Short Sale Reforms Could Speed Recovery

Earlier this month, the U.S. Treasury Department announced new guidelines to the Short Sale process that could speed the housing market recovery, a move that a number of U.S. real estate executives have been promoting in Washington D.C. for the past year.

Short Sales, transactions that can occur when a lender accepts the sale of a home at a price below the actual amount owed on the home, have become an increasing part of the real estate business as besieged homeowners look for alternatives to foreclosure.

RE/MAX Chairman and Co-founder Dave Liniger has promoted a streamlined Short Sale process since foreclosures began flooding the market and has presented specific proposals to government officials. In the last year he made many trips to Washington, D.C. to encourage policies that facilitate Short Sale transactions.

Liniger believes that a streamlined Short Sale process would help many families avoid the trauma of foreclosure and help the housing market remain on the road to recovery.

“Short Sales are absolutely critical as more and more people continue to face foreclosure and as our housing market struggles to recover,” said Liniger, who’s closing out a 28-city, cross-country speaking tour encouraging thousands of agents to become educated on the Short Sales process. “While not all of our recommended changes were implemented, the Treasury’s new guidelines go a long way in incentivizing both lenders and homeowners to work together to keep homes from falling into foreclosure.”

Until now, the Short Sale process has been cumbersome for all involved and took upwards of eight to ten months for a transaction to close. But, through the Foreclosure Alternatives Program and the new guidelines issued this month, Short Sale transactions will increase dramatically, which means less vacant and vandalized properties in neighborhoods across the country.

The new guidelines enhance the short sale process in several ways:

Speeds up the process — Mortgage servicers have 10 days to say yes or no to a Short Sale request, and after the transaction is complete, the borrower could be completely released from debt.

Provides financial incentives — Borrowers are eligible to receive a $1,500 moving allowance if they sell their home through a Short Sale, and mortgage-servicing companies will in turn receive $1,000 for every completed short sale transaction.

Limits proceeds to second lien holders — Second mortgage holders can only receive up to $3,000 of the sales proceeds to release their liens, and investors who hold the first mortgages can collect up to $1,000 for allowing such payoffs.

The program also facilitates the transfer of ownership by a borrower through a “deed in lieu of foreclosure,” another helpful alternative to assist home owners forego a foreclosure.

Real estate agents should study and become familiar with the new Short Sale guideless to improve their business and to provide the best service to their customers.

2010 Forecasts

A good friend of mine who does bond commentary for Fox, MSNBC, Bloomberg and others has just released his predictions for 2010. As someone mainly involved with predicting interest rates he has to stay on top of anything that affects the Mortgage Backed Securities (MBS) market which includes most economic reports but particularly Fed policy and unemployment trends. Here is a summary of his forecast:

Home prices began to stabilize during 2009, and homes sales showed some signs of encouragement. We expect more of the same in 2010, although there will be some additional headwinds: higher rates and expiring tax incentives will likely create a lull during the summer months. After a modestly good start to the year, home prices could actually decline in some areas by 5% to 7% once the temporary stimulus expires. In the end, however, home prices should eventually and slowly begin to firm up toward the end of the year. I think this is basically what most of us were expecting except for maybe the decline in values.

Now for the big question… where will home loan rates go during 2010 and why? We’ve been forecasting rates for a long time, and this is by far the easiest call we have ever had. Rates are going higher in 2010. We do not think that the low rates seen during 2009 will be seen again. There will be more supply coming to the market in the first quarter, while the Fed’s purchases will be winding down. The overall trend for rates during this period will be higher, but as usual, this will never happen in a straight line. There will be waves and cycles moving up and down – but the trend is clearly up for rates. I think those of us in the business know 6.5% is still a bargain rate, but consumers get spoiled and think rates are “so high” compared to the historic lows we have been experiencing.

In the job market, we’re not nearly out of the woods yet. Even in the waning months of 2009, we still saw unemployment rates at 10% and nearly 500,000 new jobless claims coming in each week. The fact is…we need to see Initial Claims drop beneath 400,000 before we see stabilization in the labor market and unemployment rate.

There are about 154M people in the US labor force. And the size of the labor force rises on average by 125,000 per month, due to population growth. That means we will need to create very close to 125,000 new jobs each month to simply keep the unemployment rate stable. In order to get the unemployment rate to decline – significantly more jobs will need to be created. For example – if we would like to see the unemployment rate get back down to the 6% level that had been the norm in recent years, an additional 6 Million jobs would need to be created. If this were going to happen over a five-year period, that’s an additional 100,000 jobs per month over and above the 125,000 per month needed to keep up with the population. That means we’d need to see positive job growth of at least 225,000 jobs created per month, just to reach that 6% level within five years. Is this easy to do? Well, in the entire history of the United States, it has only happened one year – during 2006. This leads us to believe that the new normal will be higher unemployment rates for quite some time.

