Short Sale Success: What is an Acceptable Hardship?

Short Sale Success: What is an Acceptable Hardship?

by Christopher Reale on March 12, 2012

A short sale, in most instances, is a complex transaction. However, there are two very simplistic characteristics that every qualified short sale possesses:

1. The house must be valued at less than the homeowner owes on their mortgage debt obligation. In other words, the home must be “underwater”.
2. The homeowner must have a qualified hardship.

It is the second characteristic that we would like to touch upon in this blog post.

One question that we answer frequently is “My house is underwater. Is this an acceptable hardship?” Unfortunately, the answer is always “No.”

The simple fact that a homeowners mortgage obligation is in access of their house value is not an acceptable hardship. A Short Selling bank will entertain a short sale when and only when there is a hardship that will, now or in the future, affect the borrower’s ability to pay their mortgage.
The following is a list of acceptable hardships that may be used when submitting a short sale package:

• Mortgage Rate Adjustments
• Loss of Employment or Reduction in Wages
• Business Failure
• Medical Hardship
• Death in the Family
• Divorce/Separation
• Military Service
• Overwhelming Debt Obligations
• Job Relocation

As always, should you have questions as to the acceptability of a hardship scenario, you should seek advice from an expert that has been trained in the short sale field.

One additional note:  Short sale approval by lenders and investors are very impersonal processes.  The hardship letter is one of the few, if not the only opportunity a borrower may have to express their personal sorrow over having to go through a short sale and lose their home.  Sincere words to this effect may make a difference.

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

4 Questions to Ask Before Buying a Foreclosure

4 Questions to Ask Before Buying a Foreclosure

DAILY REAL ESTATE NEWS | TUESDAY, JANUARY 31, 2012
Foreclosures can offer big bargains, but buyers need to be careful that they don’t get over their heads in purchasing a home that may need more repairs than they bargained for.

Foreclosures are usually sold as-is, and homes that are left vacant standing too long can have a lot of maintenance problems. 

Real estate experts suggest buyers consider the following questions:

1. How long has the home been vacant? Be cautious of a foreclosed home that has stood vacant for more than a few weeks or had its utilities shut off a long time. Marvin Goldstein, a home inspector for many foreclosed properties, says a home can deteriorate quickly when heating, cooling, electricity, and running water have been turned off for awhile. 

2. How old is the home? Goldstein says that homes that are more than 50 years old may have a failing plumbing system or inadequate electrical wiring. 

3. How does the home look? Are there broken windows, gutters hanging down, or damaged siding? “Trust your instincts. If the house looks bad from the outside, it's probably worse than you think,” Goldstein told The Oklahoman. 

4. Is there anything missing? Sometimes former owners remove anything of value from the home, such as built-in light fixtures, bathroom tile, water heaters, air-conditioning units, and hardwoods, says Bill Jacques, president-elect of the American Society of Home Inspectors. 

Housing experts encourage buyers to get a home inspector to look at the property, even if it is sold as-is, so that home buyers know any repairs needed and cost estimates before they purchase the home.

“Buying a bank-owned home gives you the opportunity to enter the market at a very low price level,” says Dorcas Helfant, a past president of the National Association of REALTORS®. “You can find terrific values among foreclosures, especially if they're not in too bad shape. But, remember, these houses are discounted for a reason.”

Source: “Foreclosed Homes May Need Extensive Repairs,” The Oklahoman (Jan. 28, 2012)

Homeownership Under Fire!

This Time We Are Sounding the Alarms

by Steve Harney on October 12, 2011 ·

Occasionally, Steve Harney, our founder and lead content creator, asks us permission to share his personal feelings on a current real estate issue. Today is one of those times. – The KCM Crew



One of the things I often hear from people I meet is that real estate and mortgage professionals should have seen the current housing crisis coming and done something to prevent it. We should have realized that easing lending practices would lead to millions of families buying a home they could never afford. We should have warned our neighbors not to use their homes as ATMs. We should have realized that the economy could never withstand such growth and was about to crash.

Maybe these people are correct. Looking back, perhaps we could have been better stewards of the home buying process. We are committed to not making that same mistake again. Now, if we see a possible challenge in the future, we will speak up. That is what caused the writing of this blog post.

