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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


When Should a Home Owner Consider a Short Sale?

February 12, 2012
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Tips for Underwater  Home Owners Who Want to Avoid Foreclosure

by Jeff Donnellan RE/MAX

The US is beginning its 6th straight year of declining home values.  Like myself, 10 million home owners are underwater on their mortgages.  This is not always a problem if there is a long term solution like waiting out the market or renting your home until the mortgage is paid off or values return.  Many home owners that have experienced a hardship like loss of income, wage reduction, increased bills, death of a family member or divorce time is working against them.  They can’t wait out the market until it gets better, they need a solution now.  Most people in these situation are at the end of their rope and savings accounts are running dry.  Now is the time to find out what solution is best, refinance, mortgage modification or short sale.

Here are a 10 tips for home owners who owe more than what their home is worth and they don’t know what to do.

1.  BEWARE of foreclosure prevention scams.  Many unscrupulous people prey on distressed home owners at their moment of weakness.   Never agree to up front fees.  Check credentials and ask for referrals.

2. Be realistic. If you’re spending more than you make each month or have a hardship now or foreseeable future take action now that could prevent defaulting on your mortgage and bills later on.  Ignoring the problem will only make it worse.

3. Must ask the question can I (we) or do we want to stay in the home?  Be honest with yourself.

4.  Seek out information. My website is filled with information to help home owners.  www.webhomesearcher.com

5. Contact your bank and specialists like a Short Sale Realtor, Short Sale Attorney, Mortgage broker.  Each will be able to help you discover all possible options. Banks are more willing now than ever to keep people in their home instead of foreclosing.

6.  Government sponsored programs such as HAMP (mortgage modifications), HARP ( refinance), & HAFA (short sale 3k to home owner for moving expenses) are available to struggling home owners.  Use these programs while they are still available.

7. A Short sale is not the end of the world.  It’s a practical solution to a difficult situation.  No cost to home owner. Credit scores can be affected as little as 50 points, better than foreclosure on credit report and can qualify for a new home mortgage in as little as 2 years and can negotiate away the deficiency ( difference between amount sold and amount owed).

8.   In some cases renting the home is possible if rent prices meet or exceed mortgage payments.  This can be a risk as well because if the tenant doesn’t pay mortgage payments will be missed.

9.  Consider what is best for your short term and long term future.  A foreclosure can stay on your record for 10 years and could prevent purchasing a home again for up to 7 years.

10.  Some banks are offering up to $35000 for home owners to complete a short sale instead of letting the home go into foreclosure.  Contact your bank to see if there are incentives.

My best advice is to meet the problem head on.  The longer  a home owner waits to take action the fewer options will be available.  I have often been contact when there is only 1 month left until a home forecloses and there is very little that can be done to save a home owner.  In contrast when I’m contacted early in the process all options are available.  This process can be scary &  frustrating, but in the long run will benefit your financial future.


Short Sale Start to Finish. A Home Owners Guide to Short Sales

February 9, 2012
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5 Million Home Owners Likely to Face Foreclosure

By Jeff Donnellan RE/MAX  www.webhomesearcher.com

I attended a RealtyTrac webinar earlier today and the host projected that up to 5 Million home owners could face foreclosure between now and 2014.  This figure is shocking, but not surprising.  Most economists project the true unemployment rate at 13-14% including everyone who has stopped looking for work or is under employed.  The report showed slides how foreclosures mirror the unemployment rate.  To throw one more devastating blow to a weak housing market, millions of loans with teaser rates or ARM are about to reset to much higher rates ( average increase of $1000 per month).

The 1st option for any home owner who is having trouble making payments but is able to stay in their home should be to use HARP or HAMP the government sponsored refinance or modification programs.    If staying in your home is not realistic and you need to sell a short sale is a much better option than letting the home foreclose.  The major banks are supporting this as I detailed in an earlier blog “Why Would a Bank Accept a Short Sale“.  Chase Bank is even offering up to 5% ($45000 in some cases) of the loan amount back to the owner at closing if they complete a short sale.

The short sale process can be long, complex and is always evolving to better refine the procedure and speed of the transaction so here is what a home owner attempting a short sale should expect:

1. Contact your bank.  Let them know there are problems and you’re listing your home as short sale.  This will alert their loss mitigation department to assist in this matter. The longer you wait the less time you will have to sell your home and avoid foreclosure.  See if you qualify for HAFA.  Home owners can receive up to 3k in moving expenses.

2.  Contact an experienced short sale Realtor who can guide you through the process.  Be careful not all Realtors are short sale experts.

3.  Your bank will require documentation.  A hardship letter explaining why you are unable to make payments, 2 years tax returns, 2 recent bank statements, 2 recent pay stubs & a financial worksheet.

4.  The next step will be to list your home for sale.  Make sure your agent does a CMA and lists the home near market value.  This will show your bank you are trying to get top dollar and not creating a fire sale or blind auction.

5. Home values may be shifting in your market so make sure to use regular price drops to stay current with surrounding home values.  This will also create a record to show your bank you tried to sell for market value.

6.  Getting an offer from a qualified buyer is extremely important.  Check out their financing to make sure it’s solid.  I see a lot of transactions fall apart because of weak financing.

7. Negotiate the highest possible offer before accepting.  Make sure the buyer gives earnest money and does their due diligence right away.  It’s important to know the buyer is committed to stay with the process and flush out problems early on.

8.  The next step is to submit the offer to your bank.  It may take time to have a contact assigned but be persistent with regular calls.

9. The 1st sign the bank is processing the short sale is when they order a BPO or broker price opinion.  A real estate agent not associated with the transaction will do an independent  valuation and submit this as a starting point for the negotiation.

10.  Usually with in 10-14 days after the BPO the bank will ask for additional documentation and counter or accept the buyers offer. They outline terms, release of liens & waive the deficiency.  Usually 60 days in from step 8 offer submission.

11.  After all terms are agreed upon everything will be submitted to the investor ( owns the loan ) &  a short sale approval letter will be issued.

12. Closing has to happen 30-45 days after acceptance so make sure the buyer has their financing ready.

Choosing the right agent is everything.  National average for successful short sale closings are 30-40%.  Realtors with the CDPE (certified distressed property expert) have a 75-80% success rate.  Let the right person guide you through the complex process and save you from foreclosure.