Refinancing will become much, much easier

On Monday, the federal government announced big changes in the Refinance rules for borrowers with loans currently back by Fannie Mae and Freddie Mac.

Current Refinance rules give higher rates/fees to borrowers that owe more than their home is worth and completely disqualify borrowers that are more than 25% upside down (a huge problem for Arizona homeowners).

The newly announced refi program claims that both of those issues will be eliminated when they roll out the full details of this program in mid November. The announcement claims that an appraisal will not be required in most cases. Borrowers must not have any late mortgage payments in the past 6 months and cannot have more than 1 late mortgage payment in the past 12 months. The most important requirement of this program is that it only applies to loans that are currently backed by Fannie Mae or Freddie Mac and only applies to loans that were closed prior to May 2009.

I see what they are trying to accomplish and I get it. However, as with any government involvement in the free market, I wonder what, if any unforeseen consequences this might have. This move is basically saying that a bank will be giving a loan on a property with complete disregard of the actual value of the property. I suppose in states like Arizona, where we are a non-recourse state, none of this really matters. The collateral is almost irrelevant since the borrower can walk away at any time. Perhaps the banks should just view it as they are renegotiating the terms of a personal loan that will allow the borrower to not default. I suppose if the homeowner has the intention of staying long term and they don’t mind being upside down on their home if it means they get to keep it, that this will be a win for both sides.

By the numbers…

A title company that I work with, Equity Title has put together some monthly numbers regarding sales here in Maricopa County. Pretty interesting read and staggering to see the changes!

Enjoy:

Total active listings have dropped to by another 2231 units over the beginning of last month. As of yesterday we sit at 39,635 which is the lowest amount in March for the last two years. Sales are up to 7725 for the last month as of yesterday. We currently sit at 5.2 months of supply.

Short sales represent 21% of the closings BUT 38% of the active listings for a 9.8 months of supply. The total for Distressed(including bank owned) properties is 66% of the sales for the last month, which is down 5% from the month prior.

February of 2011 closings were 6535 vs. 2010 of 6158 which equates to an 6% increase over last year. Even with the tax credit last year!

Reality Check: February 2011 Median price sold in Maricopa County was $120,100. February 2006 median price was $260,000…ugh…..

We currently sit at a 5.2 months of supply in the valley. This may seem balanced but the high end market continues to be stagnant. Only 60 properties over $1.0 million sold for the month of February in the whole of MLS. 94% of the sales in the the last month under $400,000.

Chew on those for a while!

Short Sales, Still Not Real Clear to Many

Short sales have been a major part of our market for two and a half years and counting. We all seem to know someone that has either sold or purchased a home via a short sale but I am always surprised by how little is really known about the process. I get two or three calls a month asking about it so I thought I would spend a few paragraphs shedding a little light on the process.

First and foremost, they aren’t called “short sales” because they happen quickly, that is for sure! They are called so because the home owner is selling the house “short” of what they owe. When a homeowner is upside down on their house, they have a few options. They can try a loan modification with their lender(s). They can simply walk away and let the bank foreclose or they can try to get their lender(s) to agree to allow them to sell the house for less than the amount owed to the bank. Let’s focus on the short sale from the seller’s perspective for this exercise.

The process is very cumbersome but getting better. Typically if you call and ask your lender if they will consider a short sale, the answer is something like, “No” or “…we don’t know, give us an offer and we can find out”. The reality is, no bank is going to tell you that if you can present them with an offer of $XXXX that they WILL approve a short sale.

So how should most people start? Do your homework! Before you do anything else, contact two people…an attorney and a Realtor(naturally me!) It is so important that I require my clients to work with an attorney in order to move forward with a short sale. Now don’t panic! Getting an attorney DOES NOT mean you will be spending thousands in legal bills and going to court. In fact, it is quite the opposite. Most attorneys will do the work with little or no cost to you. Their money comes from the sale of the house, not from you as the home owner. Think about this, you are breaking a contract with a very large corporation. Chances are you are out gunned if it is you versus them. An attorney levels the field. You want to make sure when the sale is closed that you are 100% clear of any future liabilities. What about tax consequences? You want to make sure you aren’t going to be hit with a large tax bill because of the forgiven debt. A final benefit is that the sale will go more smoothly and quickly with a law firm working on your behalf and they become the point of contact with the bank, not you!