WE MUST SOUND THE ALARMS!

ALARM: Homeownership Percentage Has Dropped Dramatically!!

MSNBC.com, in an article entitled Housing Bust Worst Since Great Depression reported:

“The analysis by the Census Bureau found the homeownership rate fell to 65.1 percent last year… analysts say the U.S. may never return to its mid-decade housing boom peak in which nearly 70 percent of occupied households were owned by their residents.”

ALARM: People Are Losing Hope in the American Dream

In the same article, Patrick Newport, economist with IHS Global Insight is quoted saying:

“The changes now taking place are mind-boggling: the housing market has completely crashed and attitudes toward housing are shifting from owning to renting. While 10 years ago owning a home was the American Dream, I’m not sure a lot of people still think that way.”

ALARM: The Safety and Well Being of the Family Being Sacrificed

If we look at Fannie Mae’s quarterly National Home Survey, as far back as we can go, the top four reasons for buying a home are the same. The top four reasons people buy a home are:

1. It means having a good place to raise children and provide them with a good education
2. To have a physical structure where their family feels safe
3. It allows for more space for their family
4. It gives them control over what they do with their living space including renovations and updates.

Are children no longer important? Is safety less of a consideration today? Is the pride of homeownership soon to be forgotten? We must look at the long range consequences of being a renters’ society.

ALARM: Building Family Wealth Being Threatened

Let’s look at homeownership as an investment. The Federal Reserve does a survey every 3 years. In 1998 the average Homeowner’s net worth exceeded that of renters by 31 times. In 2001 it was 36 times and eventually in 2007 it was all the way up to 46 times that of renters. Now, homeownership isn’t about a guaranteed financial short-term return – the market goes up, down and back up again. We have to be prepared for the long-term and a key component to wealth is homeownership. Even in these toughest of times, the wealth of the homeowner is over 30 times that of renters.

At a time when we are discussing the gap in wealth between the top 1% and the other 99%, how does the less fortunate paying rent to pay off the mortgages of the more fortunate make any sense?

Bottom Line

Homeownership is important to the American family. If we lose this as a basic concept, what else do we lose? We didn’t realize the consequences when it was too easy to buy a house a few years ago and we are paying a price for that. We will pay an even larger price if we don’t realize the consequences of it being much too difficult for many to own a home today. SOUND THE ALARMS!

A Follow-up To Yesterday’s Blog

by The KCM Crew on October 13, 2011

Yesterday, Steve Harney expressed his thoughts on how homeownership is being impacted in this country. Some believed that Steve thought the American people where losing faith in the importance of owning a home. That is not the case. He just worries about how housing policies may impact our neighbors and our neighborhoods. Here is a blog we posted earlier this year on the issue. – The KCM Crew

Redistributing Wealth to the RICH?

Many people are placing the concept of homeownership under attack. There is more and more debate whether we should limit government assistance to homeowners. The administration just came out with their Reforming America’s Housing Finance Market: A Report to Congress. The report acknowledges the advantages of homeownership:

“…which has helped millions of middle class families build wealth and achieve the American Dream.”

The paper also talks about curtailing a century of government assistance for American homeownership (ex. the elimination of Fannie Mae and Freddie Mac):

“But our plan also dramatically transforms the role of government in the housing market. In the past, the government’s financial and tax policies encouraged housing purchases and real estate investment over other sectors of our economy, and ultimately left taxpayers responsible for much of the risk incurred by a poorly supervised housing finance market.

Going forward, the government’s primary role should be limited to robust oversight and consumer protection, targeted assistance for low- and moderate-income homeowners and renters.”

At the same time it speaks of increasing its support for rental housing:

“The Administration believes that we must continue to take the necessary steps to ensure that Americans have access to an adequate range of affordable housing options. This does not mean all Americans should become homeowners … we should ensure that there are a range of affordable options for the 100 million Americans who rent, whether they do so by choice or necessity.”

