What You Get for the Money ($75,000 to $90,000)
July 15, 2008
This is the 1st in what I hope & plan will be an ongoing series of posts about real estate price bands around North Phoenix. Essentially, I’m trying to answer the question I get from almost every out of towner who’s considering a metro Phoenix area real estate investment - “how much does it cost?”
This blog is focused on North Central Phoenix, where I live, work, and grew up. So the What You Get for the Money series will include only the ZIP code areas of 85020, 85022, 85024, 85028, 85032, and 85050. You can see these on a ZIP code map here http://maps.huge.info/zip.htm and here http://www.dreimaz.com/phoenix-zip-map2.pdf
Price Band $75,000 to $90,000
This is a challenging price band in almost every part of the metro Phoenix area, but especially so in the North Central Phoenix area (the ZIPs noted above). In these postal codes, your dollar buys a smallish 1 or 2 bedroom condo.
In Phoenix, “condo” typically means it looks and feels like an apartment. These are usually 2-story stucco buildings, often with tile a roof. Usually, there are ground floor units and upstairs units, and about 4 to 16 units per building.
Most buyers and sellers think there’s a value attached to being on the upper floors (”no one above you” or “no one walking on your head” is common phrasing in the online ads). But it’s not a hard and fast rule that upstairs is “better”. I’ve had young singletons tell me they feel safer being upstairs, while buyers in their 40’s, 50’s and 60’s tell me they want something on the ground floor for easy access when they’re older and the old knees might go. Generally, having an end unit is also desirable, because only end units get light from windows on 2 sides of the condo.
Parking is usually a row of covered, assigned spots and you’re usually assigned only 1 spot. If you must have a garage in these ZIP codes, you’ll need to stretch your budget to at least the $175,000 to $200,000 range. Storage space is found in closets and cupbaords under staircases (aka “Harry Potter’s bedroom”). Many condos have balconies and/or patios with closets for additional storage.
Condo owners own space, not land, although in most condo complexes the individual owners jointly own the common area. The common area is where the postal boxes, pool, and any other amenities are located, as well as the streets, sidewalks and any landscaping.
Condo conversions are common in this price range. During the real estate boom of 2005-06 a lot of developers took older apartment buildings and turned them into condos, selling individual units and often making hefty profits. I’m no expert in building codes and so I hesitate to even write this, but I believe (?) that the building process is different for condos vs. apartments, and so the noiseproofing between neighbors is better in condos than in apartments. But everyone has their own limit for tolerating noise from the next door neighbors, so condo conversions aren’t necessarily bad, just different. (Any readers with authority on condo & apartment building codes? Please comment!)
At today’s writing, there are 17 properties for sale between $75,000 and $90,000. It’s important to note that of these 17, only 5 are not lender owned or short sales. They’re on a map and in a list below.
As you can see from the chart above, the spaces are small, 600 hundred to 1,100 square feet. I would normally say this price band buys you only 600 to 900 square feet, but with foreclosures pushing down prices, buyers might get a little more space for their dollar.
Below are some interior & exterior photos of properties typical to this price band.
The most popular financing in this price band is often an FHA loan. These loans allow buyers to put as little as 3% of the purchase price down. For cash strapped buyers, and especially for first time buyers, buying a small condo on an FHA loan can be a great launching pad to building real wealth.
First time buyers often combine an FHA loan with a Down Payment Assistance program. These allow the seller to contribute to the buyer’s down payment. You can read all about options for first time and cash-poor buyers here: http://northphoenixagent.wordpress.com/category/first-time-homebuyer/ and get some up to the minute advice on FHA loan program changes at The Arizona Mortgage Guru’s blog.
Shopping in this price band and want more info? I am happy to help you out! Just call and I’ll set you up with a custom MLS search that will email you whenever new listings hit the market that suit your needs.
How to Buy Short Sales/Lender Owned Homes, PART 4
July 10, 2008
This is the 4th in a series about buying metro Phoenix area short sales and lender owned homes.
Photo credit to I Can Has Cheezburger
Many, many potential buyers in the Phoenix market lately want to look at “short sales”, “foreclosures” or “bank owned homes”. Often they’re not quite sure what these terms mean exactly, but they know the 10 o’clock news (or their brother’s cousin’s baker’s tailor) says short sales are a spanking good deal.
