Want a Great Deal on a Foreclosure?

I was thinking about writing (again) about how buying a foreclosure home can be a great deal, but isn’t always what it seems. Then I found Realtor Amy Jones’s post about the same topic, complete with a picture (below). A picture is worth a thousand words indeed. Go check Amy Jones’s post about foreclosures out.

Foreclosure homes frequently have zero appliances. The owners take them on their way out the door. They often bang up the walls on their way out too. Frustrated and frightened people who’ve just lost their home and are (likely) moving to a dingy rental aren’t too careful moving big stuff through small hallways.

Foreclosure homes are almost universally dirty. The carpet must be replaced. The walls have shoe scuff marks on them. The ceilings have shoe scuff marks on them, which leaves one wondering…. The doors are outlined with magic marker. The door handles are missing. So are the the light fixtures.

Is that blood on the carpet? Or is it mushed-in dog poo? The counters have been cigarette burned, or are still sticky with jam and peanut butter. Don’t dare open the fridge if the power is off.  Whatever’s in there is about ready to climb out on it’s own! In a word, it’s naaaasty. A maid service is likely to charge you $400 or $600 to clean it all up.

I’ve seen bare concrete floors, missing cabinets and bathroom mirrors, three month old dinner still in the oven, unopened bills and court orders on the kitchen counters, missing toilets, mold so bold it nearly smacked me, and pools so green I thought I saw Nessie lurking beneath.

What haven’t I seen? Anyone other than sophisticated investors willing to buy in.

One Up-Side: More Affordable Houses

This is an interesting graph. I found it via John Wake’s Arizona Real Estate Notebook (John found it on Seeking Alpha). Click the chart to enlarge, use back button to return.

It’s an oddly upside-down chart.

On all the charts and graphs we see in the media lately, lines rocketing higher to the right mean “Bad”. This chart is different.

Stand on your head or turn your display screen upside-down.  The line marching upward to the right here means “Good”. Houses are getting more affordable. Quickly.

This October’s index number (141.8) means that “a family earning the median family income had 141.8% of the income necessary to qualify for a conventional loan covering 80% of a median-priced single-family home” (quote from Seeking Alpha, but I suspect the language is NAR’s).

In English, the average American family can now easily qualify for a mortgage large enough to cover 80% of the cost of purchasing the average American house.

One problem, of course is that pesky 20% down payment that lenders are now requiring. Bad, bad lenders! <tongue in cheek> For cash-strapped Americans who’ve become used to spending every dime we make and then some, coming up with 20% of the purchase price of the average American home is next to impossible without winning the lottery or gaining an inheritance.

In Maricopa county, the median home price is somewhere near $176,000. Twenty percent of that is over $35,000. How long would it take you to save $35,000?? The disappearance of No Money Down home loans (and 80/20’s and 125% cash-out refi’s and all the rest of those “liar’s loans”) means that fewer buyers are actually able to buy a home now, regardless of how much of a mortgage they’d qualify for.

Another problem – arguably the overriding problem for the entire world economy right now – is the confidence factor. Americans lack confidence in their own (and the country’s) near-term financial future. Most of us are afraid things will be worse in 6 months, so we’ve all stopped spending. Of course I’m generalizing but you get the point.

As one commentor on Seeking Alpha put it, “Now that almost nobody can afford a tent, castles are cheap.”

An optimist at heart, I can ususally find something to be hopeful about. So, where’s the good news in this scenario? Here:

1. No matter your feelings about NAR and their statistics, houses are getting more affordable as foreclosure sales depress pricing.
2. Today lenders are making it harder to qualify for a mortgage, as they over-react to their own boom-years greedy practice of giving a loan to anyone who could breathe in and out. But eventually that pendulum will stop swinging wildly as lenders find ways to grant home mortgages to folks with less than 20% down.

All recessions end. I don’t know when or exactly how this one will end, but it will end.

When we get there, houses will still be relatively affordable, mortgage money will be flowing again to those who can reasonably afford it, and buyers will begin buying homes again in large numbers.

We won’t all qualify to buy a castle, but neither will we all be living in tents.

Housing Good News

Here’s a piece of good news about the foreclosure mess and the overall bad housing market. Good news in this arena is as rare as snowmen in the summer, so I wanted to pass it along right away.

An acquaintance called me some days ago to tell me he successfully got his mortgage company to renegotiate his mortgage loan terms.  Woot! Woot!

The Original Mortgage

• Taken out in 2003
• 5 year ARM, Interest Only payments at 5.875%
• Payments of 882.32 per month (interest only, not touching principle)

The New Mortgage

• 3.875% fixed rate for 40 years
• about $400 payment needed to start the new plan

This is phenomenal news! On your average $200,000 mortgage, this renegotiation brings the payment down from about $1183/month to $820/month.