In a press release announcing the administration’s points, Housing and Urban Development Secretary Shaun Donovan is quoted:

“We must continue to take the necessary steps to ensure that Americans have access to quality housing they can afford. This involves rebalancing our housing priorities to support a range of affordable options, from promoting much-needed financing for quality, affordable rental homes to ensuring the availability of safe, and sustainable mortgage products for current and future homeowners.”

This is not just a matter of semantics. In his prepared testimony before the House Committee on Financial Services, Treasury Secretary Timothy Geithner said:

“Our goal is not for every American to become a homeowner.”

The administration is taking a strong stance against government’s role in supporting homeownership. This would be a major change in policy. Assistance for homeownership has been important to America for a century. Many young people were able to attend college because their parents were willing and able to refinance their home to pay the tuition. Many American business owners got their start-up capital by taking an equity loan on their house. Renters won’t be able to ask their landlords to help pay their child’s college tuition. Renters can’t expect landlords to finance the development of the new product they discovered.
If we start to create a land with greater numbers of renters, those able to still purchase property will get wealthier collecting the rents from those who can no longer attain the American Dream. The administration calls for more support for these developers:

“The Administration will explore ways to provide greater support for rental housing. One option would be to do so by expanding FHA’s capacity to support lending to the multifamily market.”

This will lead to the redistribution of wealth in this country with the owners of the rental units building family wealth with profits generated by this real estate.
Diana Olick in an article for CNBC Realty Check quotes Democrat Melvin Watt of North Carolina:

“…there’s not going to be any home ownership at the low income level…Rich people will have home ownership and rich people will make money on apartment rentals, but we’ll be a renter nation for low-income people.”

We have to make sure this is the America we want.

 

Picking the Right Agent

Picking the Right Agent is Crucial

by The KCM Crew on October 5, 2011

The National Association of Realtors (NAR) released their Existing Sales Report two weeks ago and in the report they discussed a troubling trend: cancelled contracts are increasing dramatically. NAR defined the issue:

“Contract failures – cancellations caused largely by declined mortgage applications or failures in loan underwriting from appraised values coming in below the negotiated price.”

NAR explained that 18% of all contracts were cancelled in August. This compares to 16% last month and 9% in August of 2011.

The percentage of cancelled contracts has doubled in the past year!!

It is extremely important that both buyers and sellers pick the right real estate professional to assist them with their real estate needs.

BUYERS

Make sure your agent can not only help you find the home of your dreams but also find you professional assistance with all aspects of the transaction (mortgaging, title, etc.)

SELLERS

Realize that your agent must sell the home twice:

1. to a qualified buyer
2. to the bank (through the appraiser).

The second sale may be more difficult in this market than the first.

Bottom Line

It is imperative in this housing market that both buyers and sellers use a true real estate professional to guarantee that the deal will actually reach the closing table.

The Modern Day Conundrum: Short Sale vs. Foreclosure

Short Sale vs. Foreclosure: A Short Sale Always Wins

by Christopher Reale on October 4, 2011

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Today’s ever changing real estate industry has brought upon some very challenging questions from our clients. We as counselors, want to put forth the best, non-emotional advice that we can, in hopes that we can help our clients and their families navigate the rough waters of the short sale process.
The most prevalent question and one that continues to permeate the industry is:
“Why should a seller go through the short sale process rather than letting their house be foreclosed upon?”
While we cannot speak to every client circumstance, we can say one thing with complete conviction. In almost all instances in which a potential seller is contemplating whether they should short sell their house or let it go through the foreclosure process, a short sale is the better option. The following are examples to consider:

Example A- Short Sale

Mr. Smith owns a home in which he has a mortgage balance of $220,000 and a current market value of $150,000. Mr. Smith has elected to short sell his property. His Realtor successfully obtains a buyer who puts forth an offer price of $120,000 (80% current market value according to Realty Trac Foreclosure Report 5/26/2011). After reviewing the buyers offer and the financial hardship information from Mr. Smith, Mr Smith’s bank agrees to accept the short payoff of $120,000 which would leave a deficiency balance of $100,000.
The transaction closes and is final. Mr. Smith then pulls his credit report 30 days after the transaction takes place. On the report he notices that the mortgage trade line states “Mortgage debt was settled for less than full” and the balance on the mortgage is $0. Mr. Smith is now on the road to financial recovery.

