How Supply & Demand Impacts The Real Estate Market

| Greg Wang

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Real Estate Market Snapshot

| Greg Wang

The San Francisco metro area has once again put up the largest annual home price gain in the U.S., according to the most recent numbers from a prominent real estate index. The latest S&P Case-Shiller Home Price Indices, which run two months behind, say that single-family home prices in the San Francisco area increased by 9.3 […]

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The San Francisco metro area has once again put up the largest annual home price gain in the U.S., according to the most recent numbers from a prominent real estate index.

Gold coins

The latest S&P Case-Shiller Home Price Indices, which run two months behind, say that single-family home prices in the San Francisco area increased by 9.3 percent in December, the most of any of the 20 major U.S. metro areas included in the report. San Francisco returned to the top of the Case-Shiller index for the first time in 18 months in November, when prices rose by 8.9 percent year over year.

As was the case in the two preceding months, home prices in San Francisco grew at about double the national rate in December. Case-Shiller’s numbers put the U.S. annual rate of home price appreciation at 4.6 percent in the final month of 2014.

Although existing home price growth and sales across the country are at their normal levels, David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices, said that he believes the housing recovery is “faltering,” a by-product of sluggish construction and new-home-sales activity.

“Before the current business cycle, any time housing starts were at their current level of about one million at annual rates, the economy was in a recession,” Blitzer said. “The softness in housing is despite favorable conditions elsewhere in the economy: strong job growth, a declining unemployment rate, continued low interest rates, and positive consumer confidence.”

According to MLS data, the median single-family home price increased year over year in every one of Pacific Union’s Bay Area regions except the Mid-Peninsula subregion, which saw a slight decline. Home prices topped the $1 million mark in our Contra Costa County, Marin County, Mid-Peninsula, San Francisco, and Silicon Valley regions as 2014 came to a close.

The chart below provides more information on annual Bay Area home price changes. Also, be sure to check out Pacific Union’s fourth-quarter 2014 real estate report for more in-depth sales data and information on how we define our regions.

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(Image: Flickr/Bhautikjoshi)

Source: Pacific Union

What, You’re Missing Documents? Then No Short Sale For You!

| Greg Wang

REQUIRED READING: The short sale is undoubtedly preferable to a foreclosure, and properly executing one can be tricky. But a large number of short sales fail, by some estimates up to 60%, and those failed short sales ultimately end up in foreclosure. There are a variety of reasons why short sales don’t go through, but the existence of a junior […]

REQUIRED READINGThe short sale is undoubtedly preferable to a foreclosure, and properly executing one can be tricky. But a large number of short sales fail, by some estimates up to 60%, and those failed short sales ultimately end up in foreclosure.

There are a variety of reasons why short sales don’t go through, but the existence of a junior lien is often a stumbling block. RealtyTrac reported in July 2012 that nearly 40% of loans entering foreclosure have at least one junior lien attached. The existence of junior liens on these loans certainly does not preclude a short sale, but it does make the transaction more complicated. For starters, the holders of liens, such as second mortgages or home equity lines of credit, need to approve a short sale for the transaction to go through – and that can be a challenge.

Junior lien holders are generally the ones absorbing the loss in a short sale because they recover whatever money remains after all the associated costs are paid. All too frequently, the amount remaining isn’t satisfactory to the junior lien holder. And sometimes, there’s nothing left for junior lien holders at all, so it’s easy to see why they might be reluctant to agree to a short sale.

Even the Federal Housing Finance Agency sees second liens as a stumbling block to short sales. In late August, the regulator announced that Fannie Mae and Freddie Mac are issuing new guidelines to mortgage servicers that will align and consolidate existing short sales programs into one standard short sale program. The guidelines, which went into effect Nov. 1, 2012, stipulate that Fannie Mae and Freddie Mac will offer up to $6,000 to second lien holders to expedite a short sale.

Factor in the more complicated documentation process when there’s more than one lender, and it becomes clear that these transactions – and ensuring that all of the necessary documentation is in place – can become very difficult.

Improper or missing documentation can stall a short sale substantially, particularly when there is more than one lien holder. Whether a lender chooses to perform the function in-house or to outsource it, assembling all the necessary documents and providing for timely and properly conducted lien releases are critical to the success of short sales. Unfortunately, there are a number of ways that improper or missing documents, as well as poorly executed lien releases, can stop a short sale in its tracks.

At the beginning of the process, the seller’s mortgage lender needs to thoroughly review a seller’s short sale request. Collecting and assembling the required documentation can be a time-consuming and frustrating process. It may be difficult to obtain the required paperwork from the seller, who could be uncooperative or otherwise delay submitting the required documents.

Preparing the paperwork and getting the deal accepted by the mortgage lender can also be a lengthy and difficult undertaking. The challenge becomes even greater if there’s more than one lender involved.

A clear title is needed: verification is required that the mortgage is properly recorded with the first lienholder, and that the title policy is accurate. In cases where there are one or more additional lien holders, clearing the property title requires more time and effort.