See here for the differences between REOs, bank owned, short sales, foreclosures and preforeclosures. Regardless of type, the secret to buying one of these homes is organization combined with an open mind and a lot of patience.
ORGANIZATION - Getting the Deal Closed
Now you’ve got an accepted offer on the short sale or lender owned home of your dreams, what about closing the deal? Banks usually want you to close within 30 days of their acceptance. Sometimes they take their sweet time sending you the acceptance, thereby eating up some of your 30 days and some of your inspection period.
Get cracking! Are you working with a full time, professional Realtor who’s ‘got people’ and can get a home inspection, roof inspection, A/C inspection and mold inspection done inside of 4 business days if necessary? You’ve got no worries. Working with your sister in law’s cousin who does real estate on the side? Or working without a Realtor? You’ve got a challenge on your hands. Whatever you do, don’t miss the deadline for the end of the inspection period.
Most banks will do no repairs. Even if the pool is green and the front porch is falling off, you’re buying it as is. Over Fourth of July weekend I spoke with a loan processor who told me she had personally done a loan for a Buyer purchasing a short sale from HSBC bank. They’d done a bunch of repairs before the closing, and even did some repairs the Buyer didn’t specifically request. This is exceptionally rare. Inspect it till you drop and expect it to be as-is on closing day.
Most banks also make you sign an addendum that removes most of the Buyer protections in the contract, institutes some additional Seller (bank) protections, and generally tilts the contract heavily in their favor.
If you’re paying cash, you should know that your purchase funds must be immediately available on the closing day. Cashier’s checks are acceptable. Wire transfers in US funds are acceptable. Canadian funds and checks drawn on Canadian banks are not acceptable. We don’t discriminate against Canadians per se, because generally no foreign funds are acceptable.
Be aware that due to the USA Patriot Act and other federal regulations since September 11th, wire transfers take a long time to transit the federal wire system. I’ve seen wires take 8+ hours. Plan on having your wired funds arrive at the title office the day before closing. Expect a wire fee of about $25 to $75. Expect a currency exchange fee of about $15, if you’re using foreign currency. I’ve been told by a very trusted and experienced title officer that she can’t get anyone to tell her who collects that $15 fee and she has never had success at making that fee disappear.
Almost every bank imposes daily late fees if the Buyer holds up the closing. These are usually in the area of $100 per day. Getting a loan to buy the home? Make sure your lender has the loan documents at the title office at least a week or two in advance of the closing date. No sense taking chances and accruing hefty late fees. if you’re out of town when the closing occurs, there will be FedEx shipping transit time to consider, so get loan docs to title early. Also, now is not the time to help your sister’s kid who’s just got in to home mortgages. Send your nephew a gift card and use a mortgage pro.
Buyer Lessons
-
Play by the bank’s rules.
-
Make sure loan documents arrive early
-
Send wire transfers early
Related Posts:
More Woes for Fannie and Freddie
July 10, 2008
Fannie Mae and Freddie Mac stock prices took a serious tumble today, as the market digested fears and rumors that the two mortgage giants are undercapitalized.
photo credit, Duchessa at stock.xchng
Financial Times reports on Fannie & Freddie’s woes. Fed Chairman Ben Bernanke tried to calm everyone’s nerves by stating he feels that F & F are “well capitalized in a regulatory sense” but they should raise more capital. Which is it Bennie? Are F & F fine, or broke?
Ironically it was a politician who spoke most truthfully about the 2 F’s today. Republican Presidential candidate Senator John McCain spoke on the campaign trail, saying the two companies “are vital… they will not fail… we cannot allow them to fail.”
-
Bloomberg Explains How F & F Affect Credit Default Swaps (for financiers only!)
Related Posts at the NorthPhoenixAgent
How to Buy Short Sales/Lender Owned Homes, PART 3
July 9, 2008
Photo credit to I Can Has Cheezburger
This is the 3rd in a series about buying metro Phoenix area short sale and lender owned homes.
Many, many potential buyers in the Phoenix market lately want to look at “short sales”, “foreclosures” or “bank owned homes”. Often they’re not quite sure what these terms mean exactly, but they know the 10 o’clock news (or their brother’s cousin’s baker’s tailor) says short sales are a spanking good deal.
See here for the differences between REOs, bank owned, short sales, foreclosures and preforeclosures. Regardless of type, the secret to buying one of these homes is organization combined with an open mind and a lot of patience.
.
