Saying bye to your house

Foreclosure Radar published an article which addresses the delimma of walking away from an underwater home. In 1981, English punk rock band The Clash wrote “Should I Stay or Should I Go?” about the rocky personal relationships between members of the band when facing the dilemma of sticking together or breaking up. The lyrics could not be more appropriate for homeowners buried in a mountain of negative equity and wondering what to do. After all “if I go there will be trouble and if I stay it would be double.”

The first step in answering this question is to find out if you qualify for a modification or if you can refinance using the HARP program to take advantage of today’s low interest rates. The process of getting a modification can be very frustrating. It’s “always tease, tease, tease, you’re happy when I am on my knees.” It not only takes a while to get approved, you must keep in mind that the lender does not have a legal obligation to offer or approve a loan modification. It is important to note that they may dual track your file, which means that while they are considering the modification they are moving forward with the foreclosure. Sometimes they “set you free” and foreclose in the middle of your modification application.

Let’s say you get a modification. I have a friend who was approved for what at first appeared to me to be an unbelievable loan modification. The modification did not lower the principle but did lower the interest rate to just 2 percent and locked that in for 30 years! This reduced their payment to the same amount that they would pay to rent a similar property. As such, it certainly seemed reasonable to stay – they get to keep their credit intact and remain owners, while paying no more than they would in rent anyway. Plus the payment remains fixed for 30 years, while rents would increase. But that analysis is incomplete. The question that remains is their status when they might want or need to sell, and when do they break even given the substantial negative equity that would remain?

Life events like divorce, death, job loss, job transfer, and others happen. Also sometimes folks just want to relocate. Based on our analysis, and assuming long-term home price appreciation rates, these folks would need to stay until 2026 to simply BREAK EVEN vs. paying rent. Worse, unless they use the rent savings to pay down principal, they’ll be stuck upside down in the property, and unable to sell without bank approval of a short sale until 2033. So whether or not it is a good deal for them depends a lot on how long they plan to stay.

For my friends, the best financial decision appears to be to try to short sell their current home, or if necessary let the bank foreclose. If they then rent for 3-5 years they should be able to qualify again to buy. Assuming interest rates don’t skyrocket, or some other major change doesn’t occur, this will save them over $100,000, and give them the flexibility to move if needed without being stuck in their current prison of debt until 2033.

Unfortunately, few homeowners facing this decision have the financial skills to really analyze the various scenarios, and few will consult a qualified accountant or other professional to do it for them.

This analysis is different for every homeowner facing this question. How far under water they are, and the terms of the loan modification are clearly important. It also requires some assumptions about price appreciation, rent inflation, and future interest rates. And importantly, it requires some serious thought as to how long they plan to stay, and perhaps some soul searching on the moral implications of walking away.

Bottom line, this question can be answered only by the homeowner based on their current situation and what is best for them. Would you stay or would you go now?

Phoenix Arizona house prices up

The housing market in the Phoenix metro area is showing signs of improvement, according to a study released today by the W.P. Carey School of Business.

Single family home prices overall in the Phoenix area have been moving up since they reached a low point in September,” said Michael Orr, the author of the report and the director of the Center for Real Estate Theory and Practice. According to the data, the median sales price of a single family home is up 6.5 percent in January compared with January 2011. That number is $120,500 as compared with $113,166 a year ago. From an average price standpoint, the increase is 1.7 percent. That number is $163,813 as compared with $161,012 a year ago. The price per square foot has increased 2.9 percent. That number is $82.62 per square foot as compared with $80.27 a year ago.

New home sales are up 49 percent in January from January 2011. That number is 496 as compared with 333 a year ago. New sales were concentrated in Gilbert with 130 sales, followed by Phoenix with 50, Chandler with 49 and Goodyear with 43. Orr said there’s no longer an oversupply of homes for sale in prices less than $300,000. Investors, Orr said, have purchased most of the glut of homes in the low to moderate price ranges. “Many people think there is a glut of homes the banks are hiding somewhere, and that may be the case in other markets, but not here in the Phoenix area,” Orr said. “We’ve gone through so many foreclosures that the system has been working itself out for about five years.”

In all there were about 8,000 home sales in the Phoenix metro area in January as compared with less than 7,500 a year earlier. The peak buying season begins in February, so further improvements are expected. “Buyers from Canada, New Zealand and Australia, in particular, are taking advantage of the exchange rates to purchase investment and vacation homes,” Orr said.

Retailers Grow as Economy Improves

America’s big retailers released their latest quarterly earnings, which recorded robust sales during and after the Christmas shopping season. Total revenue at Walmart was up by almost 6% and sales at its shops outside the United States increased by 13%, but overall net income for the quarter fell by 15%. Price-cutting and tax gains in the same period a year earlier were held responsible.