Example B- Foreclosure

For the ease of illustration we will use the same value and mortgage debt amounts as in Example A. However, Mr. Smith has elected to forgo the short sale process and let the bank foreclose on the property. The bank holding his mortgage facilitates the proper legal procedures to foreclose on the property, all of which are costly. Mr. Smith is notified and his property foreclosed upon of which is taken back by the bank to sell as an REO.
Six months later, the bank finally sells Mr. Smith’s home only they sell it for $90,000 (60% of current market value according to Realty Trac Foreclosure report dated 5/26/2011). Remember, as a short sale, the home would have sold for $120,000 keeping the deficiency to $100,000. In addition to the deficiency now being $130,000, the bank has elected to add on legal costs of $15,000 and asset preservation costs of another $5000 for a total deficiency liability of $150,000. Mr. Smith pulls his credit report 30 days after being notified that the bank has sold his property and of his liability.
On the report he notices that the mortgage trade line states “Foreclosure” and the balance is $150,000. Because of Mr Smith’s choice to choose foreclosure vs. short sale his road to financial recovery has taken a major detour. He not only has a foreclosure on his credit report but know has a much larger deficiency balance in which the bank, in most cases, will report on his credit report as a balance owed.

The Best Option is clear

While the financial and credit advantages are clear when choosing a short sale over a foreclosure, other advantages are sometimes overlooked. The most important of all of them is maintaining the seller’s dignity and peace of mind. We have heard too many stories of families having to leave their homes because of a Sheriffs order or some other type of legal action. The short sale process alleviates this negative social impact. The process puts the control back in the seller’s hands so that they can get back on the road to financial recovery and start providing for their families. In the battle of the two evils, a short sale always wins!!!

Selling? Waiting Until The Spring Makes No Sense

Selling? Waiting Until the Spring Makes No Sense

by The KCM Crew on September 27, 2011

Late last year, banks were warned that they needed to guarantee that the paperwork necessary to start a foreclosure process on a family was both accurate and complete. Since then, the banks have slowed down the foreclosure process while they re-examined their procedures. They are now confident that all the required documentation is in order. We are currently waiting on a settlement between the banks and the state attorneys general which will establish what penalties will be assessed.

Once this settlement is reached, the banks will again move forward on many homes which are currently stalled at some stage in the foreclosure process.

How many homes are we talking about?

There are millions of homes in this category. Calculated Risk quantified the situation:

“There are a large number of seriously delinquent mortgage loans in limbo waiting for this settlement. According to LPS, at the end of August there were about 1.87 million loans seriously delinquent and another 2.15 million loans in the foreclosure process. This is only down slightly from a year ago when 4.4 million loans were seriously delinquent or in-foreclosure. Once the settlement is reached, the pace of foreclosures will pick up sharply.

The pace will “pick up sharply”.

Bottom Line

As more foreclosures come to the market at discounted prices, there will be greater downward pressure on all housing values. Waiting for the spring selling season to put your house on the market may not make sense this year. The increase in demand may be overshadowed by an increased supply of distressed properties.

What Happened to Modifications?

by The KCM Crew on September 21, 2011

Monday’s blog post generated many questions as to whether modifications would have a major impact on preventing an increase in future foreclosures. Though modifications are still being done, the onus by the government and the banks has currently shifted to two other initiatives to help the housing recovery:

1. Preventing future delinquencies (people falling behind on their payments)
2. Clearing the backlog of foreclosures already owned by the banks (REOs).

As proof of this, we just need to look at the speech by Edward J. DeMarco, the Acting Director of the Federal Housing Finance Agency (FHFA), to the American Mortgage Conference.
The text of the speech was released earlier this week . Mr. DeMarco explains:

“At the end of the Bush Administration and in the early days of the Obama Administration, attention focused on loan modifications as a way of stabilizing troubled borrowers’ monthly payments and aiding them in avoiding foreclosure. These efforts resulted in the Home Affordable Modification Program, or HAMP. For much of 2009, the key priority was developing and then implementing HAMP; in late 2009 and into 2010, the challenge became making HAMP more operationally effective and converting borrowers from trial modifications to permanent modifications.”