ORGANIZATION - Getting the Offer Accepted
Once a bank answers your offer, things start to happen fast. Very fast. Good organization can literally save a deal.
Just recently on one of my short sale listings, my Seller received multiple offers. After waiting 10 weeks for any answer, the bank gave me several answers all at once. In the space of a couple of hours, the bank’s loss mitigation rep rejected the 1st offer because it was too low, said our short sale was declined and started making keyboard clicking noises while he said, “I’m going to close this file.”
“Wait!” I shouted. “Closing the file” means (1) me and my Seller get at the end of the 10 week waiting line to have the bank’s rep look at another offer, and (2) the lender sends the Seller back to Collections and reinstitutes the threatening phone calls until Seller comes current on the mortgage.
I reminded the loss mitigation rep that we had a backup offer. He checked his file, clicked a few keys on the keyboard, and immediately accepted the 2nd offer since it was high enough to meet his lender guidelines for foreclosure deals. I still don’t know exactly who made the guidelines the loss mitigator clicked around in, but I know my Sellers are now happy campers.
Also, note that I, as Realtor, had absolutely no control over which offer was accepted by the bank. I usually like to counsel my Sellers to look at the entire package of an offer when deciding whether to accept it or not. The highest price isn’t always the best deal. A higher down payment is better than a lower one. A bigger earnest money check is better than a smaller one. Quicker closing date? Better, usually. And so on. But this one was totally out of my and the Seller’s hands.
To make matters more confusing, all this back-and-forth with the lender’s loss mitigation rep happened verbally with nothing but a letter changing hands between me and the lender. There was nothing documented in writing for the 2 waiting Buyers. The AAR Purchase Contract states very clearly that all negotiations between buyers and sellers must be in writing and verbal negotiation hold no legal water. But banks are neither buyer nor seller, strictly speaking, and don’t abide by the AAR Purchase Contract in any case.
A major factor that saved the deal for my seller client on the case noted above is that I had maintained a detailed Communications Log listing date & time, who called who, who said what, the documents exchanged, and the followup and outcome to each phone call and document submission. I knew I had sent the lender a really complete file and had the chutzpah to ask, “But we have a backup, can’t you just look at that now without any more waiting? Please? Pretty please?” His only superpower was organization, indeed!
Another short sale Buyer I encountered made a $75,000 offer on a cute little condo. The bank verbally told me (the listing agent) that they wouldn’t even look at any offers below $92,500. Often, banks won’t reply at all to offers they don’t accept. I told the potential Buyer this, but he insisted the Seller had to reply in writing to his $75,000 offer. Under normal circumstances, that’s true. But we’re still waiting 4 weeks later.
Buyer Lessons
-
Banks abide by The Golden Rule - he who has the gold, makes the rules. Don’t expect them to conform to any contract law you’re used to.
Related Posts:
How to Buy Short Sales/Lender Owned Homes, PART 2
July 8, 2008
photo credit to I Can Has Cheezburger
This is the 2nd in a series of articles about buying metro Phoenix area short sale or lender owned homes.
Many, many potential buyers in the Phoenix market lately want to look at “short sales”, “foreclosures” or “bank owned homes”. Often they’re not quite sure what these terms mean exactly, but they know the 10 o’clock news (or their brother’s cousin’s baker’s tailor) says short sales are a spanking good deal.
See here for the differences between REOs, bank owned, short sales, foreclosures and preforeclosures. Regardless of type, the secret to buying one of these homes is organization combined with an open mind and a lot of patience.
PATIENCE
One of my buyer clients has been waiting a little over 7 weeks for the bank to answer our offer on their short sale property. One of my sellers waited 2 full months for the bank to answer a Buyer’s offer.
This sounds absurd, right? According to the media, banks are drowning in short sales and foreclosures, making write downs and taking losses like the Titanic took on water. Why in the name of all that’s green and holy would the banks take months to answer offers?!
Sadly, this is not unusual. I’ve heard horror stories of waiting 4 to 6 months for a bank to answer an offer, even if it’s a full price offer. The media’s right - many banks are awash in properties. But they’re simply not equipped to list and sell homes. They’re equipped to make and service loans. I hear banks are scrambling to hire & train people who can handle their backlog.
