave behind, smashing holes in the walls, scribbling graffiti everywhere, leaving piles of trash and ripping out appliances.

More banks – facing a growing problem from trashed foreclosures – are opting to offer homes at big discounts rather than fix the repairs, which can send surrounding home values in the neighborhood spiraling down, experts say.

Real estate pro Nick Davis with RE/MAX Premier Group told the Tampa Tribune that he has seen some home values greatly diminish from foreclosed homeowners who have trashed it. For example, he recalls one home that would have fetched $250,000 back in 2006 during the housing boom that would now sell for about $75,000 because the former owners trashed it.

“It looks like someone took revenge,” Davis says about the home, which had holes in the wall, appliances ripped out, and piles of trash. “Unfortunately, we’re seeing more of this. We’ve seen cement in the plumbing systems, the air conditioners ripped out from the outside, wiring being removed.”

Some real estate professionals and lenders are even blaming the high number of real estate deals falling apart due to more homes being left in poor condition by the original owners.

Buyers “look at these homes and say, ‘If this is the damage I can see, what else did the homeowner do to this place that I can’t see?’” Davis says.

Some homeowners facing foreclosure place the blame on banks for their woes so they leave behind a mess for the bank. But trashing a home can backfire. Some banks are saying they may even start taking steps to sue homeowners for the cost of repairs, and law enforcement officials say homeowners can be charged with vandalism as well as theft if they remove items that don’t belong to them from the home.

The Appraiser's Role in Today's Real Estate Transaction

Real estate professionals must work with appraisers to provide the latest trend data with respect to specific communities.  Agents should provide a copy of the previous survey to the appraiser at the time of inspection if it is available.  Realtors should also have a detailed market analysis of the property and the community on hand for the appraisers consideration, which need to include sold as well as active and pending properties.  Active and pending listings are strong trend indicators, and may be vital to supporting the contract price being evaluated.

Visit the link below for a first hand account of some of today's appraisal challenges:

http://kcmblog.com/2011/08/22/the-appraisers-role-in-todays-real-estate-transaction/#more-8812

FoxBusiness on Three Months of Existing Home Sales Growth

Realtor Kelly DeGroot delivers a comprehensive account of the market's recent surge in sales activity. Neil Cavuto probes for national trends, but DeGroot reminds him of the localized nature of the industry. She also touches on the current appraisal-related challenges facing buyers and sellers, and how contracts are falling through due to undervalued appraisals. This is one of the few reports I have seen where this issue is addressed.

http://www.foxbusiness.com/search-results/m/25440050/home-sales-hat-trick.htm