And consider the almost 800,000 workers who are not even categorized as unemployed, but simply as “discouraged”, as they have not actively searched for a job in the past four weeks. There’s a lot that can be assumed here, but it’s hard to imagine that these people would not reenter the ranks of those seeking employment if conditions improved a bit. That means that these people would need to be absorbed into the system before the actual unemployment rate could decline.

Additionally – perhaps the largest category that could skew the numbers are those individuals who are accepting part-time work but would prefer full-time employment. A whopping 10 Million people are in this category. You have to think that many employers would take these current part timers and give them full-time work, before hiring someone new. Again, this will make it very hard to see the rate of unemployment make any meaningful decline this year.

I find it inconceivable that our economy can generate 225,000+ new jobs a month for 5 years, so it looks like high unemployment numbers will be with us for a long while.

If Barry’s predictions are accurate as they usually are 2010 will be an interesting year. While not all the news is great even if these predictions are correct those of us who have a business paln and work it hard we can still have a banner year.

Here’s wishing everyone a profitable 2010.

Where Has Personal Responsibility Gone??

The lack of individuals willing to take personal responsibility for their actions is getting more blatant everyday. Here you have a company named www.youwalkaway.com putting out a video that almost glamourizes intentional mortgage default. The worst part is they have been exposed to the public by every major media outlet. While the video is cute and funny it still says something about the personal values of many homeowners.

Am I overreacting…I don’t think so?

The Truth About FHA’s Reserves

Contrary to what many sources are reporting the FHA insurance pool is not at this point where they will need a government bailout. And it is unlikely they will need a bailout in the forseeable future. What most people don’t realize FHA is the only agency of the Federal Government that actually makes money.

The recent audit of FHA showed the mutual insurance pool had a balance of only .57% of the outstanding loans, well below the Congressional mandate of 2%. Unfortunately this is the only part of the audit that most people look at. Even the auditors state that it is highly unlikely the insurance pool would run out of funds.

The biggest item that everyone seems to want to over look is the .57% is only the “Capital Reserve Fund”. FHA also holds a “Financing Account.” When you add the funds in both accounts it totals $31 billion which is actually 4.5% of the outstanding loans. Twice what is mandated by Congress.

There are people saying that we need to go to a 5% down payment and a 3% annual MIP premium. On a $200,000 loan buyers would have to come up with $3000 in additional down payment and the monthly mortgage insurance would go from $91.66 to $500. These proposals are absolutely ludicrous because it would force most buyers out of the FHA market.

FHA has already taken the steps that are needed. Through their changes in the underwriting guidlines they have been able to raise the average credit score from 633 to 693. The other major step was the elimination of the non-profit down payment assistance programs which had a default rate of 20.6%. FHA has taken the proper steps and a little patience will prove that FHA is moving in the right direction and that they will play a crucial part in bringing this country out of the recession.

President Obama Signs Tax Credit Extension

To learn what the new tax credit means to you and your clients, take a look at the concise overview below.

TAX CREDIT OVERVIEW

Who Gets What?

First-Time Homebuyers (FTHBs): First-time homebuyers (that is, people who have not owned a home within the last three years) may be eligible for the tax credit. The credit for FTHBs is 10% of the purchase price of the home, with a maximum available credit of $8,000

Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.

Current Owners: The tax credit program now gives those who already own a residence some additional reasons to move to a new home. This incentive comes in the form of a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.

Single taxpayers and married couples filing a joint return may qualify for the full tax credit amount.

What are the New Deadlines?

In order to qualify for the credit, all contracts need to be in effect no later than April 30, 2010 and close no later than June 30, 2010.

What are the Income Caps?

The amount of income someone can earn and qualify for the full amount of the credit has been increased.

Single tax filers who earn up to $125,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, single filers who earn $145,000 and above are ineligible

Joint filers who earn up to $225,000 are eligible for the total credit amount. Those who earn more than this cap can receive a partial credit. However, joint filers who earn $245,000 and above are ineligible.

What is the Maximum Purchase Price?

Qualifying buyers may purchase a property with a maximum sale price of $800,000.

What is a Tax Credit?