Congratulations Tom!

The homeowner in this case had suffered both a medical disability and a job loss. Both these events are typically “qualifying events” for almost every mortgage company. Experiencing a qualifying event means you’re eligible for the mortgage company’s renegotiation plans.

Haven’t had a job loss or medical disability? It’s still worth contacting your lender if you’re struggling to make the current payment, or if you know you soon will struggle when the adustable rate (ARM) adjusts in the future.

.

Further good news on the credit card front –

Another friend of mine fell 2 months behind on credit card payments. He had a 5 to 15 year good payment history on the various cards. He’s 100% commission in a profession related to the housing industry, so times are tight.

Bank of America contacted him and offered their “Hardship Program” –

Old Payments

• Card 1 — $382.00 per month at 28.99%, payoff time about 40 years
• Card 2 — $213.00 per month at 15.22%, same

New Payments under B of A’s “Hardship Program”

• Card 1 — $200 per month at 4.75%, payoff time 60 months
• Card 2 — $168 per month at 4.50%, same

If you’re falling behind on or struggling to pay any of your consumer debt, call the servicing company today! They’re as scared of the word “recession” as we all are, and they’re agreeing to reduced payment plans to avoid writing off the bad debt entirely.

Help for Homeowners

Today’s Fed announcement marks another step towards getting the housing market un-slumped. Finally, Hank and Ben seem to be getting it: the world’s financial meltdown started in the US housing market and the solution should begin by focusing on housing.

Recently, mortgage industry heavyweights Countrywide (now Bank of America), JP Morgan and Citigroup announced a foreclosure moratorium to help struggling homeowners stay in their homes. Citi especially said their efforts would be aimed not only at homeowners behind in their payments, but those who’s credit profile reveals they might get behind.

Today’s new Fed housing stimulus package should make mortgages more affordable by pushing long-term mortgage interest rates down as much as a half-point. This should help new homebuyers jump into the market. (click the link for a breakdown of program details)

Some expect rates to fall to 5.50% soon. The National Association of Realtors (NAR) estimates that each 1-point drop in mortgage rates spurs 500,000 new home buyers into purchasing a home. NAR says it’ll keep pushing the Fed to enact programs and policies that will eventually get mortgage interest rates down to 4.50%, a rate not seen since well, not in my lifetime.

Here’s a chart of the history of mortgage rates, courtesy of my broker The Phoenix Real Estate Guy (see his post with many more charts here).

It’s interesting to compare the recent history to the truly historic data, based on a chart posted at The Financial Forecast Center. Seems like rates haven’t been at 5.50% since sometime in 2004, and haven’t been at 4.50% since about the late 1950’s.

Our housing problem is generally twofold – (1) too many homes for sale and more hitting the market daily due to swelling foreclosures, and (2) not enough buyer interest.

The Fed’s announcement today, combined with the foreclosure moratorium announced recently gives me real hope that the kinks might start working out soon.

Banks working to keep homeowners in their homes means less foreclosure homes going up for sale. The Fed making substantive moves to coax new homeowners into the marketplace means eating up some of the excess inventory of homes for sale.

This? Could be the beginning of real change.

Tune in tomorrow for a breakdown of the local Phoenix housing numbers, and how we’ll know we’ve begun to turn the corner towards recovery.

Fannie and Freddie Not To Blame

As a follow up to my October 4 post, I present the following chart created using Federal Reserve data.

This chart is a screen capture of the original which appeared on the Mark Thoma’s blog The Economist’s View. See the original chart and post accompanying it.

Thoma has waaaay more understanding of this than I do. He’s got the nifty cool graphs and charts to back up what I tried to say on October 4.

Namely, Fannie and Freddie did not cause the foreclosure crisis. As the chart shows, The Two F’s got out of subprime loans in 2002 before things got really crazy. Watch the pink line – see how it dips sharply at the sime time the dotted light blue line makes a jump shot? That’s Fannie and Freddie getting the heck out of dodge, because the loans the market started demanding felt way too risky. The light blue line is “asset-backed securities issuers,” namely entitities like the investment banks that have failed so spectacularly of late.

The Two F’s were still giving out some loans more risky than their standard fare. But as Thoma explains (and my personal experience proves) Fannie and Freddie largely did 30-year fixed rate loans. They weren’t doing the “exotic” liar loans that have caused so much pain.

Thoma says, “There is no excuse for the actions of the management of Fannie and Freddie, and I’m not trying to defend them or their choices, but the idea that Fannie and Freddie caused the general credit crisis is wrong.” (emphasis mine).