DeMarco then talks about what initiatives the agency is now concentrating on:

“Current priorities are focused on issues at the two ends of the foreclosure process – at one end, we are enhancing efforts to keep current borrowers from going delinquent in the first place and at the other end, we are now focusing on the challenges of disposing of the real estate owned that is left after a foreclosure.”

Preventing New Delinquencies

Trying to prevent more American families from falling delinquent on their mortgage payments is a great first step to a recovery in the housing sector. DeMarco claims:

“FHFA is carefully reviewing the mechanics of the Home Affordable Refinance Program (HARP) program to identify possible enhancements that would reduce barriers for borrowers already otherwise eligible to refinance using HARP. If there are frictions associated with the origination of HARP loans that can be eased while still achieving the program’s intent of assisting borrowers …we will seek to do so.”

Clearing Existing Foreclosures

We must also clear the inventories of foreclosures currently held by the banks. This is seen by FHFA as a crucial component to any plan to help the real estate market recover.

“The second area I would like to briefly discuss is the disposition of Real Estate Owned or REO. In August, FHFA, Treasury, and HUD issued a Request for Information (RFI) on ways to dispose of REO properties. While the Enterprises have considered various approaches to disposing of REO over time, the RFI represents an opportunity to consider new approaches, including possible approaches that include both the Enterprises and the Federal Housing Administration (FHA). By taking this collaborative approach, the three agencies seek ways to improve returns to taxpayers and bring greater stability to local housing markets. We have received nearly 4,000 submissions in response to the RFI. We are encouraged by the strong response and interest in this effort. Obviously it will take a little time to review so many responses but we are already hard at work doing so.

To be clear, this effort is not intended to develop a single, national program for REO disposition. Rather, we are most interested in proposals tailored to the needs and economic conditions of local communities.”

Bottom Line

To help the market, the two major initiatives FHFA is pursuing are preventing new delinquencies and selling off the backlog of foreclosures that currently exists. Modifications, at best, now appear to be on a back burner.

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.

Shadow Inventory: Short Term Medicine - Long Term Cure

For nearly a year, the threat of "Shadow Inventory" being unleashed on to the market has loomed large in the hearts, minds and wallets of homeowners all over the country.  Certainly, the short term impact of thousands, if not tens of thousands, of distressed /foreclosed properties will adversely affect property values in localities where they predominate.  In some states, the courts have delayed foreclosures for years in some cases, and the sheer volume of homes that will suddenly  be released onto the market will have a tsunami effect on affected communities.

South Florida, while hardly immune to judicial backlogs, have had a considerable head start compared to other regions of the US.  Our real estate boom ostensibly ended in July 2005, whereas much of the country didn't experience their respective housing downturns until late 2006 and 2007. 

We will most certainly feel the effect of the shadow inventory stampede in sficic areas, but I believe the effect will be considerably less devastating than other parts of the country.

In my opinion, the reasons for this is the fact that the mushroom cloud effect of the housing bust hit South Florida first, and many communities have already begun to stabilize.  A second and more critical reason is that South Florida is a Mecca for foreign investment in real estate.  Foreign exchange conditions with our primary international markets in Latin America have drawn thousands of buyers to our shores to take strategic advantage of the currency exchange rates.  Finally, the rental market is smoking hot with increases as much as 20% over the last two years.  In specific areas, the rent vs. buy analysis clearly favors the buyer.

The link below explains the situation and uses New Jersey to illustrate of the declining effect this shadow inventory will have on the real estate market.  I agree that the disposition of all these distressed properties is the only way to bring the supply and demand equation back in to equilibrium.  Please be reminded, however, that real estate is local in nature, and conditions in New Jersey are not the same as in South Florida or Dubuque, IA or Beaufort, SC.

I conclude that sellers should consult with a knowledgable and experienced Realtor who is keenly aware of his local market conditions, and make their decisions based on accurate local data.     

http://kcmblog.com/2011/08/24/shadow-inventory-luckily-here-it-comes/

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

Is the economy worse than what we think?