A tax credit is a direct reduction in tax liability owed by an individual to the Internal Revenue Service (IRS). In the event no taxes are owed, the IRS will issue a check for the amount of the tax credit an individual is owed. Unlike the tax credit that existed in 2008, this credit does not require repayment unless the home, at any time in the first 36 months of ownership, is no longer an individual’s primary residence.

How Much are First-Time Homebuyers (FTHB) Eligible to Receive?

An eligible homebuyer may request from the IRS a tax credit of up to $8,000 or 10% of the purchase price for a home. If the amount of the home purchased is $75,000, the maximum amount the credit can be is $7,500. If the amount of the home purchased is $100,000, the amount of the credit may not exceed $8,000.

Who is Eligible fort FTHB Tax Credit?

Anyone who has not owned a primary residence in the previous 36 months, prior to closing and the transfer of title, is eligible.

This applies both to single taxpayers and married couples. In the case where there is a married couple, if either spouse has owned a primary residence in the last 36 months, neither would qualify. In the case where an individual has owned property that has not been a primary residence, such as a second home or investment property, that individual would be eligible.

As mentioned above, the tax credit has been expanded so that existing homeowners who have owned and occupied a primary residence for a period of five consecutive years during the last eight years are now eligible for a tax credit of up to $6,500.

How Much are Current Home Owners Eligible to Receive?

The tax credit program includes a tax credit of up to $6,500 for qualified purchasers who have owned and occupied a primary residence for a period of five consecutive years during the last eight years.

Can Homebuyers Claim the Tax Credit in Advance of Purchasing a Property?

No. The IRS has recently begun prosecuting people who have claimed credits where a purchase had not taken place.

Can a Taxpayer Claim a Credit if the Property is Purchased from a Seller with Seller Financing and the Seller Retains Title to the Property?

Yes. In situations where the buyer purchases the property, even though the seller retains legal title, the taxpayer may file for the credit. Some examples of this would include a land contract or a contract for deed.

According to the IRS, factors that would demonstrate the ownership of the property would include:

1. Right of possession,
2. Right to obtain legal title upon full payment of the purchase price,
3. Right to construct improvements,
4. Obligation to pay property taxes,
5. Risk of loss,
6. Responsibility to insure the property, and
7. Duty to maintain the property.

Are There Other Restrictions to Taking the FTHB Credit?

Yes. According to the IRS, if any of the following describe a homebuyer’s situation, a credit would not be due:

• They buy the home from a close relative. This includes a spouse, parent, grandparent, child or grandchild. (Please see the question below for details regarding purchases from “step-relatives.”)
• They do not use the home as your principal residence.
• They sell their home before the end of the year.
• They are a nonresident alien.
• They are, or were, eligible to claim the District of Columbia first-time homebuyer credit for any taxable year. (This does not apply for a home purchased in 2009.)
• Their home financing comes from tax-exempt mortgage revenue bonds. (This does not apply for a home purchased in 2009.)
• They owned a principal residence at any time during the three years prior to the date of purchase of your new home. For example, if you bought a home on July 1, 2008, you cannot take the credit for that home if you owned, or had an ownership interest in, another principal residence at any time from July 2, 2005, through July 1, 2008.

Can Homebuyers Purchase a Home from a Step-Relative and Still be Eligible for the Credit?

Yes. As long as the person they buy the home from is not a direct blood relative, the purchase would be allowed.

If a Parent (Who Will Not Live In The Property) Cosigns for a Mortgage, Will Their Child Still be Eligible for the Credit?

Yes, provided that the child meets the other requirements for the tax credit.

Daylight Savings Time…Little Known Stories

This weekend, the sun set on another season of Daylight Saving Time. The extra daylight we now enjoy was actually the result of the 2005 Energy Policy Act. Daylight Savings Time was originally adopted by Congress back in 1918. But did you know that throughout its long history, Daylight Saving Time has had a remarkable and sometimes unexpected impact?

A man was actually able to avoid the draft for the Vietnam War using a Daylight Saving Time loophole. When he was born, it was just after midnight, DST. When he was drafted, he successfully argued that in his home state of Delaware, standard time – not DST – was the official time for recording births. So he was technically born on the previous date–which had a much higher draft lottery number – and he was able to avoid being drafted.

In September 1999, the West Bank was on Daylight Saving Time, while Israel had switched back to standard time. A group of West Bank terrorists prepared some timed bombs – but misunderstood the time change – and the bombs exploded early, killing the terrorists themselves, rather than the intended victims – two busloads of innocent citizens.