By the way, I’m still browsing through Thoma’s blog, trying to study up on all the intricacies he and his colleagues discuss about economics in general and the housing/financial crisis in particular. It’s not for bare beginners, but is an excellent resource if you’ve done some reading on the basics elsewhere. Check it out!

Sheila Bair Stole My Homework!

Well, not really. But that headline might get you out of your feedreader.

Sheila Bair is way smarter than me by any measuring stick you can think of. But this week Bair endorsed a loan workout program that’s remarkably similar to a plan I proposed back in April.

Sheila: “The FDIC has initiated a systematic loan modification program at IndyMac Federal Bank to reduce first lien mortgage payments to as low as 31% of monthly income. Modifications are based on interest rate reductions, extension of terms, and principal forbearance. A loss share guarantee on redefaults of modified mortgages can provide the necessary incentive to modify mortgages on a sufficient scale, while leveraging available government funds to affect more mortgages than outright purchases of specific incentives for every modification.” (emphasis mine)

Me:

“…lenders [should] do the following: (1) write down principal, (2) lower interest rates and use fixed (not adjustable) rates, (3) lengthen loan terms, and (4) use the homeowners’ credit score from before they missed their first mortgage payment to calculate the refinance terms.”

and me in September 2007:  Why is the 30 Year Mortgage Sacrosanct?

So Sheila, anytime you need to bounce some ideas around, gimme a call. ‘Kay?

Foreclosure Crisis Solved!

Channel 8 ran a great little piece tonight about the foreclosure crisis (which you can hear here), with 3 different viewpoints on how we could get out of it.

The 24-hour news cycle has generally meant that “news” is now comprised of 2 to 10 ‘experts’ shouting their talking points at each other in 2 minute segments. I usually ignore it all. But I often count on PBS for thoughtful and polite discussion of news events. I’ll admit PBS is left of center, but I haven’t found any right of center sources for thoughtful, polite discussion, so I keep watching public television.

Tonight’s three experts (who never once shouted at one another and thus made their Mammas proud) were

• Bruce Marks, the Chief Executive of NACA, the Neighborhood Assistance Corporation of America, a not for profit advocacy group
• Dan Alpert, founder and Managing Director of Westwood Capital, a small investment bank
• Neil Irwin, a financial reporter covering the situation for the Washington Post

Bruce Marks of NACA made a point that I was explaining the other day to my hairdresser.  Fannie Mae and Freddie Mac own or service 50% of the country’s mortgages. They were “too big to fail” which is why the Feds bought them out. Being too big to fail also means that policies they put in place are generally adopted by nearly every player in the sector.

NACA’s Marks continued. Since the US government now owns The Two F’s, Treasury Secretary Hank Paulson already has the power to fix the foreclosure problem and just isn’t doing it. If the Two F’s tweaked their policies for handling delinquent mortgages, they’d solve the problem for the loans they own/control, and the rest of the industry would follow along.

It’s discouraging that this very salient point is getting so little news coverage.

Marks says the Two F’s could immediately fix the foreclosure crisis by working with individual troubled homeowners to agree to a deal that would:

• adjust down the principal owed on the mortgage, and/or
• decrease the interest rate, and/or
• extend the loan period from 30 years to 35, 40, 45+

While lenders won’t be getting their 9%, 10%, 14% or more interest payments anymore, they will avoid spending the money on foreclosing, and will have a homeowner who continues making payments for years into the future.

But instead, Marks says Fannie’s current rules state that:

• Fannie will not reduce the principle owed in any circumstances
• Fannie will not reduce mortgage interest rates below the current going market rates
• homeowners must be 4 months behind on payments before they’re eligible for help

Neil Irwin of the Washington Post reminds viewers that renegotiating home mortgages involves private contracts, which cannot be forcefully renegotiated by outsiders. Since mortgages were sliced & diced, securitized and sold, finding all the parties involved in getting new mortgage agreements is a Herculean task. These include the original lenders, servicing companies, trustees and even the securities buyers such as foreign governments and/or pension plans.

Irwin also offered an anecdote: Sheila Bair of the FDIC had an experimental plan for massive mortgage renegotiations when the FDIC took over IndyMac in early August. IndyMac had 60,000 troubled mortgages and as of last week had only managed to renegotiate 3,500 loans.

Irwin went on to describe the new government rescue plan (how many government rescue plans is that now?): banks voluntarily renegotiate loan terms and in exchange the government guarantees the lender against any future losses (if the homeowners default again in future, which is sadly quite likely and the subject of a whole other post).