I recently had a conversation with a local agent who interviewed for a position as a loss mitigator with a lender. Sadly, the loss mitigators are paid about $30,000 a year salary, and are expected to work between 12 and 14 hours days, 5 days a week, work every other weekend, and are given 4 days of training. Almost none of them have any experience in real estate or mortgages whatsoever. Many are fresh out of college and many last no longer than their first week after training.
One of the first loss mitigators I ever spoke with (in late 2007) told me flat-out, “Honey, my desk is piled high with over 400 files just like yours. The computer shows I got your offer yesterday, but I won’t be able to look at it for at least 6 weeks. Call me then.” She wasn’t being rude, just truthful. We’ve become phone buddies and share polite chit-chat when I call her once a week to ask (ever so politely) if she’s got to our file yet. I think she’s very nice and I think she liked me, but she still didn’t look at our file for 8 weeks.
But the loss mitigator did verify for me on Day 1 that our file was complete and had all the documents she needed including:
-
Tthe Listing Agreement,
-
The MLS printout,
-
The Authorization for me (the Realtor) to speak with the seller’s lender,
-
The Seller’s hardship letter, 2 years of tax returns, 3 months of bank statements and 2 months of paystubs,
-
The foreclosure notice from local authorities,
-
A letter from me to the seller about marketing activities and recent comps in the area,
-
The Purchase Offer,
-
The HOA Addendum,
-
The Short Sale Addendum, and
-
The estimated HUD-1 Settlement Statement from the title officer.
If we hadn’t put all those documents together into 1 submission packet to the lender, we’d have gone to the back of the line. The 8-week waiting period was for sellers and Realtors who got it rightthe first time. Miss a form? You’re going to wait longer.
Buyer Lessons
-
Short sales, lender owned and foreclosure properties are not for you if you must move in by a certain date.
-
Shop short sales and lender owned homes only if you are OK with lengthy periods of uncertainty.
-
It pays to hire a Realtor who’s politely persistent.
-
Make sure your document package is complete from the beginning.
Related Posts:
Buying Short Sale/Lender Owned Homes, PART 1
July 7, 2008
photo credit to I Can Has Cheezburger
This is the 1st in a series of articles about buying metro Phoenix area short sale or lender owned homes. Parts 2, 3 and 4 are coming in the next 3 days.
Many, many potential buyers in the Phoenix market lately want to look at “short sales”, “foreclosures” or “bank owned homes”. Often they’re not quite sure what these terms mean exactly, but they know the 10 o’clock news (or their brother’s cousin’s baker’s tailor) says short sales & foreclosures are a spanking good deal.
See here for the differences between REOs, bank owned, short sales, foreclosures and preforeclosures. Regardless of type, the secret to buying one of these homes is organization combined with an open mind and a lot of patience.
.
HAVE AN OPEN MIND
I showed some vacation homes to Canadian investors recently. Like all buyers, they wanted to “be in a nice neighborhood.” Found and showed them a smoking deal on a lender owned home listed at $375,000. It needed serious work. The former owners took bathroom cabinets and countertops, all appliances, and even the bathroom mirrors with them on their way out the door.
Buyers and I reviewed the sold comps together and agreed that - when refurbished - the home was probably worth about $500,000 on the open market. We also ballparked the cost of needed repairs and agreed that it would cost about $40,000 to bring the home to its former standard.
$375,000 plus $40,000 equals well below market value of $500,000.
The Buyers told me they really wanted this home. I explained that bank sales aren’t like regular private sales. We’d be dealing with a bank clerk who’d rely on internal bank regulations and an independent appraisal to determine market value. We’d also be highly unlikely to get a counteroffer. The bank would either accept our offer or never reply at all. I encouraged the Buyers to consider their highest, best offer and call me in the morning so I could draw up their offer.
Next morning, the Buyers told me to offer $341,000 (91% of list) but privately told me they’d “go a little higher.” Again I tried to remind them to give it their best shot right out of the gate. They declined, saying, “we want to see if we can get it for less first.”
Miraculously, we got a counteroffer from the bank about 3 days later. They asked for full list price of $375,000 and intimated they had multiple offers on the way into their offices. Again, the Buyers and I reviewed the recent sold comps and we all agreed the place was worth about $440,000 to $460,000 in current condition and about $500,000 post-rehab.
Buyers instructed me to counter the bank’s counter at $352,000 (or 94% of list price). Within hours, the bank said we lost the bidding war. About a month later the MLS showed the home sold to buyers who paid $363,000 (97% of list price). Ouch.
