A Plan for Homeowners in Financial Despair

A new plan has been put forth by the government to help homeowners in need. The big change is that this time it is not merely aimed at those who are facing foreclosure (approximately 7 million people) but homeowners who owe more on their home than it is worth (approximately 11 million people). Funding for the plan will not come from increased taxes but from the "Troubled Asset Relief Program" which already has funds set aside.

Read the full article here: New York Times

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Thinking about buying a short sale?

Are you looking to buy a new home? Are you thinking that now's a great time to find bargains? Before you make an offer, it pays to know a little about the seller's situation.

If a home is being sold for below what the current seller owes on the property—and the seller does not have other funds to make up the difference at closing—the sale is considered a short sale. Many more home owners are finding themselves in this situation due to a number of factors, including job losses, aggressive borrowing against their home in the days of easy credit, and declining home values in a slower real estate market.

A short sale is different from a foreclosure, which is when the seller's lender has taken title of the home and is selling it directly. Homeowners often try to accomplish a short sale in order to avoid foreclosure. But a short sale holds many potential pitfalls for buyers. Know the risks before you pursue a short-sale purchase.

You're a good candidate for a short-sale purchase if:

* You're very patient. Even after you come to agreement with the seller to buy a short-sale property, the seller’s lender (or lenders, if there is more than one mortgage) has to approve the sale before you can close. When there is only one mortgage, short-sale experts say lender approval typically takes about two months. If there is more than one mortgage with different lenders, it can take four months or longer for the lenders to approve the sale.
* Your financing is in order. Lenders like cash offers. But even if you can’t pay all cash for a short-sale property, it’s important to show you are well qualified and your financing is set. If you're preapproved, have a large down payment, and can close at any time, your offer will be viewed more favorably than that of a buyer whose financing is less secure.
* You don’t have any contingencies. If you have a home to sell before you can close on the purchase of the short-sale property—or you need to be in your new home by a certain time—a short sale may not be for you. Lenders like no-contingency offers and flexible closing terms.

If you're serious about purchasing a short-sale property, it's important for you to have expert assistance. Here are some people you want to work with:

* Experienced real estate attorney. Only about two out of five short sales are approved by lenders. But a good real estate attorney who's knowledgeable about the short-sale process will increase your chances getting an approved contract. Also, if you want any provisions or very specialized language written into the purchase contract, a real estate attorney is essential throughout the negotiation.
* A qualified real estate professional.* You may have a close friend or relative in real estate, but if that person doesn’t know anything about short sales, working with him or her may hurt your chances of a successful closing. Interview a few practitioners and ask them how many buyers they've represented in a short sale and, of those, how many have successfully closed. A qualified real estate professional will be able to show you short-sale homes, help negotiate the purchase when you find the property you want to buy, and smooth communications with the lender. (All MLSs permit, and some now require, special notations to indicate that a listing is a short sale. There also are certain phrases you can watch for, such as “lender approval required.”)
* Title officer. It’s a good idea to have a title officer do an initial title search on a short-sale property to see all the liens attached to the property. If there are multiple lien holders (e.g., second or third mortgage or lines of credit, real estate tax lien, mechanic’s lien, homeowners association lien, etc.), it's much tougher to get that short sale contract to the closing table. Any of the lien holders could put a kink in the process even after you’ve waited for months for lender approval. If you don’t know a title officer, your real estate attorney or real estate professional should be able to recommend a few.

Some of the other risks faced by buyers of short-sale properties include:

* Potential for rejection. Lenders want to minimize their losses as much as possible. If you make an offer tremendously lower than the fair market value of the home, chances are that your offer will be rejected and you’ll have wasted months. Or the lender could make a counteroffer, which will lengthen the process.
* Bad terms. Even when a lender approves a short sale, it could require that the sellers sign a promissory note to repay the deficient amount of the loan, which may not be acceptable to some financially desperate sellers. In that case, the sellers may refuse to go through with the short sale. Lenders also can change any of the terms of the contract that you’ve already negotiated, which may not be agreeable to you.
* No repairs or repair credits. You will most likely be asked to take the property “as is.” Lenders are already taking a loss on the property and may not agree to requests for repair credits.

The risks of a short sale are considerable. But if you have the time, patience, and iron will to see it through, a short sale can be a win-win for you and the sellers.






* Not all real estate practitioners are REALTORS®. A REALTOR® is a member of the NATIONAL ASSOCIATION OF REALTORS® and is bound by NAR’s strict code of ethics.



Note: This article provides general information only. Information is not provided as advice for a specific matter. Laws vary from state to state. For advice on a specific matter, consult your attorney or CPA.

Obama bolsters program that insures home loans

More homebuyers depend on government-insured FHA loans and defaults are rising. Federal housing officials take steps to lower the program's risk.

NEW YORK (CNNMoney.com) -- With a growing number of homebuyers depending on government-insured loans, the Obama administration is taking steps to shore up the Federal Housing Administration program.

Rising demand and a slower-than-expected rebound in home prices are pushing one of FHA's reserve accounts below the 2% ratio mandated by Congress, said Commissioner David Stevens. The capital reserves are a cushion against expected losses in the program, which has suffered soaring defaults amid the housing collapse.