Daniel Alpert of Westwood Capital politely disagreed with NACA’s Bruce Marks, and generally agreed with Irwin. Then he presented his group’s alternate plan. This involves requiring lenders to immediately work towards agreements with troubled homeowners that include the following:

• troubled homeowners volunteer to be foreclosed on
• banks and homeowners agree to a lease back for a term of 4 to 6 years so homeowner stays in beloved home
• homeowners retain the right to buy back their home at lease end at then-current market prices

Alpert says his group’s plan helps lenders avoid the high cost of foreclosure (which can be up to 30% of the value of the original loan!). It also helps homeowners stay in their homes, while rebuilding their credit and eventually re-buying the home, potentially at a price lower than originally negotiated. The key to Alpert’s plan is making it mandatory for lenders to participate in the plan. Alpert agrees with Irwin’s anecdote: giving banks room to say “no thanks” only leads to higher foreclosure rates.

What did I take away from PBS tonight? I think that we should lock Alpert and Marks in a room until they mush their two ideas together, then give the reporting job to Irwin. ‘Kay?

“It’s All Fannie and Freddie’s Fault.” – Really?

I know I promised no politics. But I’m tired of hearing people in the media repeat the Republican party line that our current financial troubles are all the fault of Fannie and Freddie. The Two F’s are wrapped up in our troubles, but they didn’t cause them.

From the a series in the New York Times:

Fannie never actually made loans. It was essentially a mortgage insurance company, buying mortgages, keeping some but reselling most to investors and, for a fee, promising to pay off a loan if the borrower defaulted.

…

Dozens of interviews, most from people who requested anonymity to avoid legal repercussions, offer an inside account of the…. pressure from Wall Street firms, Congress and company shareholders, [which caused Fannie's CEO Daniel Mudd to take] additional risks that pushed the company, and, in turn, a large part of the nation’s financial health, to the brink.

…

Shortly after he became chief executive [8 years ago], [Fannie CEO Daniel] Mudd traveled to the California offices of Angelo R. Mozilo, the head of Countrywide Financial, then the nation’s largest mortgage lender. Fannie had a longstanding and lucrative relationship with Countrywide, which sold more loans to Fannie than anyone else.

But at that meeting, Mr. Mozilo … threatened to upend their partnership unless Fannie started buying Countrywide’s riskier loans. [Mozilo said] that Countrywide had other options. For example, Wall Street had recently jumped into the market for risky mortgages. Firms like Bear Stearns, Lehman Brothers and Goldman Sachs had started bundling home loans and selling them to investors — bypassing Fannie and dealing with Countrywide directly.

“You’re becoming irrelevant,” Mr. Mozilo told Mr. Mudd.

Indeed, Fannie’s share of the mortgage reselling marketplace had plunged by more than half in the year before the Mozilo-Mudd meeting. Adding to the pressure, Capitol Hill demanded Fannie buy more mortgages made to low-income and other risky borrowers. Fannie complied, purchasing more than 3 times as many risky loans between 2005 and 2007 as they previously had.

By the middle of 2007, it all added up to a toxic mess as homeowners started defaulting on their mortgages in droves. Fear of unknown toxicity sitting on banks’ books trickled up through the credit markets, eventually freezing the short-term bank-to-bank and bank-to-business credit cycle.

The rest is (recent) history, as Treasury Secretary Paulson took over both Fannie and Freddie, then oversaw the FDIC bailout of IndyMac, orchestrated the Bank of America buyout of Merrill Lynch, watched as Lehman Brothers imploded, stepped in to bail out AIG and oversaw the WaMu seizure as well. Friday saw the passage of a landmark $700 billion “rescue plan”.

In this campaign season, the Republican spin-meisters have a loose association with fact. It makes a good soundbite to lay the blame at Fannie and Freddie’s feet, whereas it takes a little time, a little digging and a little nuance to explain what The Two F’s actually did. Doggone it, we can’t be bothered with nuance at a time of crisis like this. The American people just want government to get out of the way and cut their taxes. It’s all about job creation, Katie. <wink> You betcha!

Related Post – An Economist Backs Up This Post with Nifty Charts

I Can’t Pay the Mortgage, Part 2

This is a continuation of a recent post on this topic, and a followup to a post many months ago about what to do if you get a Notice of Trustee’s Sale.

Remember from Part 1 of this series that (1) I’m not an attorney and I’m not giving legal advice, (2) you don’t need to pay someone to help you out if you’re struggling to pay the mortgage, (3) there are many reputable organizations that offer help to homeowners who can’t pay their mortgage, and (4) a Notice of Trustee’s Sale is not a foreclosure action in and of itself but will result in a foreclosure if the homeowner doesn’t do something within 90 days of receiving the Notice in the mail. Read Part 1.