Buyer Lessons
-
Listen with an open mind.
Discuss sold comps with your Realtor until they make sense and you agree, then take them as gospel. -
Don’t play chicken with the bank.
Offer your highest and best right up front. You may not get the deal but you’ll know you tried. The buyers in this example might very well have secured the home if they’d offered their highest & best of $352,000 right away, before other Buyers had a chance to make offers and the bank had a chance to pit bidding Buyers against each other. -
Trust your Realtor.
If s/he has comps that seem trustworthy, and you agree with her estimates of repair costs, and no other red flags about the deal appear, trust your Realtor when she advises you that full list price is still a great deal.
Related Posts:
Housing Bill Not Signed
June 26, 2008
You can read and hear the story of the latest Congressional foul up over the housing bill here, on National Public Radio’s show Marketplace or over at Reuters.
- See Bloomberg’s take on the story
- And see the New York Times article yesterday for background on the bill, which has a 3-pronged plan to:
- Help homeowners facing foreclosure by assisting them with a refinance, or getting banks to write down some loan balances,
- Offer incentives to first time home buyers who want to buy currently vacant homes (many foreclosure properties sit vacant and risk becoming blight in the community), and
- Implement some new regulatons on Fannie Mae and Freddie Mac, the government regulated lending behemoths
Apparently, our US Senators have not signed this bill today as originally thought and intended. Instead, they spent the day haggling over whether to add energy tax breaks to the bill. Democratic Senate Majority Leader Harry Reid wanted the bill passed today (and most sources say it would have), but Republican Senator John Ensign wouldn’t let the bill go to a vote without the addition of his pet project, $7 billion in renewable energy tax cuts.
Encouraging the use of renewable energy sources is a laudable, noble goal. But what has it to do with the foreclosure crisis? Nothing. Senator Ensign is trying to tack his tax credit bill onto the foreclosure assistance bill simply because he knows foreclosure assistance will pass, and his tax credits plan likely wouldn’t, unless it is attached to a popular, will-pass measure.
American homeowners are hurting, and badly in many places. I don’t often like to sound like I’m commenting on politics here. It isn’t the place. But this is just truly depressing news. It seems our elected officials still don’t get it. Some of them would still rather wrangle and scrap over pet projects with little chance of success than get behind a much-needed bill that was sure to pass anyway and will help tens of thousands of truly hurting Americans.
By the time the Senate returns from the Independence Day holiday to deal with this bill again, tens of thousands more Americans will have received a foreclosure notice on their home. The bill will almost certainly pass, even with Ensign’s tack-on tax credits. For shame, Senators. I wonder which of Ensign’s ‘close friends’ and business associates stand to benefit from the $7 billion he’s going to hand out for renewable energy sources?
Related Posts on The North Phoenix Agent Blog
Here’s a brief breakdown that should simplify some of the language being tossed around the real estate world these days.
Pre-Foreclosure - In Arizona, this term doesn’t really have a legal meaning. What it usually means in day-to-day practice is that the home owners are trying to sell because they know they have either stopped (or will soon stop) making the mortgage payment. Often, the home owners also know or suspect that they can’t sell for what they owe on the home, and any resulting sale will be a Short Sale.
Short Sale - In this case, the homeowner has usually stopped paying the mortgage. In addition, the home is worth less than what they owe the lender. If they’re able to (1) find a buyer and (2) get the lender’s blessing on the deal, the lender will accept a portion of the total loan payoff amount. The lender is left short, hence the name. My colleague Chris Butterworth has a great series of blog posts about the Short Sale buying process.
Short Sales are sometimes great bargains for buyers, but know that buying a short sale property can take months. The home comes without any disclosures about condition, and is sold As Is. Buyers can inspect the house but Sellers/Lenders won’t do any repairs. Sellers/Lenders will almost certainly not contribute to the Buyers’ costs. Finally, you have to play a waiting game. Lenders are overwhelmed, they were never set up to operate a real estate brokerage in the first place, and will probably take a month or more to even acknowledge receipt of a Buyer offer. To add insult to injury, if you don’t submit a complete package of documents, you’ll be waiting even longer while the lender requests docs one at a time.