The FHA has skyrocketed in popularity during the mortgage crisis since it backstops banks if borrowers stop paying. Housing experts are growing increasingly concerned about the agency's ability to handle rising numbers of defaults.

The drop in reserves, however, will not require a taxpayer-funded infusion into the housing agency, nor an increase in insurance premiums that FHA borrowers pay, Stevens said. The capital reserves, which are determined by an independent auditor and reported to Congress in November, will rise above the minimum threshold within a few years as the housing market recovers.

The agency's overall reserves stand at more than $30 billion, a record level thanks to the large influx of premium-paying borrowers, Stevens said. It covers more than 4.4% of its insurance commitments.

"To be clear, the fund's reserves are sufficient to cover our future losses, so the FHA will not require taxpayer assistance or new congressional action," Stevens said.

Still, the agency is taking a number of steps to reduce the riskiness of the program, which allows borrowers to purchase a home with as little as 3.5% down. It plans to hire its first chief risk officer in its 75-year history and to increase net-worth requirements for approved lenders to $1 million, up from $250,000. Lenders will also be responsible for any losses resulting from fraud on the part of mortgage brokers.

The changes may eliminate some smaller FHA lenders and will likely weed out some of the riskier borrowers, Stevens said.

These moves, particularly hiring a chief risk officer, are important steps that need to be taken, said Howard Glaser, head of the The Glaser Group, a financial services analytics firm. The agency grew so quickly that it was difficult to monitor the quality -- and riskiness -- of the loans being made.

While the FHA may want to raise borrower premiums or tighten its underwriting standards if defaults continue to rise, Glaser said the agency's $30 billion reserve is enough to cover its current loss estimates.

"It's surprising they are doing as well as they are," said Glaser, a former Clinton administration housing official.
FHA propping up housing market

As banks have clamped down on mortgage lending, the FHA program has emerged as one of the few ways people can buy a home these days. Banks are more willing to make FHA loans because they come with a federal guarantee to cover losses if the borrower defaults. And borrowers can more easily qualify for FHA loans because they only need 3.5% down and can have lower credit scores.

As a result, demand for FHA loans has exploded. FHA loans now account for 23% of the market, up from 2% in 2006, Stevens said. Some 80% of first-time homebuyers go through the agency.

The agency, however, has also seen a spike in delinquencies amid the mortgage meltdown. Some 14.42% of FHA loans were past due in the second quarter, up .58 percentage points from the same period a year earlier, according to the Mortgage Bankers Association. Just under 3% of FHA loans were in foreclosure, up .22 percentage points.

Concerned about rising defaults, the agency has raised its standards for new borrowers. Only 7.5% of the portfolio has a credit score below 620, down from 50% two years ago. The average score is 690, versus 630 two years ago.

"The quality of the current FHA book is significantly better than anything seen in the FHA portfolios in recent years," Stevens said. To top of page




Tammy Luhby, CNN Money

You've got questions? I've got answers! First-Time Homebuyer Tax Credit

I have run into a lot of people that have questions about the $8,000 first-time homebuyer tax credit. Here are a few answers:

Q: Who qualifies?

First-time homebuyers who puchase homes between January 1, 2009 and November 30, 2009.

To qualify as a "first-time homebuyer" the purchaser or his/her spouse may not have owned a residence during the three years before the purchase.

Q: Which properties are eligible?

The 2009 first-time homebuyer tax credit may be applied to primary residences, including: single-family homes, condominiums, town-homes and co-ops.

Q: How much will the credit be?

The maximum allowable credit for homebuyers is $8,000. Each homebuyer's tax credit is determined by two factors:

1. Price of the home- the credit is equal to 10% of the purchase price of the home, up to $8,000.

2. Income- single buyers with incomes up to $75,000 and married couples with incomes up to $150,000 may receive the maximum tax credit.

Q: If the buyer(s)' income exceeds these limits, can he/she still get a credit?

Yes, some buyers may still be eligible for the credit.

The credit decreases for buyers who earn between $75,000 and $95,000 for single buyers and between $150,000 and $170,000 for homebuyers filing jointly.

The amount of the tax credit decreases as his/her income approaches the maximum limit. Homebuyers earning more than the maximum qualifying income- over $95,000 for singles and over $170,000 for couples- are not eligible for the credit.

Q: Will the tax credit need to be repaid?

No. The buyer does not need to repay the tax credit, if he/she occupies the home for three years or more. However, if the property is sold during the three-year period, the credit will be recouped on the sale.

Q: Is it too late to start the homebuying process in time to take advantage of this credit?

No, but you need to start soon. What we're hearing from mortgage brokers is that it takes anywhere from 45-60- days to get to the closing table of a normal transaction. If you start today, you'll still have time. If you want to take advantage of this amazing tax credit, contact me today!


















Source: Realtor.org

Unemployed Home Owners May Get Assistance

The Obama administration has opened a dialogue with major lenders, economists, and government officials over the possibility of extending a financial lifeline to home owners who no longer can afford their mortgages because of job losses.

Possible strategies range from encouraging loan servicers to allow unemployed borrowers to skip some payments to providing grants or loans to temporarily cover mortgage obligations for home owners who become unemployed.

The talks have drawn praise from some real estate groups and other interests, who say that without aid to this subset of homeowners, the housing recovery could lose momentum.

Source: USA Today, Stephanie Armour (09/18/09)

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