There are a couple of other things that you can do; these are items I tell folks who call me to talk about their options when they can’t make the mortgage payment.

1. Approach your lender about a workout plan, a forbearance program, or a repayment plan. “Workout plan” is a generic description of the process of changing the terms of your mortgage. Forbearance allows homeowners to temporarily stop paying the mortgage and catch up later. Repayment plans typically involve sending in your monthly payment with an extra payment to catch up on missed past payments. See also number 3 below.

But realize that these are options best suited for folks with a temporary inability to pay the mortgage. If you’ve been sick, been in an accident, been laid off, or have experienced some other situation such that you can’t pay the mortgage now but (realistically) expect to catch up in the next 6 to 12 months, these options might work for you. See definitions on the HUD site, in the right hand sidebar.

2. If you’re in the military, know that there are special programs for you. Tell your lender about your service details and ask for their help.

3. Ask for a loan modification. This is when the lender and homeowner agree to change the terms of the original mortgage. Maybe the bank will write down some of your principal. Maybe they’ll extend the payoff timeline. Maybe they’ll lower the interest rate. You should definitely consult a real estate attorney and maybe even a financial planner if you’re considering these options and get to the stage of looking at documents from your lender. Note that many lenders still aren’t offering meaningful help: NewsDay recently reported that 8 out of 10 homeowners who requested lender help with their mortgage arrangements weren’t getting it. Don’t let that stop you from asking though. A very wise person I know often reminds me, “You never get anything if you don’t ask.” Hat tip SJN.

4. Get the rest of your financial house in order. Banks do not like accepting short sales. They lose a lot of money and in return, they ding your credit but hard.  If you need to refinance anything (car, student loan, etc), do it now. If your old car won’t make it another 2 to 4 years, consider buying another now. After the short sale is over, you’ll be living a cash-only lifestyle for several years. Much of your immediate future will be a case of if you can’t pay for it in cash, you can’t buy it.

5. Consult a credit counseling service. Many homeowners struggling with mortgage payments are also over extended on credit cards. A reputable credit counseling service can help you consolidate your credit card debt, negotiate for lower payments or lower interest rates or both. Reputable credit counseling services do not charge an up-front fee for their services although they may charge a small monthly processing fee. Most are non-profit or not-for-profit entities. If you’re having trouble paying your mortgage and/or credit card bills, there’s no doubt you’re in a rough spot in your life.  A good credit counselor will help you draft a responsible monthly budget that you can realistically stick to over the long haul.

6. Continue paying your HOA dues whenever possible. This one is not really required by law or even by lending standards. But it’s just a good karma sort of thing to do. HOAs are usually left holding a lot of bad debt when homeowners default on their mortgages. Sometimes it’s several hundreds of dollars, sometimes it can be thousands. Your neighborhood’s budget needs for pool care, landscaping, capital improvements, staff salaries and the like don’t decrease over the years. If you’ve moved out of the home and left it vacant, your neighbors’ cost to maintain your home might actually increase. Don’t stiff your neighbors if you can possibly avoid it.

7. Make sure you’ve got a good shot at getting the short sale approved. You can do this by gathering the documents noted below, and using them to prove that you can’t continue paying the mortgage. Banks will not approve a short sale just because you don’t want to continue paying the mortgage. You must prove the payments are beyond your means. You’ll need these docs to request help from your lender:

• At least 2 years’ of completed tax returns
• A couple of month’s worth of bank statements
• At least a month of paycheck stubs
• The amount of your monthly income including wages, tips, interest income, stock dividends, and alimony payments
• A list of any other assets such as 401k’s, IRA’s and cash left in any other bank accounts
• A complete list of your monthly bills
• The amount spent monthly for medicine and medical insurance payments
• Foreclosure Notice or Notice of Trustee’s Sale if applicable
• Letter to lender explaining the reason you can’t afford the mortgage
• It’s a great idea to have an attorney and/or accountant help you with this stuff. The bank(s) who hold your mortgage(s) have attorneys on staff to protect their interests. You should too. Need a referral? Call or email me.

8. You can try to sell your home before the foreclosure takes place. Often this results in a “short sale” because today’s sale price won’t completely payoff your mortgage. Short sales are time consuming and lots of work but can buy you another 6 to 8 months to live in the home while you try to sell. Recently I had a successful short sale that took 13 months from list date to closing date.  Short sales are ugly but the one silver lining is you’ll have several months when you’re not paying the mortgage and can use that money to get the rest of your finances in order.