More good news about the economy

The number of people seeking unemployment aid was unchanged last week and the four-week average of applications fell to its lowest point in four years, the Labor Department reported Thursday.

The figures are the latest evidence that the job market is improving.

The Labor Department said 351,000 laid-off workers sought unemployment aid last week. That’s the fewest number of people seeking unemployment assistance since March 2008, just a few months into the recession.

Healthier economic growth is spurring greater job growth. The economy expanded at an annual rate of 2.8% in the final three months of last year — a full percentage point higher than the previous quarter.

Most economists expect growth will slow in the current quarter, because companies won’t need to rebuild their stockpiles of goods as much as they did last winter. That means less production of goods.

But there are signs that the economy is still expanding at a healthy pace. Factory output got off to a robust start this year, and it ended last year with the fastest growth in five years, the Federal Reserve said last week.

Factories are adding jobs to keep up with the extra demand. Manufacturers added a net gain of 50,000 jobs last month, the most in a year.

Still, the job market has a long way to go before it fully recovers from the damage of the Great Recession. Nearly 13 million people remain unemployed, and 8.3% unemployment is painfully high.

California Senate Bill 458 CA SB 458 Forgives All Debt After Short Sale

The law will further protect homeowners pursuing short sales by barring first and second lien holders from going after sellers for money owed after the short sales close.

Gov. Jerry Brown signed Senate Bill 458, authored by Senate Majority Leader Ellen Corbett (D-San Leandro,) into law on Friday. Full Text of the Bill here.

A short sale is a transaction in which the homeowner owes more on the loan than the property is worth. To sell the home, the lien holder or lien holders must approve the sale because the amount owed to the lien holder will be “short” of what is currently owed by the borrower.

The new law builds on the protections offered by a previous law, SB 931, which required the first lien holder in a short sale to accept an agreed-upon payment as the full payment for the outstanding loan balance. The previous law did not address junior lien holders. The new law, which became effective immediately, now prohibits secondary lien holders from pursuing deficiencies after a short sale closes.

The signing of this bill is a victory for California homeowners who have been forced to short sell their home only to find that the lender will pursue them after the short sale closes, and demand an additional payment to subsidize the difference,” said California Association of Realtors President Beth L. Peerce. “SB 458 brings closure and certainty to the short sale process and ensures that once a lender has agreed to accept a short sale payment on a property, all lienholders – those in first position and in junior positions – will consider the outstanding balance as paid in full and the homeowner will not be held responsible for any additional payments on the property.”

National Mortgage Settlement Website http://www.nationalmortgagesettlement.com/states

Reblogged from ORANGE COUNTY LAW BLOG:

Banks will be required to modify second liens that sit behind firsts “at least”. So this guarantees banks will also focus on borrowers where they do not have second lien exposure, and this also makes the settlement less helpful to struggling homeowners, since borrowers with both second and first liens default at much higher rates than those without second mortgages.

Read more… 710 more words

Federal Government & Attorneys General reach landmark settlement with major banks

Because of the complexity of the mortgage market and this agreement, which will be performed over a three-year period, borrowers will not immediately know if they are eligible for relief. Borrowers from states who did not sign the settlement will not be eligible for any of the relief directly to homeowners. Borrowers from Oklahoma will not be eligible for any of the relief directly to homeowners because Oklahoma elected not to join the settlement.

The settlement provides assistance for:
•Homeowners needing loan modifications now, including first and second lien principal reduction. The servicers are required to work off up to $17 billion in principal reduction and other forms of loan modification relief nationwide.

State attorneys general anticipate the settlement’s requirement for principal reduction will show other lenders that principal reduction is one effective tool in combating foreclosure and that it will not lead to widespread defaults by borrowers who really can afford to pay.

•Borrowers who are current, but underwater. Borrowers will be able to refinance at today’s historically low interest rates. Servicers will have to provide up to $3 billion in refinancing relief nationwide.
•Borrowers who lost their homes to foreclosure with no requirement to prove financial harm and without having to release private claims against the servicers or the right to participate in the OCC review process. $1.5 billion will be distributed nationwide to some 750,000 borrowers.

TIMELINE
•Over the next 30 to 60 days, settlement negotiators will be selecting an administrator to handle the logistics of the settlement and monitor compliance.
•Over the next six to nine months, the settlement administrator, attorneys general and the mortgage servicers will work to identify homeowners eligible for the immediate cash payments, principal reductions and refinancing. Those eligible will receive letters.
•This settlement will be executed over the next three years.