The author believes we are in for 18 months of further decline in prices, but increases in interest rates, food, energy and potentially higher taxes will make it more costly to finance and operate a home.

Click to view:

Is the Economy Worse than We Think? - KCM Blog

When Will Happy Days Be Here Again?

The Economy: When Will Happy Days Be Here Again? - Knowledge@Wharton

This is one of the most comprehensive and honest articles I have read in a long time regarding the economy and the real prognosis for recovery.  I urge all my readers to take a few minutes to read it.  As it relates to real estate, I was drawn to the following paragraphs:

For Buyers:

"With the excess of supply and low prices, there is diminished need for new homes, and construction has dropped from about one million units a year in a healthy economy to about 500,000, according to Wachter. Commercial construction has also slackened. In the six recessions prior to the latest one, construction has been a key factor in the recovery, Wachter points out. Construction employment typically rises by more than 30% in the two years after a recession ends; in the two years since the end of the latest recession, however, construction jobs have fallen an additional 10%. "That is historically unprecedented," she says.

Bottom Line:  Aside from foreclosures and short sales and the issues, difficulties and delays that they entail, newly constructed homes represent a significant "sweet spot" for the shrewd homebuyer.  Developer/Builders are providing enormous incentives to move their projects to completion.

"The future may also produce a different housing profile. In 2004, the U.S. hit its peak in home ownership, with about 69% of households owning rather than renting. Currently, the figure is around 64% and likely will fall two or three points lower, to a level consistent with most of the post-World War II era, Wachter predicts. But there is some danger that the new normal could be even lower, she adds. That would mean a significantly higher portion of the population would be subject to the uncertainties of rent increases -- and cut off from the long-term financial benefits of ownership, a key to getting into the middle class and staying there."

Bottom Line:  If you are a potential buyer, the time is now.  Prices and interest rates are low. Inventories are high.  While lending practices are tighter, long term buying conditions are fantastic.  Home ownership, historically, has been a key component to capital preservation and socio-economic stability.  Don't buy a house as part of a three to five year plan to untold wealth and prosperity.  Real estate is a long term play.  Buy a home as part of an overall long term strategy to build a strong foundation of economic strength for yourself and your family.  Also, owning your own home should also provide a sense of permanence and stability for you and your family.  We've learned how bad it can get for those who buy above their means. Therefore, only buy what you can afford.  Finally, strive to pay off your home as soon as you can.  Avoid compounding debt by borrowing against your equity in the future.  Past generations had it right.  Debt, when it comes to your primary home, is not a path to wealth.   

For Sellers:

Federal programs have failed to keep as many troubled borrowers in their homes as the government had hoped, often because homeowners who do receive payment reductions later default anyway. Given all the problems in real estate, Wachter doesn't expect any significant improvement in construction before the end of 2013, indicating the new normal for housing and the economy will not appear until 2016 or 2017.

Bottom Line:  If real estate will not begin to stabilize on a national level for five or six years, and I have to believe based on all indications, it is likely to be true, waiting a few months to see what happens in the market may not be a wise decision.  Selling now may actually be more financially prudent.

Caveat:  National trend analysis is a "macroeconomic" exercise, while real estate is a "microeconomic" reality.  In my primary market (Coconut Grove and Coral Gables, FL), prices have flattened in most price segments and sales activity is very strong.  Every commmunity is different.  Seek advice from a knowledgable and experienced Realtor. 

For Both Buyers and Sellers:

In fact, the economy has been changing for decades, but in recent years the effects were masked by the housing bubble, which temporarily supplied lots of low and semi-skilled jobs in construction, real estate sales and mortgage origination.

Conclusion: Unskilled or semi-skilled real estate professionals are an endangered species.  The business has evolved into a proverbial minefield of challenges, and only those who know how to navigate through them will survive.  Maintain high standards in selecting a Realtor and /or mortgage expert.  They will make all the difference in your real estate experience.   

HAFA Nice Day!!