In the 1950s and 60s, each state and locality was permitted to choose start and end DST dates as they desired. During 1965, Minneapolis and St. Paul – which are considered one metropolitan area – didn’t agree on start dates, and for a period of time, these Twin Cities had a one hour time change between them. And on one Ohio to Virginia bus route, passengers technically had to change their watches seven times in 35 miles!

To keep to their published timetables, Amtrak trains cannot leave a station before the scheduled time. So when the clocks “fall back” in the fall, all trains that are running on time actually stop at 2 am – the official time of DST change – and wait one hour before resuming their routes. In the spring, the routes instantaneously become one hour behind schedule, but they just keep going and do their best to make up the time.

Tax Credit Extension & Expansion

This is from one of the premier lobbying firms in Washington:

There will be an important vote in the Senate this week on the housing tax credit provision. The “Dodd-Lieberman-Isakson” amendment would extend the tax credit to June 30, 2010. It would expand the credit to any homebuyer and raise the income limits to $150,000 ($300,000 for joint returns). The amount of the tax credit would remain at $8,000.

Prospects: We still believe the prospects are good for extension of the tax credit. There is real concern in the Administration about the strength of the economic recovery. Treasury Secretary Geithner was quoted in the November 2^nd Business Week magazine stating: “we’re not going to make the mistake many countries made in the past of putting the brakes on too early and creating the risk of a weaker recovery with even higher levels of unemployment.” On the negative side, the stories about fraud in tax credit program (e.g. children and current homeowners receiving the tax credit) and concerns about the program cost obviously do not help.

While the industry trade associations are making a major push for the expansion of the tax credit to all homeowners, it appears unlikely that it will be expanded beyond first-time homebuyers. We will keep you apprised.

Some Veterans May Get Extension on $8000 Tax Credit

Congress moved Tuesday to give American service members another 12 months to claim the popular incentive. The House of Representatives voted 416 to 0 to pass the Service Members Home Ownership Tax Act of 2009, which pushes the credit’s current November 30 deadline back an additional year for members of the military, Foreign Service, and intelligence corps who served at least three months of qualified overseas duty in 2009. “This bill makes sure that the brave men and women who put their lives on the line every day get to enjoy the same benefits as every other American who benefits from their service,” said Rep. Charles Rangel, the New York Democrat who introduced the bill. “By extending the first-time homebuyer tax credit for service members overseas, we give these families more time to utilize the benefit, while also helping our economy continue its recovery.

Typically in Lexington and most parts of Kentucky we don’t see a lot of VA mortgage activity. But there is enough that it pays to ask all your clients if in fact they qualify. You may be able to offer them a plesant surprise.

At the moment the bill has passed only the House of Representatives, it or a similar bill needs to pass the Senate, then reconciled, then signed by the President before it is law.

THE Source For The Latest Kentucky Real Estate & Mortgage News

This blog is meant to be a resource for real estate agents and mortgage lenders who want to stay on top of the latest changes in our industries. Most of the content will be applicable to anyone in Kentucky but will often concentrate on Lexington and Central Kentucky. Whether it is three times a day or once a week I will use this blog as a resource to help disseminate the information that we all need to serve our clients. I welcome everyone to comment and ask questions. We will all benefit from everyone’s participation.

I encourage you to read the “About” page so you can see the experience I bring to this endeavor. This is the easiest way for me to try and keep the most people aware of today’s important issues.

Thanks for taking the time to drop by!

Consumers Finding Shopping Mortgages Getting Tougher

Consumers have been taught, in many cases by the Realtors they work with, that they should shop multiple lenders. Today many consumers are finding rate shopping of little help in finding the best mortgage. A few of the reasons why:

1) First, a lot of lenders still use bait and switch tactics to attract business. They know when a consumer calls they won’t be making application that day so they can quote what rate they want and the next day when the client calls back they can simply say the “the market changed”.

2) For most of this year lenders have been getting rate changes on average every four hours.

3) Lenders are making quotes without knowing all the factors they need to know in order to make a valid quote. I’m talking about credit score, debt ratio, income, and a whole list of other variables.

4) The rules that go into effect with the new Good Faith Estimate (GFE) January 1 say that a lender who issues an estimate must have an application and can not change certain charges including the origination fee for a set number of days. So how many lenders are going to issue a GFE without the customer having a firm sales price and loan amount? So much for shopping for closing costs. I think this will open consumers up to making an application and then finding their costs are higher that they should be.

In today’s enviroment I’m seeing more Realtors referring their clients to specific lender partners who they know will treat their customers fairly, who know the business, and will get the deal done. When you think about it when you hand a deal to a lender you are basically trusting your commission to them.

There has never been a time that a partnership between Realtor and lender has been more important.

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