This isn’t a good time to go For Sale By Owner by the way. If your lender eventually agrees to a short sale, they’ll also agree to a Realtor’s commission for the work involved in selling. If you put your home up for sale, interview several Realtors before choosing one. Ask about their recent statistics with short sales. How many short sales listed? How many closed successfully? How long did each take? Were those sellers’ situations similar to yours? The Realtors can’t reveal other clients’ confidential finances but they can indicate whether you are like the other successful short sale owners they’ve worked with. I can’t tell you the “right” answers to these questions. But I can assure you that successfully closing 2 or 3 short sales is better than listing 50 but not closing any. That’s just common sense, of course!

I hope these points have been helpful if you’re having trouble paying your mortgage. Again, I’m going to stress that I’m not an attorney and this is not legal advice. Please don’t take these two articles as a recipe for a do-it-yourself fix. You’re almost certainly going to need professionals to help you – these might include an attorney, a CPA/accountant or financial planner, and/or a Realtor. Not being able to pay your mortgage can be an extraordinarily stressful time; you might find that talking with a therapist or your pastor/priest/rabbi helps too.

Please call or email me if you’d like to talk about your situation.

Related Posts

1. I Got A Notice of Trustee’s Sale, Now What?
2. I Can’t Pay the Mortgage, Part 1
3. REO, short sale, lender-owned, foreclosure – what do they all mean?

I Can’t Pay the Mortgage, Help!

If you’re facing troubles paying your mortgage, act quickly. Don’t wait. Don’t hope it goes away. Don’t avoid your lender’s collection phone calls and letters. The bad news is you’re in a pickle and it’ll take some work and sacrifice to get out. The good news is that since so many Americans are in the same (leaking) boat with you, there are an ever-growing number of programs and plans to help you.

One of the most important things to know is that you do not need to pay anyone to help you out of your financial distress. Anyone who asks for an up-front fee is probably a scam artist.

Similarly, I personally am very skeptical of foreclosure “experts” who have slick marketing materials and a professional sounding plan, and want you to start by signing  a transfer deed changing ownership of the home to them. If you transfer ownership of your home by signing a Deed of any kind, you do not transfer responsibility for paying the mortgage. Essentially it’s like giving away your car and agreeing to continue making the car payments. Not a great idea. If a foreclosure expert approaches you with a “program” that includes signing a transfer deed, warranty deed, or quit claim deed as the first step, call an attorney for advice. Fast.

The second important thing to know is that I am not an attorney. I am not giving legal advice. I’m jotting down some of the advice I give my own clients, after hearing about their entire situation and after I tell them to consult a tax professional and an attorney. Please do not consider the advice below as perfect for your situation. Consult an attorney, a knowledgeable Realtor, and your tax preparer.

Now some resources.

• You can check out Hope Now
• Get HUD’s list of ways to avoid foreclosure
• Or check out HUD’s list of Do’s and Don’ts for facing foreclosure or HUD’s list of helpful companies and nonprofits
• The Neighborhood Assistance Corp of America is a 20-year old, Boston-based nonprofit with $10 billion in funding from Bank of America to help homeowners refinance into more affordable loans

Next up, understand the timing related to a Notice of Trustee’s Sale (this applies only in metro Phoenix where I work). The Notice is simply a formal letter to you, from your lender stating that they know you’re behind on your payments, and if you do nothing they will sell your house at a foreclosure auction in 90 days. That’s 90 calendar days, not 90 business days.

A Notice of Trustee’s Sale is not a foreclosure; you still own your home. You can try to work with your mortgage lender to create a payment plan you can afford. You can try to sell your home before the foreclosure happens. You can hire a Realtor or a foreclosure expert to help you with these actions.

Whoever you choose to work with, check them out! Distressed markets like we’re in create room for a lot of really sleazy, smarmy people to scam innocent folks. Ask for references and call those references.

If you choose to work with a Realtor or a foreclosure expert, call their prior clients. Ask those folks how recently the Realtor helped them, what happened, and whether they were happy with the work done for them. Ask them if there was anything they were unhappy about too. If you choose to work with a company, check them out with the Better Business Bureau and/or the local Chamber of Commerce. You can see a list of various state’s Chambers here.

This is a list of online spots you can trust to give you free, unbiased and scam-less information:

• Fannie Mae
• Freddie Mac (don’t let the recent “government takeover” news scare you off. There’s a new set of faces in upper management at each company, but they’re still doing business)

• Home Loan Learning Center
• Home Ownership Preservation Foundation
• Neighbor Works America

Of course, if you’re ready to list your house for sale as a short sale, feel free to call me. I’ve successfully sold several short sales this year, and helped a few buyers make offers on short sales too. My goal and daily practice is providing pressure-free truthful information. If I can help you, I’ll say so and tell you about my commission fee structure right at the beginning. If I can’t help you, I’ll tell you that honestly too, and help you find someone who can get you out of your pickle. You can start getting to know me better online by reading this series of articles I wrote for buyers considering short sales.