What is next? Work with your Realtor to get your home ready for the market and priced right for a quick sale. Once an offer is received on your home, you negotiate the all the terms, price etc with the buyer. After both parties agree on all the terms, it is submitted to your lender for approval. This is the point that short sales earn their reputation for being difficult! The contract is sent to your lender along with some of your financial information. This is all prepared by the attorney(see how helpful they are!) Typically the bank will assign this to a “negotiator” within thirty days. So…there is thirty days of no activity. Once assigned the negotiator will get to it as his or her workload allows, usually a week or two. They will complete their own appraisal to determine if the offer is reasonable. This can take four to six weeks(we are potentially up to ten weeks by this point!). Depending on what the bank has determined the home to be worth, they may make a higher counter offer or they may not, you never know. That is why sometimes an offer is rejected even if it is a full-price offer. The bank will not say what their bottom line is until they receive the offer and review it. Therefore the home’s list price might not have been acceptable to begin with…we just don’t know.

The hope is, the home was priced right for today’s market and the attorney’s have done a good job negotiating on your behalf. Assuming that is the case, the bank will provide a letter stating they approve of the contract and from there they will require the sale to close within thirty to forty-five days. See how easy that was?

Obviously along the way there are many scenarios that can occur but to detail each one of them would be a book in itself! This entry is just to illustrate why short sales are so time consuming and what is going on along the way. Deciding to go down this road is not an easy decision and can have legal and tax consequences that every home owner needs to consider and in my opinion, consult someone that specializes in these areas. If a Realtor tells you that they can easily short sale your home and does not recommend that you seek other’s professional advice, consider this your warning! As always, feel free to contact me if you any questions specific to your situation.

Short Sales, Foreclosures and Our Money

Short Sales, Foreclosures and our Money – So much to talk about!

In today’s market, short sales and foreclosures have become all the rage. The social stigma of walking away from your mortgage is gone. I have even heard people bragging about it with their friends. They compare how much debt they are walking away from and the person short changing the bank the most, wins. I have heard good arguments from both sides. One side says there is a contract in place between you and the bank. If you quit paying the mortgage, the bank takes your house. Pretty simple agreement, really. The other side says you borrowed the money, you need to pay it back. The bank never guaranteed that your home would go up in value but you did promise the bank you would repay the money you borrowed. I think intelligent people can disagree on this topic as it just depends on how you see the world.

I talk about this now because the Government has recently decided to add another wrinkle to the mess that we are already in. The Government is now using our tax dollars to pay homeowners to short sell their houses instead of just letting the bank foreclose. In addition, the Government is also using our tax dollars to pay banks for each home they approve for a short sale. How much you ask? Well, Uncle Sam will pay a homeowner(assuming they qualify) $3,000 if they short sell their house. The bank gets double that amount for each one.

Yes you are reading this right….the Government is taking the money that you and I pay in taxes and using it to encourage people to walk away from their debt. I find this absolutely abhorrent. What is next? Will the Government use taxpayer money to tell people to walk away from the credit card debt? How about car loans? The Government is being very quick to tell people to walk away from money they owe. It is a shame that we can’t just walk away from the money we owe every April 15th.

What’s new?

It has been too long since I last updated my blog. My apologies! So what is new in real estate? Well, the $8,000 first-time buyer tax credit is set to expire on November 30th. This tax credit has brought an estimated 350,000 additional buyers to the table. These are buyers that would not have purchased a home if it had not been for the credit. The National Association of Realtors is not only pushing to extend this credit into 2010, we are pushing to expand the credit. We are trying to loosen the guidelines allowing more homebuyers to qualify for the credit. Let’s hope we get it done!

Locally here in the Phoenix market, sales volume has still been incredibly high. Over 9000 homes have sold in each of the last several months. Our prices have been very stable showing a very slight increase in the last month. It’s nothing to get too excited about but the free fall has been stopped for four months now!