Few phrases inspire the level of disdain in the hearts and minds of real estate professionals across the country as the term “Short Sale”. The slightest mention of the words is anathema to those of us who are committed to making the real estate experience a happy and satisfying one for our buyers and sellers. The complexities, potential pitfalls, delays and general difficulties in seeing them through to fruition have tested the resolve and patience of Buyers, Seller and Realtors alike. Engaging in a short sale has transformed the real estate experience into the psychological and emotional equivalent of a seemingly unending root canal procedure.

One of the most common complaints about the short sale process is the lack of standardization between the numerous lending institutions that have essentially created a labyrinth of ever-evolving documentation, rules, regulations and procedures that have turned the process of buying and selling a home into a nightmarish odyssey.

The federal government has responded by creating the Homeowner Affordable Foreclosure Alternatives program (HAFA). HAFA has it's genesis in the 2009 Home Affordable Modification Program (HAMP), which was developed to provide rules and incentives for loan modifications on distressed owner-occupied homes. While well-intentioned, the program, after receiving over 1.7M requests for loan modifications by January 2010, discovered that many of these applications failed to qualify for a loan modification.

Some of the reasons given for this were:

1. Many of the homes had lost so much value that the borrowers (homeowners) were no longer interested in pursuing a modification.
2. Many of the borrowers were now unemployed or underemployed.
3. Borrowers who qualified for a loan modification were failing to make their modified loan payments at a rate of over 50%.
4. Some borrowers had already moved on with their lives, were no longer interested in keeping the properties, and had made alternative living arrangements.

In order to prevent these homes from further clogging up the already besieged courts flooded by volumes of foreclosures, the federal government identified the short sale as a viable alternative, and on November 30, 2009, announced the creation of HAFA. HAFA is ostensibly a program that provides standardized policies, procedures, forms and much needed timeframes to establish short sales or deed in lieu of foreclosure (DIL) outlets for borrowers who did not qualify, were not interested in, or were not able to make timely payments under the HAMP program. The program became effective on April 5, 2010. The original November 30, 2009 program was revised on March 26, 2010, just 10 days before its implementation. All lenders and servicers participating in HAMP and all qualifying loans are required to participate in HAFA. The program is scheduled to expire on December 31, 2012.

Effective June 1, 2010 both Freddie Mac and Fannie Mae have released their own Home Affordable Foreclosure Alternatives (HAFA) guidelines, forms and procedures. As expected the new Fannie and Freddie HAFA rules and forms are almost identical to the original HAFA program released by the U.S. Treasury Department. However, both agencies have their own forms that must be used and there are a few twists and differences from the original program that everyone should know about. With the release of the new Fannie Mae and Freddie Mac HAFA rules and forms, virtually all owner occupied properties in this country are now subject to the HAFA program.

General Features – HAFA

A. Allows Short Sale Borrowers to receive pre-approved short sale terms prior to the property listing.
B. Prohibits the servicer from requiring, as a condition of approving the short sale, a reduction in the real estate commission, agreed upon in the short sale agreement
C. Requires that borrowers be fully released of future liability for debts (No deficiency liability).
D. Provides financial incentives for borrowers, servicers and investors.
E. Buyers can receive notification of approval of their offer within 10 days of submittal.
HAFA does not alter or modify lender or investor guidelines. HAFA is a procedural overlay that standardizes processes, procedures and forms.

Owner-occupied homes will no longer automatically go into foreclosure. They must first be evaluated for a loan modification under HAMP. If the HAMP modification does not succeed, the borrower must be offered the HAFA short sale process before it can go into foreclosure.

Basic Eligibility Requirements

1. Must be Owner-Occupied Property
2. First Lien Mortgage must have been originated on or before January 1, 2009.
3. The mortgage is delinquent or default is reasonably foreseeable
4. The current unpaid balance on the home is $729,750 or less
5. The borrowers total monthly mortgage payment exceeds 31% of the borrower’s gross income.

Lenders and servicers are allegedly looking closely at the HAFA program as a short sale model for investor properties in the future. This will not be a part of the HAFA program, but may serve as a procedural inspiration for establishing a short sale channel for investor-owned properties.

For more information on HAFA short sales, do not hesitate to contact me at 305.282.1763, or email me at henry.pedroso@floridamoves.com.