Posts Tagged ‘Loan’

“Should I Stay or Should I Go?”

| Greg Wang

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 […]

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 Client 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 most of my Clients, 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 2 to 3 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?

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A Wachovia Short Sale is the New Real Estate Heaven

| Greg Wang

Wachovia Short Sales Are Far More Superior than Any Other Short Sales As a Real Estate Broker in the trenches who hears and experiences a lot of short sales horror stories each and everyday, when we closed our first Wachovia short sale, we thought we all had died and gone to Real Estate Heaven. When the manager […]

Wachovia Short Sales Are Far More Superior than Any Other Short Sales

As a Real Estate Broker in the trenches who hears and experiences a lot of short sales horror stories each and everyday, when we closed our first Wachovia short sale, we thought we all had died and gone to Real Estate Heaven. When the manager of the short sale department for Wachovia first came to my office to talk to me about Wachovia’s short sale program. It was hard for me to believe his pitch because it sounded way too good to be true.

The truth is Wachovia takes the pain out of short sales for everyone involved in the transaction. Wacovia is a portfolio lender, meaning it made its own loans and is responsible for deciding whether to approve a short sale. Other banks such as Bank of America, CitiMortgage, Chase or Wells Fargo generally have to submit the file to their investors for approval. Depending on the guidelines those investors follow, the process can be complex, lengthy and or produce ridiculous demands that cause short sales to be rejected. Not so with Wachovia!

How Banks Other than Wachovia Handle Short Sales

First, to truly appreciate a Wachovia short sale, it helps to look at the short sale process adopted by most major banks. Once you realize what hell those banks put a seller and buyer through, you’ll understand why Wachovia is special.

Here are some of the problems with other short sale banks:

  • The worst problem is it takes too long. Buyers get tired of waiting for short sale approval and cancel their purchase because banks can’t process their short sales fast enough. It can take a minimum of 6 weeks to 6 months or longer to get short sale approval.
  • Banks require a ton of paperwork from the sellers. They generally want their last 2 years of tax returns, W2s, payroll stubs, completed financial statement, bank statements, hardship letter, in addition to a slew of documentation from the listing agent.
  • Some banks demand seller contributions, even on California purchase-money loans. Purchase money loans in California are typically exempt from a deficiency judgment in the event of a foreclosure, but to grant a short sale, the banks may demand money from the seller.
  • Often, when there are two short sale loans, the two banks fight over how much the second bank will receive. Some second lenders try to push sellers to commit short sale mortgage fraud. It’s a nasty situation all the way around!
  • By the time the short sale finally closes, the sellers often feel broken down, beat up and battered. They wonder why they even tried to do the right thing by choosing a short sale over a foreclosure. And even after closing, sometimes the bank’s departments are so confused that the short sale department forgets to notify the foreclosure department that the transaction has closed, and the bank files foreclosure anyway.

How Wachovia Handles a Short Sale

With Wachovia, it’s like opening the door at the train station in Venice and discovering the Grand Canal is at your feet, looking just like a picture postcard. Like Dorothy in Wizard of Oz, leaving her black-and-white world and entering the colorful Land of Oz. It’s like eating chocolate for breakfast.

Before rendering an opinion on the short sale, Wachovia asks for basically 3 things:

  • The buyer’s and seller’s signed purchase offer.
  • The buyer’s preapproval letter and proof of funds.
  • The seller’s listing agreement.

A representative from Wachovia will either call or visit the seller at home to discuss the seller’s financial situation and appraise the home. If there are two short sale lenders, Wachovia knows how much the second lender is likely to accept and offers that sum to the lender. A HUD statement is then delivered to Wachovia by the Title Company, and a decision is rendered, generally within a few weeks.

In certain situations, Wachovia will offer the seller a cash bonus to assist with moving expenses. All short sale banks should approve short sales like Wachovia and when they do the entire Real Estate Community will all feel like they have all died and gone to Real Estate Heaven! 🙂

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