Foreclosure - In Arizona, this has a legal meaning. Here, we don’t sign mortgages; we sign Deeds of Trust. It’s the same idea as a Mortgage, just with an extra party inserted into the process. There’s a borrower (homeowner), a lender and a Trustee. The Deed of Trust works just like a mortgage except in the cases of foreclosure. Get 3 or more months behind on your mortgage payments and the lender will issue a Notice of Trustee’s Sale. The Notice states that the homeowner has 90 days in which to bring the mortgage payments current or the Trustee will auction the home, often on the court house steps. Trustees are often attorneys and sometimes the auction takes place in their offices. A homeowner facing foreclosure may try to sell the house to pay off their lender. If the sale proceeds won’t entirely pay off the mortgage amount, then it’s going to become a Short Sale.
REO - Also known as Lender Owned. One way or another, the lender now owns the home. Maybe the homeowner just mailed in their keys and disappeared. Maybe the lender was stoopid and didn’t approve a short sale Purchase Contract when presented with one. Maybe the home wasn’t bought at auction. In any case, the lender owns it. They’ve already taken a loss against the original loan balance on the property. REO properties carry all the downsides of Short Sales except that you’re more likely to get an answer within days or weeks on REO properties. However, the bank is unlikely to take much below list price. They’re already taken a big loss and usually these properties are usually listed pretty close to the rock bottom of current market value.
Want More Info? See my friend Chris Butterworth’s site for 2 blog posts about the difference between Short Sales and REO properties. Try Steve Belt for advice about why listing your home for sale if you’re facing foreclosure is a good idea. Or see my friend Dru Bloomfield’s blog post on Tips for Buying a Short Sale.
Related Posts at NorthPhoenixAgent
WSJ Says Housing Crisis OVER
June 2, 2008
The Wall Street Journal says the US housing crisis is over. They actually say we hit the bottom in April.
Of course, all real estate is local. Your neighborhood may be doing worse or better than the national average. Outlying areas like Queen Creek, Surprise and Buckeye are still experiencing severe downward pricing pressure as the foreclosure wave continues. Established neighborhoods close to central Phoenix and central Scottsdale aren’t faring so badly.
You can check out local real estate statistics by ZIP code at Jay Thompson’s Phoenix Real Estate Home.
Green Pools and Mosquito Eating Fish
May 14, 2008
Once in a while, the software vendor who provides our local area MLS uses a popup window to provide Relators and others using the MLS software with what they think is critical information. The info is rarely interesting but usually useful. Today it was both.
It’s probably no surprise that green pools are becoming a hazard around the Valley. The number of foreclosures, lender-owned, and otherwise uncared for vacant homes with icky pools is growing. Green pools are breeding grounds for mosquitos, which are carriers of the West Nile Virus.
Maricopa County Vector Conrol (I’d have thought it was Pest Control or even Animal Control, but it seems not) has a hotline for information. Plus they have mosquito eating fish to stock your neighborhood green pool with. From the press release:
“Drain the pools or use mosquito eating fish at foreclosed homes and help Maricopa County “Fight the Bite”. Standing water attracts mosquitoes, and non-operational decorative ponds and “green pools” can dangerously become potential mosquito breeding grounds. This year, Maricopa County recorded it’s first confirmed case of West Nile Virus in a human in March. That was the first identified case in the nation for 2008. Contact the Maricopa County Vector Control office to pick up Gambusia fish, a door hanger and fence sign stating the pool has been treated with mosquito eating fish. Then report the treated pool to the County. For assistance or more information on West Nile Virus, please contact Vector Control at 602-506-0701 or visit Maricopa County’s West Nile Virus website.”
However, see also this website, which claims that Gambusia fish are a nuisance in their own right. Me? I’m worried about fishies “breathing” chlorinated water. Hope Vector Control has thought of that. By the way, I’m also concerned about the County’s press release writer. I edited the paragraph for run-on sentences, mis-used commas, and noun-verb disagreement before posting it. But then again, I’m weird like that.
Related Post
Chris Butterworth of Thompson’s Realty on dealing with vacant foreclosure homes near yours
Why Lenders Aren’t “In To” Fixing Foreclosures
April 22, 2008
From Inman News, I got a eblast news update that gave me a little more insight into why lenders maybe aren’t so eager to modify loan terms for homeowners facing the possibility of foreclosure.