More info soon in Part 2, including getting a loan modification, a workout, and/or listing your home for sale as a Short Sale.

Related Posts

1. I Can’t Pay the Mortgage, Part 2
2. I Got a Notice of Trustee’s Sale, Now What?
3. REO, short sale, foreclosure – What Do They All Mean?
4. I’m Quoted In USA Today Talking About Foreclosures

Not What It Seems

FDA warning: Short sales aren’t always what they seem. (Of course that’s not really courtesy of the FDA, but you get the idea.)

I’ve been thinking for about 2 weeks about how to write a post explaining the epiphany I had recently regarding short sales. Today’s graphic finally gave me the inspiration I needed. It’s courtesy of GiggleSugar.com; you can see the brief post accompanying this fabulous graphic here.

I’ve been showing homes to investors seeking “a great deal” and of course we looked at a lot of short sales because they’re often priced so darn low. We put offers in on short sales. Sellers accepted our offers and sent our offers to their lenders. Then we waited.

And waited.

And waited. Five months passed without the bank accepting our offer.

Just like the graphic for this post, short sales aren’t always exactly what they seem.

Short sales can seem like an outstanding deal! But the reality is that you, as a buyer, are negotiating a price now for a home that you don’t  know when you’ll actually own.

You’re making a stab in the dark, trying to predict the future price of an asset but you don’t know exactly when “future” is.

If the market were going up this would be a great opportunity for buyers! Buyers would be crowing about their investing brilliance, like they were in 2005 and early 2006. “We bought a home in May that was worth $40,000 more than we paid by the time we moved in on July 1st!”

Sadly, the market (at least in my corner of the world which is North Central Phoenix) is still drifting down. What’s worth $200,000 in September might be worth only $180,000 by next spring depending on which corner of the vast Valley you’re in. Or things could stabilize and it’ll be worth $197,000 next spring. Nobody knows. Like many blogging Realtors, I keep a careful eye on the MLS stats and I’ll be able to call the recovery when it happens, but I can’t predict the future. No one can.

If you’re looking at short sales as a marvelous investing opportunity, you must factor in the time value of your money. At least factor it in the best you can, given that you don’t know exactly when you’ll be able to say “I bought it.”

For my dollar, lender owned homes are a much better deal. Lenders usually respond to purchase offers within a few days or a week. Once the buyer and lender have agreed to price and terms, the sale usually closes within 30 days. It’s vastly easier to predict the value of a home 30 days into the future than 4 to 6 months into the future. Considering a short sale? Consider lender owned homes instead.

• Short Sales, Lender Owned, REO – What’s the Difference?
• Search Phoenix area lender owned homes

Will You Work for Free?

Got an interesting comment on one of my recent posts. It seemed to be from a investor interested in working with me to find and buy foreclosure homes. Being the dutiful Realtor that I am, I emailed him back and setup a customized MLS search that would email him whenever new foreclosure homes hit the local MLS.

The man emailed me back, several times over several days with (among other things) the following information (the spelling errors are his, not mine):

“has there been a professional short sale package filled out by the lender of the defaulted mortgage? That is the first step i would start if I am going to pursue workign with any of these listed properties/. . . . what i am wanting to do is actually contact the homeowner myself . . . I dont want to pay for any services . . . You take a lot of the leg work out from underneath me . . . ” (emphasis is mine)

Today I finally got tired of getting these spelling-error riddled emails. I emailed him back with the following:

“So let me get this straight. You want ME to do all your legwork and research but you don’t want to pay me for it? Ummmm, let me think. NO.”

I never stop marveling at the gall of people who think it’s perfectly OK to come right out and say that while Realtors’ services are valuable to them, they still openly refuse to compensate Realtors.

I guess the extremes of our current marketplace are bringing out the nasty in me too. Maybe it’s time for a day off to readjust my attitude.

Update: In this man’s defense, I must admit that he emailed me back and said I’d misunderstood. He wanted to work with me only because I already have all these short sale listings. I would still make my regular commission but he’d help me and the homeowners with the short sale paperwork.

That raises a bunch of other questions: When I emailed this man  foreclosure listings, there were about 400 of them in the list. Does anybody really think that I personally represent each one of those 400+ sellers?

I’ve already got a 100% success record in getting my short sale listings closed, including  a good system for handling all the baffling and irritating paperwork required by the lenders. Why would I need help?

Is he doing this out of the goodness of his heart, for free? I doubt it. He’ll want a cut of my commission for sure.

Sounds like more help I don’t need.

.