Lenders are still terrible at processing short sales but to their credit, they are getting better. They have also become more realistic with the values of these homes. They are selling them for market value instead of trying to get 2007 prices for them.

Interest rates are still down near record lows! With good credit, a 30 year fixed-rate mortgage is currently just below 5%. That is an amazing rate. When considering that rate and what homes are selling for these days, you can see why our volume has been so high. We are in our prime season now so let’s hope it continues.

So what is still broken in real estate? A lot, but the biggest issues we have right now is the banks. They are getting better at selling houses but they are terrible at lending money right now! Understandably, they have tightened their lending practices. To a very large degree, this is good. They needed to. However, they have over reacted and are keeping a lot of good buyers out. Especially in the “jumbo loan” arena. These are loans north of $417k. These loans are VERY difficult to get right now and it is freezing up the middle and upper end market. There is a lot of demand but the buyers just can’t get loans.

Trying to fix the new appraisal rules

Below is a letter from the National Association of Realtors President. Realtors around the country have been diligently working to combat the new rules regarding appraisals. The rules were a complete over reaction to some questionable practices that we saw during the boom. However, as it so often happens, the fix created more issues than the original problem. The letter below shows that we have made some good progress in getting the “fix” fixed.

To: All REALTORS®
From: Charles McMillan, 2009 NAR President
Re: UPDATE: FHFA and GSEs Act on HVCC Concerns

Dear Fellow REALTOR®,

I am writing to you with an important update on NAR’s efforts to address ongoing
problems with recent changes to appraisal rules.

As a direct result of my recent meetings with the New York Attorney General’s office, the Federal Housing Finance Agency, and Fannie Mae, both Freddie Mac and Fannie Mae this week issued new guidance to all lenders on the Home Valuation Code of Conduct.

The alert clarifies two very important points that we raised in our meetings with
officials. First, it states that lenders should use appraisers who have
clear experience in the geographic area. Second, it clarifies that appraisers are
not prohibited from talking to real estate agents.

http://www.fhfa.gov/webfiles/14611/hvcc_NOTICE_7_22_09F.pdf

In addition to this guidance, both Fannie Mae and Freddie Mac recently posted
extensive Qs and As on their respective web sites, based on information that NAR
provided when the code was first adopted in May.

https://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/appcode/pdf/hvccfaqs.pdf

http://www.freddiemac.com/singlefamily/hvcc_faq.html

We have posted links to all of this information at www.Realtor.org/HVCC.

Although this is certainly a step in the right direction, more still needs to be done
to address problems with the HVCC. NAR will continue to push for a moratorium
on the Code, and I will continue to meet with industry partners and officials to
convey our concerns.

Thanks to all REALTORS® who have shared experiences and concerns with us.
Once again, you have proven that we are the “Voice for Real Estate,” and I am
proud to serve as your 2009 President.

Sincerely,
Charles McMillan, CIPS, GRI
2009 NAR President

Is AS-IS really as-is? That is the question.

I get a lot of questions about bank owned homes and homes being sold AS-IS. People see terms like “AS-IS”, “no Spuds”, “no CLUE report” in the description of the home. So what does all this mean? Well, assuming you are looking at homes listed by a broker, it is pretty simple. If you are looking at homes being sold at an auction of some sort, you are on your own! For my explanations below, let’s assume the home is being listed by a broker. In today’s market most banks and lenders are using brokers so this is the most common situation.

AS-IS means just that. The seller is not willing or able to do any repairs on the home. That said, assuming you are using our standard Arizona Residential Real Estate Contract, which almost all agents do, you are still given a 10 day period to inspect the home. You still have the right to cancel the contract if the inspection turns up something that you can’t live with. You should still get your earnest deposit back as well. You as a buyer are still making the final decision to move forward but you do so knowing any and all repairs will have to be at your expense after you buy the home.