“On mortgages carrying mortgage insurance that go to foreclosure, investors are protected up to the maximum coverage of the policy, which is usually enough to cover all or most of the loss. This discourages modifications. Why do a modification for $15,000 if the $40,000 foreclosure cost is going to be paid by the mortgage insurer?” So says Jack Guttentag, professor emeritus of finance at The Wharton School at the University of Pennsylvania. (I found Jack’s comments at Inman.com and I think the site requires a free registration to view the article)
Unlike my last post proposing a “fix” for the foreclosure mess, I’ve got no advice or ideas on this one. I assume it’s the investors who bought the loans from the original lender who are getting payouts from the insurance funds. The bulk of today’s foreclosures are loans carrying private mortgage insurance, since many of them were exotic 80/20 and 80/15/5 loans which left homeowners with little or no equity in the property. Since the news is filled with stories of big banks announcing big losses due to their involvement in the mortgage meltdown, I guess it’s just the banks and the homeowners who are paying the price. Investors (apparently) have their losses covered by insurance.
Countrywide Partners With ACORN
February 12, 2008
Countrywide announced on Feb 11 that it’s partnering with consumer advocate group ACORN to broaden the types of assistance they offer to homeowners having trouble paying their mortgage and/or facing foreclosure. Countrywide’s new program(s) will help homeowners who are already in default, those who have ARMs (Adjustable Rate Mortgages) and even those who don’t.
I can’t say “I’m Happy” enough! I’ve been trying to help a client who’s in default on her loans. I filled out and sent in the required forms so the lender would talk to me as well as the homeowner.
Background: The homeowner has an ARM. She was current on her payments until the ARM adjusted to a higher interest rate (thus a much higher payment). At the same time the ARM adjusted, the bottom fell out of the Phoenix market. Now her house isn’t worth what she owes on it, and she can’t afford the monthly payments. She’s 3 months behind about to go 4.
I call the lender. They say she’s ineligible for a loan modification and they won’t/can’t refinance her because she’s upside down in the loan. They offer a repayment program. Their idea of a good repayment plan? She pays a full mortgage payment plus 1/3 of another mortgage payment, each month. This way she’ll be all caught up in just 4 months. Shiny!
This is about as stupid as your bank charging you a $35 fee when you bounce a check. If you didn’t have the money in the bank in the first place, what makes them think you’ll miraculously have that money plus $35 the very next day?!
Same thing with the lender. If the homeowner didn’t have $2100 last month, what makes CitiMortgage think she’ll have $2100 plus $700 this month?! Crazy. Their only alternative was to transfer me to the Collections Department. They proceeded to threaten me. ME? I’m just the agent. I don’t have $2100 a month either. If I did I’d be sending it to my mortgage company to pay my own mortgage off early.
Countrywide - congratulations on beginning a sane exit strategy for our mortgage crisis! Now if you could just come up with a good exit strategy for our other problem over in the Middle East…..
Behind On the Mortgage? Call Lender TODAY!
October 30, 2007
I’m in a cranky mood this afternoon, because I spent a full hour on the phone with a client’s lender trying to get an agreement that will help her avoid foreclosure. (see yesterday’s entry)I call the lender to tell them that the current payment ($1461 a month) is unaffordable, and can’t we work out an agreement where the loan is re-financed for 40 years instead of 30? I explain that as the neighborhood Real Estate expert who’s sold homes just like these for the past 3 years, I’m here to say you, Mr. Lender, will lose at least $75,000 if you issue the foreclosure notice and we short sale it. So can’t we work together to do something that results in a payment the homeowner can afford?
I’m thinking this is a reasonable plan: the lender avoids a huge write off and gets 10 years of extra interest payments, the homeowner gets to keep her home at a payment she can afford. Certainly not the lender’s first choice, but a reasonable alternative if they’re at least a little creative and progressive.
They turned me down flat. Wouldn’t even discuss it. Also wouldn’t discuss any other plan. No forbearance, no alternate arrangements, they won’t try to refinance her…. You want to hear the lender’s brilliant plan? The homeowner should send an extra $862 per month for 4 months, and then she can go back to her regular $1461 a month payment and everything will be fine. Oh, and for a limited time only, because you’re such a good customer, we’ll ding your credit rating every month with a late code on the extra-big payment.
What the heck kind of plan is that? If she can’t afford the current $1461 a month, what makes you think she’s got $2323 a month? You think she’s going to Vegas every weekend with an additional $862 and she just “forgot” to send to you?! Sheesh!