WHERE YOU CAN GO FOR HELP

For loan modifications and refinance options, borrowers may be contacted directly by one of the five participating mortgage servicers. Keeping in mind the timeline above, you may contact the banks directly if you need additional information:
•Ally/GMAC: 800-766-4622
•Bank of America: 877-488-7814 (Available M-F 7am – 9pm CT and Saturdays 8am CT – 5pm CT
•Citi: 866-272-4749
•JPMorgan Chase: 866-372-6901
•Wells Fargo: 800-288-3212 (Available M-F 7 a.m. to 7 p.m. CST)

Loans owned by Fannie Mae or Freddie Mac are not impacted by this settlement. You may visit the following websites to learn if your loan is owned by either Fannie Mae or Freddie Mac:
•http://www.fanniemae.com/loanlookup
•http://www.freddiemac.com/mymortgage

These sites will also include links to information about mortgage and foreclosure programs you may be eligible to access. You may also call 1-888-995-HOPE (4673)

For borrowers who lost their home to foreclosure between Jan. 1, 2008 and Dec. 31, 2011, a settlement administrator designated by the attorneys general will send claim forms to persons eligible for cash restitution.

If you believe you are eligible for relief under this settlement but are concerned you will be difficult to locate, please contact your Attorney General’s Office.

National Mortgage Settlement Website http://www.nationalmortgagesettlement.com/states

Banks will be required to modify second liens that sit behind firsts “at least”. So this guarantees banks will also focus on borrowers where they do not have second lien exposure, and this also makes the settlement less helpful to struggling homeowners, since borrowers with both second and first liens default at much higher rates than those without second mortgages.

Nevada and Arizona on the Countrywide settlement suit, were given relief. Their alleged failure to comply with the prior settlement is now rectified. This move proves that failing to comply with a consent degree has no consequences but will merely be rolled into a new consent degree which will also fail to be enforced. These cases also alleged HAMP violations as consumer fraud violations and could have gotten costly and emboldened other states to file similar suits not just against Countrywide but other servicers, so it was useful to the other banks as well.

The $25 billion foreclosure settlement unveiled Thursday is expected to help many borrowers who are struggling to make their loan payments, owe more than their homes are worth or have lost their homes to foreclosure.

Who does the settlement cover? The settlement covers borrowers who have loans that are serviced by one of the five big banks: Ally Financial Inc./GMAC Mortgage, Bank of America Corp., Citigroup Inc., J.P. Morgan Chase & Co. and Wells Fargo & Co. These banks handle payments on 55% of U.S. mortgages, according to Inside Mortgage Finance.

My mortgage is with one of these banks. How do I know if I qualify for help? It’s going to take some time to figure that out because the settlement has so many wrinkles.

What if my loan isn’t with one of the banks? For now, the settlement covers only the five big banks. Government officials hope to strike a similar deal with nine additional banks.

How long is it going to take for me to get help? Government officials advise borrowers to be patient. Over the next 30 to 60 days, settlement negotiators will pick an administrator to handle the logistics of the deal. Over the next six to nine months, the administrator, attorneys general and mortgage servicers will work to identify which borrowers get help. Servicers expect to begin reaching out to borrowers in the coming weeks, but they have three years to provide the required help.

How will I find out if I qualify? Borrowers will get letters from their mortgage company. Each of the five servicers also has a website and a toll-free number for borrowers to get more information. Government officials are encouraging borrowers to contact their mortgage company to see if they qualify for aid.

What are the rules for the principal reduction program? To qualify for a principal reduction, borrowers have to clear several hurdles. For one thing, borrowers have to be behind on their payments or at “imminent risk” of default. The owner of your loan also makes a difference. Most of the principal reductions are expected to go to borrowers whose loans are owned by the banks, though some borrowers whose loans were packaged into securities may also qualify. The settlement calls for principal reductions on both first and second mortgages.

The deal doesn’t cover loans owned or backed by Fannie Mae or Freddie Mac, the government-controlled mortgage companies.

What about the refinance program? The refinance program applies only to loans owned by the banks. Also, borrowers have to be current on their loan payments and owe more than their home is worth. The interest rate on loans can be reduced to as low as 5.25%.

I’ve already lost my home to foreclosure. Can I get any help? Borrowers who were foreclosed on between 2008 and 2011 are eligible for cash payments. The amount of the payment will depend on how many people file claims, but is expected to be around $1,500 to $2,000.

How do I file a claim? The settlement administrator will mail notices to eligible borrowers once the process is up and running. Borrowers will have to fill out a simple form, but won’t have to prove they were foreclosed on and shouldn’t have been. Borrowers who are concerned they will be hard to locate can also contact their state attorney general.

That doesn’t sound like a lot of money. Shouldn’t I get more money if I was foreclosed on and shouldn’t have been?
Government officials say they wanted to create a streamlined process that would quickly get aid to borrowers. Borrowers who think they have been wronged can still file a claim with bank regulators or pursue other options.