If the loan was sold to an investor, the investor will have to approve the short sale, and investors have their own set of requirements before they’ll grant approval. When there are mistakes or missing documents, the loan file needs to be returned to the lender, and the process takes place again.

A current owner search needs to be performed to show how any and all liens are recorded to confirm all current lien holders are of record. There are times when an assignment may be missing. When a loan has been sold several times, there is a good probability that at least one of the lien holders isn’t properly recorded. In those cases, an interim assignment or assignments of records is necessary.

Avoiding litigation 

When a short sale is completed, a lien release needs to be performed promptly in order to avoid future problems, including the potential for litigation. Each state has a different timeline for how quickly lien releases need to take place, ranging from 30 to 90 days. Delaying or not properly performing and documenting a lien release will leave the lien holders vulnerable to being sued for an open balance. The potential for this sort of litigation is considerably higher in the case of short sales with subordinate liens.

The proper paperwork needs to be returned to the borrower, depending on whether or not the lender is seeking a deficiency balance. A lender or servicer can either accept the amount recovered in a short sale, or go after the borrower for a deficiency balance.

When a servicer opts to seek a deficiency balance, the note is not returned to the borrower. If the short sale is accepted as paid in full, then the mortgage note and recorded release are sent to the borrower.

With delinquency rates at high levels, there are more chances for mistakes to happen in documentation. Improper documents need to be repaired, and missing documents need to be located. In addition to cost and time, servicers also need to keep in mind that new mandates by regulators, investors and the secondary market agencies are continually changing, particularly for loans that are in a pre-foreclosure status.

When it comes to documentation, tracking of ownership, and lien releases, getting it right the first time will clearly save servicers time, money and headaches. Determining whether those services should be performed in-house or outsourced to a document services vendor will depend on the size and the resources of the servicer.

Ownership tracking, recording of assignments and lien releases are a complicated business, made even more so by the continually changing guidelines. Even one misstep can jeopardize ownership security and ultimately halt a short sale or foreclosure.

A successful short sale is good news for all involved, but missing or improper documents can stall the short sale process or, in some cases, halt it altogether. The bottom line message is clear: Make sure that you have all of your docs in a row!

Source: Mike Wileman,  President and CEO of Orion Financial Group.
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Rising home prices lift 1.3 million borrowers above water!

| Greg Wang

Rising home prices lifted more than 1.3 million underwater homeowners above water this year, the Obama Administration’s said in its October Housing Scorecard report. The latest report shows more signs of a strengthening housing market, but the Treasury is still careful to say the recovery overall remains fragile. The government’s Home Affordable Modification Program, which […]

Rising home prices lifted more than 1.3 million underwater homeowners above water this year, the Obama Administration’s said in its October Housing Scorecard report.

The latest report shows more signs of a strengthening housing market, but the Treasury is still careful to say the recovery overall remains fragile.

The government’s Home Affordable Modification Program, which launched in 2009, has been the catalyst for close to 1.3 million homeowner-relief actions in the past three years, the Obama administration said.

With so many families in the Northeast now struggling with damaged and inhabitable properties, the Treasury announced that servicers partaking in the Making Home Affordable Programs should review existing guidelines for providing Hurricane Sandy victims with additional housing-related relief.

The program guidelines allow servicers to offer qualified, distressed storm victims tied to Home Affordable initiatives with a minimum of 3-months forbearance. The borrower’s property has to be in a region designated as a disaster zone to qualify for aid. The New York metro area currently has about 60,000 homeowners partaking in HAMP.

“As the October housing scorecard indicates, our housing market is continuing to show important signs of recovery – with the FHFA housing price index posting its largest annual gain in five years and new home sales at its fastest pace since April 2010,” said HUD acting assistant secretary for policy development and research Erika Poethig. “But with so many households still struggling to make ends meet, we have important work ahead. That is why we are asking the Congress to approve the president’s refinancing proposal so that more homeowners can receive assistance.”

Homeowners who benefited from the government’s Making Home Affordable programs over the past three years saved roughly $541 on their monthly mortgage payments, the scorecard said.

HAMP also appears to be successful in preventing re-defaults, with 86% of homeowners still performing well two years after receiving a HAMP loan modification, the Housing Scorecard said.

To date, the HAMP program has launched 1.1 million modifications. Close to 14,000 new modifications were launched in the in-between period from the last report to Friday’s survey.

As for what is causing a tepid housing recovery, the Scorecard shows home prices and home sales on the rise, which is buoying the recovery somewhat. The latest Case-Shiller report has the average home price hovering around $145,900, up from $143,000 a year earlier. That figure, to date, is still lower than the $150,500 mark recorded at the beginning of the housing crisis four years ago.

New and existing home sales in the most recent period hit 32,400 and 395,800 units, respectively. That is up from 25,500 units and 356,700 units, respectively a year earlier, according to data from the government, the National Association of Realtors and CoreLogic.

The supply of houses in the U.S. also fell from 2.4 million a year earlier to 2.320 million in the latest survey period, according to NAR and government data.