So all’s I’m sayin’ is, if you’re even a day behind on your mortgage payment, call your lender. If you think this isn’t a once and done fluke of a situation, call. If it might be a whole month late, or if some emergency came up, or if you just can’t afford the payments… call right now. Don’t wait until you’re 3 months behind like my client did. The banks just don’t have a lot of wiggle room to negotiate another deal if you’ve left it go for months. Call today. Please.
Related Posts:
I Got a Notice of Trustee’s Sale. What Now?
October 26, 2007
You’re an Arizona homeowner who’s been getting behind in your mortgage payments. Today’s mail included a document entitled “Notice of Trustee’s Sale” that says the county will auction your house to the highest bidder 3 months from now.
Now what?
First, it’s crucial to remember that you still own your home. Too many people think they’ve lost the house already and give up. Don’t! There are many ways to avoid foreclosure. Consult a pro; you’ll need the expert advice. Talk to a Realtor, a CPA, your accountant, an attorney or a bankruptcy specialist. But do it quickly! Arizona’s time frame is 90 days between issuance of the Notice of Foreclosure and the actual auction.
Foreclosure Auction Sale If you do nothing, your home will be auctioned to the highest bidder 90 days after the date of the Notice of Trustee’s Sale. You’ll need to be completely out of the house within hours of the auction. You as the homeowner will have no control over this process, unless you speak with your lender(s) to convince them to stop the auction. How do you do that? Read on.
Work Out a Deal with Your Lender(s) Call your lender and ask for the workout, foreclosure, or loss mitigation department. Ask them to help you work out a new plan to repay your loan. Be prepared to explain and document your monthly income and expenses. And remember they’re recording your conversation and can use any information you give them. See the FTC website for a great simple FAQ sheet on consumer rights in debt collection situations. For temporary hardships like a lost job or illness, you might be able to get a Forbearance Agreement where you temporarily don’t pay the mortgage and catch up later. Read and understand what the lender asks you to sign, if anything. You should almost certainly consult an attorney. Remember, if you have more than 1 home loan, you’ll probably need to have this conversation with each lender.
Refinance Your Mortgage Debt If you still have decent credit, and a little equity left in your home, you might be able to refinance. Ask more than 1 lender about a refinance plan. Don’t choose your new lender only by the rate you’re quoted! The Mortgage Porter explains why.
Sell Your Home Never an easy choice, but worth considering. If you owe more on the house than a buyer will pay, you’ll have to involve your lenders and get their OK on a short sale. In a short sale, the lender agrees to accept less in payoff than you owe them. There can be serious credit consequences to a short sale, so always consult an attorney or accountant. Trust me when I tell you that you’ll need a seasoned Realtor if your home is in metro Phoenix in order to successfully short sell your house. Homes for sale are at an all time high, while the number of homes that actually sell hit a new low in September. (July 2008 update - houses are still selling slowly and the overall market stats aren’t good, but short sales seem to be about the only things that DO sell). How to find a great Realtor? Get your friends’ recommendations on Realtors. Visit their websites and blogs to narrow your list to 2 or 3. Then interview those few. Choose the Realtor your gut tells you is the best fit for you. Read my series on How to Buy a Short Sale Home for the inside scoop on how these sales happen.
Give Back Your Home In Arizona at least you can give your home back to your lender through a transaction called a Deed in Lieu. Note, this is much different than “mailing back the keys”, which is a seriously bad idea and essentially the same as doing nothing. A Deed in Lieu involves talking to your lender(s) and negotiating a deal you can both live with. This option might have less serious tax consequences than a foreclosure auction or a short sale, but it’s not a perfect process either. Laws and lender regulations are changing rapidly in this arena, so do a little online research before you decide on doing a short sale or a deed in lieu.
For some, bankruptcy is an option. For this one, you absolutely need a pro. Do a little research at www.martindale.com and ask friends & colleagues for recommendations before choosing a bankruptcy attorney. Ask the attorney if he provides a list of satisfied past clients and whether you can contact them.
And finally, consult a professional. Whether that’s a Realtor, an accountant, or an attorney, you’re going to need the help. Don’t ignore the problem, and don’t forget that you still own your home. Do something, anything to get out of this jam. If you do nothing you’ll surely lose your home. But doing some or all of these steps can help keeps you happy & snug inside your beloved abode.
Update: Arizona’s Mortgage Guru Shailesh Ghimire has a spectacular post covering a lot of the same territory I do here. And as usual, he uses fewer words and is clearer than I.
Related Posts
