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Solving the Foreclosure Crisis One Mortgage at a Time

February 16, 2012
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We are now in year 6 of the foreclosure crisis.  In the beginning most real estate professionals like myself thought it was a temporary down turn and things would pick back up with in a year or so.  No one knew what a short sale was nor did any of the banks want  to accept less than what was owed.  What started as a sub prime mortgage mess has become an epidemic effecting everyone.  Some estimates say we have lost $7 trillion (with a T) in home values and over 5 million homes have been foreclosed.  10 million more are at risk. For most Americans their home was their most valuable asset. Now foreclosures have driven back home values to 2001 levels in most areas.

So what’s the solution?  How do we stabilize falling prices and return value to our housing market?  Well there is no magic bullet, but if we combine multiple solutions that help a few thousand home owners here and there, now we’re getting some where.  Foreclosures have a massive downward pressure on our housing market ( lowering neighborhood values by 40%) and make recovery impossible as long as they flood the real estate market.  As a result our country has over 1.5 million vacant homes which are a breading ground for crime.  As a country and as responsible citizens our focus should be on helping at risk home owners before they get to the end of their rope and fall victim to foreclosure.

$20 billion will go to help at risk mortgages in the form of principal reduction with a maximum of $20,000 per modification and refinances to today’s historically low rates.  Last week 49 US Attorney’s General came to a settlement for $26 billion with the 5 major banks Chase, Wells Fargo, Alley Financial, Bank of America, & Citigroup over wrongful foreclosure proceedings.  These banks were using attorneys who forged and falsified foreclosure documents that wrongfully put 750,000 Americans out of their homes.    This settlement will help thousands stay in there homes over the next 3 years while programs are implemented.

Just because your mortgage statement may say Bank of America or Chase, it does not mean they own the loan.  Fannie Mae & Freddie Mac are the nations largest mortgage purchasers but usually let the major banks service the loans i.e. collect payments.  They have come up with their own programs that are meant to help home owners refinance or modify their loans.  HAMP or home affordable modification program is designed to help change the loan terms, reduce principal, reduce interest rate, extend the terms ( from 30 years to 40) or a combination of all 3 methods.  HARP or home affordable refinance program is designed for home owners who are current on payments but who owe more than their home is worth.  Home owners that are under water can take advantage of today’s  rates and reduce monthly payments because the program does not use value as a factor.  To see if your loan is owned by Fannie Mae or Freddie Mac go to  www.fanniemae.com/loanlookup orwww.freddiemac.com/mymortgage .

A new tactic the banks are using in the battle against foreclosure is offering a cash incentive to home owners to successfully complete a short sale.  Chase has offered up to $35,000 and other banks are testing pilot programs to do the same.  It’s now more expensive for them to foreclose and in some cases takes 1 or 2 years if they do not have the proper documentation.  For the home owner the massive cash incentives are extremely enticing and help them to start over in a new home and have less damage done to their credit or financial future.

HAFA or Home Affordable Foreclosure Alternative is another government designed program to help home owners complete a short sale..  The program is designed to slow down the foreclosure process, give timely answers, and gives the $3000 for moving expenses to home owners.  The deficiency judgement is waived ( difference between amount owed and amount paid) and reported to the credit bureaus as “settled” instead of a foreclosure which stays with a home owner for 10 years.

Combining all these options will provide a solution and reduce the amount of foreclosures putting downward pressure on housing market while at the same time making our neighborhoods safer.  Our government is offering help, most banks are offering help, but it’s up to individual home owners to take advantage.

Jeff Donnellan  Re/max

http://www.webhomesearcher.com

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Chicago’s Shadow Real Estate Inventory

January 24, 2012
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A Wave of Foreclosure Homes to hit the Market

Remember your neighbor that lost their job 2 years or had wages reduced?  Well they have probably  missed mortgage payments too.  But that was 2 years ago.  How have they managed to stay in their home so long with out the bank foreclosing?

For a few years now there has been talk of a “shadow” real estate inventory or homes that are working their way through the foreclosure process before coming up for sale as REO or Real Estate Owned.  Roughly 15% of homes in Illinois are in some stage of the foreclosure process and this shadow inventory has been building up for over a year now and is a dam ready to burst.  In wake of the  “Robo-Signing” scandal, (fraudulent documents being signed to speed up the foreclosure process) a moratorium has been placed on foreclosures, stopping delinquent loans working their way through the foreclosure pipeline.  Since the scandal broke in the fall of 2010 many home owners haven’t made a payment in almost 2 years because the Attorneys General of all states have put a halt on many of the large banks.  The “Robo-Signing” law suit involving the 5 largest mortgage lenders ( B of A, Chase, Citi, Wells Fargo, & Ally) is about to be resolved and the foreclosure machine to start churning again.  2011 Foreclosures were down 34%  the lowest total in 4 years, now we could see them all in 1 year, the tidal wave that could be approaching.  The foreclosure crisis didn’t just disappear. Millions of home owners are still in distress, upside down, and dealing with adjusting mortgage rates.  Government backed mortgage modifications & refinances (HARP & HAMP) have been largely ineffective helping only around 1 million of our nations 30 million house holds.

So what does all this mean?  The banks and mortgage companies will start moving home owners past the delinquency state and through foreclosure again in the 1st part of the year and will come to market as REO sales in the 2nd half.  This means thousands of REO homes flooding the market.  Some estimates say that just 1 foreclosure in a neighborhood drops the entire neighborhood’s value by 30%. Think of how this will affect the you and your neighborhood.

I feel like a real Debby Downer with all these negative statistics, but there is also empowerment that comes from knowledge.  These statistics and numbers are real people and real families, they are our friends, our family, our neighbors, our community and they are in distress.  Now how can we help them through this frightening time and help yourself as well?  Everyone knows some one who was laid off during the recession and now we all know some one who is in danger of losing their home to foreclosure.  On my website www.webhomesearcher.com I have created a foreclosure prevention resource that helps guide distressed home owners through the process and all the foreclosure alternatives that exist.

Jeff Donnellan

Re/max