The housing recovery also is benefiting from record low interest rates, with the average 30-year, fixed-rate mortgage hitting 3.39% in the most recent report, down from 3.41% in the September report and a drop from 4% last year.

Source: Kerri Ann Panchuk of Housingwire.com

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What is a short sale? Five things you need to know.

| Greg Wang

What is a short sale? Five things you need to know. Is a foreclosure staring you in the face? For many Americans faced with foreclosure and, possibly, bankruptcy, a better option is often a short sale. Short sales, which are up 10 percent from the same period last year, according to RealtyTrac, are becoming an […]

What is a short sale? Five things you need to know.

Is a foreclosure staring you in the face? For many Americans faced with foreclosure and, possibly, bankruptcy, a better option is often a short sale. Short sales, which are up 10 percent from the same period last year, according to RealtyTrac, are becoming an increasingly popular way to deal with homes and homeowners burdened with too much debt. However, many homeowners still aren’t clear what a short sale is and whether it is the best solution for them. Here are five things you need to know about short sales: 

A brand-new $1.1 million, 5,200 square foot home in Davie, Fla., is offered for short sale in this 2010 file photo. Often, lenders will agree to take a loss on a short sale because they would lose even more in a foreclosure. (J Pat Carter/AP/File)

1. What is a short sale?

Very simply, a short sale is when a lender agrees to take less than what he’s owed and allows homeowners to sell their property because they are facing financial hardship. Typically, the homeowner’s mortgage is worth more than his home and he’s having trouble making payments. So the homeowner sells the home and the bank marks down the value of the mortgage to the sales price, leaving the homeowner free and clear.

Lenders agree to do this because it makes financial sense for them. According to recent statistics, homes offered as short sales are bought for roughly 20 percent below their market value as opposed to 39 percent under market value for foreclosed homes. Lenders also save on costly foreclosure and maintenance procedures. Thus, the short sale is typically a better option for the lender as well as the seller.

2. How do short sales compare to foreclosures?

A foreclosure can be extremely damaging to an individual’s credit report and it can have long-term effects on anyone seeking credit. So, for several years after foreclosure, former homeowners can find themselves denied credit – or paying much higher rates to finance a car and other large items. A borrower would also have to answer yes on an employment application if she ever had a foreclosure. She could be denied employment.

And forget about taking out a mortgage to buy a home. In most cases, a lender won’t even consider you until five to seven years have passed, although lending guidelines are changing every day. A negative credit report can even make it more difficult to rent an apartment.

Short sales, by contrast, do far less damage to your credit report. Also, if a borrower has a home equity line of credit attached to their property, the rights to collect on that do not cease to exist.  They will remain open and sought. If borrowers reside in a recourse state (most Americans do), the lender also has a legal right to seek recourse against them. Foreclosure will sink a credit rating nearly as much as bankruptcy does.

3. How do short sales compare to bankruptcy?

When faced with foreclosure, some individuals turn to bankruptcy instead. In some cases, filing for bankruptcy can be less damaging to your credit profile than having a foreclosure on your record. Filing for bankruptcy will consolidate your debt and can wipe out your liabilities. But it will not prevent an eventual foreclosure if the bank has already started the process. A bankruptcy only delays a foreclosure. The property will eventually foreclose, which will also affect neighboring values by up to 28 percent.

However, if your home is the only debt that is creating your financial hardship, a short sale is probably your best alternative to bankruptcy. That’s because a short sale will be reported as a “settled debt” versus having to go the route of bankruptcy or foreclosure, which is far less damaging on one’s credit report. Although you can conduct a short sale while in bankruptcy, it requires strategy and a plan. It is best to consult with a knowledgeable bankruptcy attorney and short sale real estate agent before making any decisions.

4. Are you qualified for a short sale?

One reason homeowners resist short sales is because they don’t understand if they qualify for the process. Though each short sale is unique, homeowners generally must show legitimate hardship. Common reasons include: death, divorce, loss of job, relocation, etc. Anytime a property is inevitably headed towards foreclosure, a borrower qualifies for a short sale.

Short sales are a way to mitigate the lender’s loss. They’re not a consumer bailout. Nevertheless, the consumer participating in a short sale will more than likely be able to walk away from all his debt and start over.

If you should happen to find yourself underwater, owing more on your home than the home is worth, find a proper real estate agent who is knowledgeable about short sales and has a proven track record. They are different than the average transaction, and it is important that you do your own research.

5. Consider all the benefits

One of the major benefits of a short sale is that it ends the financial and emotional nightmare quickly. After the homeowner accepts a contract, it usually takes no more than 120 days (and often much less time) for the sale to close. Losing one’s home is a painful process, but a short sale can help families reduce their frustration and their time in financial limbo. It can also help maintain their credit and allow them to move forward with their lives. As long as the housing crisis continues, short sales will continue to grow in popularity. Homeowners need to become educated and empowered to undertake the process.

Source: Mike Cuevas, a national short sale Realtor trainer and a partner of Exit Realty, a residential real estate firm in Chicago that also specializes in Short Sale nationally.

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