No Spuds. Sellers are required to complete a Seller’s Property Disclosure Statement(SPDS). Spuds is the slang term. Technically all sellers are required to do this on all transactions that use the standard contract. Banks and investors that have assumed a property via foreclosure or some other method will usually make you waive the right to a completed SPDS. It isn’t a big loss to you as the buyer, however. The bank or investor has never occupied the property so the SPDS would be blank. This is why you get a good home inspection!

No CLUE report. The CLUE report is a report that shows the insurance claim history for the property under the current owner. Since these homes have just been acquired by the bank, there would be no claims history so the report would be blank. They are just trying to avoid the hassle of producing a blank report.

I hope this helps.

Keep ‘em moving!

So the news on housing continues to be cautiously optimistic. June proved to be the third month in a row with 9000+ sales. Additionally, this makes six months in a row that we have seen an increase in sales. So where is all the action taking place? It is clearly within the lower priced markets. 94% of the homes sold were under $400k. Overall, the Valley is down to about 32,000 homes active on the market. For the first time in about two years, our median price did not drop. Finally!

So what is it like trying to get these deals done? Well, I am still seeing multiple offers on homes that are priced aggressively. Short sales are STILL taking weeks to close. However, short sales used to take months so the banks are getting a little better. The bank owned homes are almost becoming easy! I have submitted offers and received an answer within one week. Who knew this was possible?

I still think we are facing a significant glut of foreclosures in the coming months. However, this “rally” will help relieve some of the downward pressure that will certainly continue to stress our market. The temporary stop of foreclosure activity by the banks has come and gone and they are back to work. We will be seeing those foreclosures hitting the market for quite some time.

Lots of sales activity and unethical Realtors….gasp!!

What the heck is going on in today’s real estate market?? In the last week I have had to compete with multiple offers on properties in South Scottsdale and North Phoenix. This would be great if I was the listing agent. However, I am representing the buyer in both instances so it isn’t as fun!

This comes at a time when buyers are being told that they are in the driver’s seat, they can call all the shots and they can offer WAY below the asking price…I’m sure you have heard all of the stories. So what has happened? In most cases the homes are finally priced where they should be and often times they are priced below the market. Even in this economy and this environment, the market senses a bargain and reacts accordingly.

So is this 2005 all over again with multiple offers and all the craziness? No, it isn’t. In 2005, every house was selling with a frenzy surrounding it. Today, only the houses that are true bargains are seeing this kind of activity. Of course the “bargains” are the only homes my clients are interested in right now. Since those are the only houses we make offers on, it appears that every house is competitive!

Unfortunately, my peers in real estate are not helping matters much either. In short sale and bank owned situations, many Realtors are receiving offers on a home over the course of several weeks and not disclosing to the public that there have been offers submitted to the bank. Instead of receiving one offer, submitting it to the bank and getting an answer, the home remains “active” in the MLS piling up multiple offers which delays the bank’s decision. There are tools being put into place to stop this but it is so widespread that it is going to take some time. So I apologize on behalf of the idiot Realtors out there doing business this way. At the very least it is unethical and as of today it is simply against the rules.

The Senate got it right!

Let’s give credit when it is due because it is rare when it comes to our representatives in Washington. They shot down a bill that would allow bankruptcy judges to force banks to lower interest rates on home loans if a person ends up in bankruptcy court. The reasons that this was a bad idea were numerous. However, the biggest reason was the effect this could have on interest rates for consumers going forward.

We have a simple lending system if you look at it. Home owners borrow money to buy a house and promise to repay it over an agreed upon amount of time. All the terms are agreed upon by both parties. Both parties understand that if the money can’t be repaid that the bank will get the house instead of the money. Simple enough, right?

As proposed this bill stated that if the home owner filed for bankruptcy, the judge could force the payment down to what he or she deemed the home owner was capable of paying. This would have nothing to do with the actual value of the house or the outstanding loan that the home owner had. It would literally tear up the agreement between the bank and the home owner. You can bet that when the banks start taking a beating that they will build it into the interest rates that they charge going forward.

Let’s face it, a foreclosure in this market is a lose/lose situation for both the banks and the homeowners. It is usually in both of their best interests to rework the loan. That decision should remain with them, not a judge.