New – Search Phoenix Foreclosures

New search capabilities added to my Search the MLS page. You can now search North Phoenix lender owned homes. Click on over and check it out.

The search covers the ZIP codes of 85012, 85013, 85014, 85016, 85020, 85022, 85028, and 85032, which are the ZIPs I focus on the most. At posting time, there are 241 lender owned homes in Active status in these ZIPs. In the past 30 days, 82 of them have closed and currently 71 properties pending. That means there’s only a 2.9 months supply of these homes on the market. That’s a hot seller’s market!

Housing Stimulus Bill Passed, President Says He’ll Sign

President Bush lifted his veto threat and the House passed a housing stimulus package on Wednesday.  Some key provisions of the bill include:

1. $300 Million to help homeowners facing foreclosure refinance their mortgages into FHA loans. The lender would have to agree to take a loss on the original loan and lender participation in the plan is voluntary.
2. $3.9 Billion in block grants to help local communities buy up (often vacant) foreclosed homes, rehab them, and resell them. Fred Karnas, Arizona’s Department of Housing director says Arizona can expect to receive about $100 million of that money, based on a formula that favors states with the greatest number of foreclosures.  With the median home price in the Valley hovering the mid-$200’s, this will help the city buy about 500 homes. (AZ Republic)
3. $15 Billion in housing tax breaks, including a $7,500 tax credit to first time home buyers. This provision applies only to buyers who purchase between April 9, 2008 and July 1, 2009. The full tax credit is available only to homeowners making less than $75,000 (or couples earning less than $150,000). Finally, the tax credit must be paid back, interest-free, over the next 15 years.

The bill addresses Fannie Mae and Freddie Mac’s recent woes. The bill will:

1. Grant an unlimited line of credit to stabilize mortgage giants Fannie Mae and Freddie Mac and allowing the federal government to buy equity in those institutions. (AZ Republic). The Congressional Budget Office estimates that there’s a 50% chance F & F will weather this crisis without resorting to using this money. The two companies back or own $5 trillion in U.S. mortgages — nearly half the nation’s total. (NPR)
2. Create an independent regulator to ensure sound management and operating standards for those lending institutions, including the power to limit the compensation o the companies’ executives. (AZ Repub and LA Times)
3. Impose a new cap on the size of mortgages that Fannie or Freddie can buy or guarantee. In certain high priced locales, the cap will be $625,000, while other in areas the cap will be up to 15% of the median home price. (NPR)

Herbert Kaufman, a finance professor at ASU who used to work at Fannie Mae in Washington, said the legislation should help to lower mortgage interest rates. (AZ Republic).  This is the most interesting to me. Metro Phoenix housing prices have dropped enough in many neighborhoods to be affordable again for folks who were priced out of the market during the boom-boom years of 2005-6. The combination of lower rates and lower prices could be just what the doctor ordered to get metro Phoenix real estate moving again.

The bill includes some important changes to the FHA loan program. 

1. The required down payment on FHA loans is increased from the current 3 percent to 3.5 percent.
2. Another provision of the bill effectively shuts down AmeriDream and Nehemiah Corp, and nonprofits like them, who help sellers pay for buyer’s down payments. The bill bans federal insurance for mortgage loans if the seller pays the buyer’s down payment through a nonprofit intermediary. Can’t get mortgage insurance? You’re not getting a mortgage.

As big as AmeriDream is, they probably don’t have the financial wherewithal to insure mortgages by themselves, so in effect they’re out of business. But this could present an opportunity for a new breed of for-profit companies to issue PMI (private mortgage insurance) on loans where sellers made the buyer’s down payment.  There is a documented slightly higher risk of default among buyers who didn’t save their own down payment. But there are probably also companies out there willing to underwrite that risk.  Give it time.

Interestingly, neither AmeriDream nor Nehemiah has any press releases or other info posted on their websites today. As long time readers of my blog know, I’m a big supporter of these programs, and am very sad and discouraged to see them go. HUD has been trying to get rid of Down Payment Assistance programs since at least October of last year. I’m saddened, but somehow not at all surprised, that HUD very quietly used this popular housing stimulus bill to kill the programs when every other means they tried didn’t succeed. See my entries of October 21, November 1, December 30, March 3 and June 17 for more history.  

Update, 5:30pm Jul 24: My colleague, blogging Realtor Jamie Geiger has more information about the demise of AmeriDream type programs. Jamie is a great resource for buyers and sellers on the far East side of the Valley. I can’t help you out east of Scottsdale Road, but Jamie can!

The following news sources were used in compiling this article:

• AP News Wire, July 23
• Arizona Republic, July 24
• LA Times, July 24
• NPR, July 23

 

What You Get for the Money ($75,000 to $90,000)

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.