Roseville Loan Expert

As I wrote back in March, “Walking away” from your mortgage? Maybe think twice, contrary to popular belief it’s already impossible to “walk away” from your home unscathed and there are plenty of reasons not to. However today government-sponsored mortgage giant Fannie Mae announced a new policy designed to encourage borrowers to work with their current lender and pursue alternatives to foreclosure, giving homeowners even more incentive not to “walk away” from their home and mortgage.

Under the new rule: “Defaulting borrowers who walk-away and had the capacity to pay or did not complete a workout alternative in good faith will be ineligible for a new Fannie Mae-backed mortgage loan for a period of seven years from the date of foreclosure.” Fannie Mae backs the vast majority of non-government loans (FHA, VA, USDA, etc) so this might be a big factor to a lot of people. As of right now it is possible for buyers to get a new Fannie Mae loan in as little as 2-3 years after a foreclosure, this rule more than doubles that time IF the homeowner/buyer falls under the

“We’re taking these steps to highlight the importance of working with your servicer,” said Terence Edwards, executive vice president for Fannie Mae’s credit portfolio management. “Walking away from a mortgage is bad for borrowers and bad for communities and our approach is meant to deter the disturbing trend toward strategic defaulting. On the flip side, borrowers facing hardship who make a good faith effort to resolve their situation with their servicer will preserve the option to be considered for a future Fannie Mae loan in a shorter period of time.”

Due to the econpomy and current real estate climate they have not been going after those that choose to walk from their mortgage obligation over the Fannie Mae will also take legal action to recoup the outstanding mortgage debt from borrowers who strategically default on their loans in jurisdictions that allow for deficiency judgments. In an announcement next month, the company will be instructing its servicers to monitor delinquent loans facing foreclosure and put forth recommendations for cases that warrant the pursuit of deficiency judgments.

Let me know if you have any questions..

-Greg

Today’s payroll flop — only 20,000 real jobs created in May — will take some time to settle all the way in. Immediately: 10-year T-notes are 3.22% (from 3.36% yesterday and 3.99% six weeks ago), and the best mortgages below 5.00%.

The payroll report has confirmation: new unemployment has held high for five months; May retail sales look soggy and auto sales flubbed in May.

In days ahead, the entire recovery camp from government to stock-pushers has more than explaining to do. It must change its mind.

All in one fur-ball: How can mortgage rates be so low, and home prices so low, home affordability the best ever measured, yet housing defies recovery? One unifying answer: credit. Not enough, and wildly too tight. The credit dearth is perfectly rational. At default rates like these, nobody knows what new loan is safe to make, and underwriting has been overtaken by hand-shaking, eye-glazed panic. The horrifying conundrum: new loans will inevitably produce new losses, yet without enough new loans, losses on existing ones will be greatly higher.

The good thing for us is hidden in the above. Rates are at all-time lows and home affordability has never been better, the perfect storm. And even though it may not seem like it, we’re lucky here in California. Throughout the rest of the country the loss of the $8,000 home buyer tax credit has taken it’s toll as purchase applications are down sharply from a month ago (even though prices are the same and rates are lower) but we have another $10,000 tax credit available to use here in California! The local Sacramento area market is actually looking up with an every so slight month-over-month and year-over-year price increases in housing. Uber-low rates, dropping unemployment rates, and value in home prices coupled with that free $10,000 tax credit available to many Californian homebuyers should help that continue until the economy and national housing starts to pick up as well.

The glass is half empty, but it’s actually more than half full. Somehow…

Fannie Mae HomePath Financing…. Have you heard of it? If not you’re in for a nice suprise. This is a little-known program recently rolled out by mortgage giant Fannie Mae that helps them get some of the foreclosed homes sold and buyers into those same homes with a fantastic mortgage for taking it off their hands.

 Ask you Realtor about it. Any time you see this logo on a listing or on the MLS it means the home is already approved for HomePath financing. OK OK, what is HomePath and why do I want it anyways? Well, Homepath is probably the best loan out there for buyers with low down payments. The minimum required down payment is actually lower than FHA (3% to FHA’s 3.5%) and there is no MI (Mortgage Insurance) or appraisal required. Not only that, they may give 3.5% back to the buyer for closing costs so it really is the lowest down payment option in the Sacramento area for the majority of future homeowners. Here are a few of the benefits of Fannie Mae Homepath…

* Ask your lender for cost details on loans without mortgage insurance

We have this incredible program in house here at Comstock Mortgage. Give me a call if you have any questions.

Sincerely,

Greg

News on the short-sale front? News straight from Washington? It looks like the long rumored short sale streamline process is finally on it’s way. This could be big news for Sacramento and the entire California Real Estate Market. Check out all the information in this article from the NY Times.

With so many homeowners underwater I hear daily about people “walking away” from their homes, as if it was such an easy decision to make. Maybe it is? With it becoming so commonplace these days maybe it is an easy decision to walk away from your home and mortgage when you owe more than your home is worth. What was once considered an EXTREMELY reckless move is not only tolerated these days, it’s being encouraged… Even amongst those that currently are not behind and have no problem making their payments. Even the so-called “experts” in the media are suggesting that homeowners will come out ahead if they stop making payments on their loans. Are they right? I’ll look at this from a true mortgage planner (and a financial planer’s) point of view.

Forget for a moment the vast legal and moral reasons to keep your home and make the payments you agreed to when you bought (or refinanced) it in the first place, even though those reasons have become easier to dismiss in today’s world, and realize there are some very real consequences to defaulting on your mortgage, not limited to killing your credit score and making it so you can not buy a home (and lose all of the REAL benefits of being a homeowner) for at least 2 to 3 years. In the short-term it seems obvious, why keep making payments on something that isn’t even worth the debt that is carries? One big piece of the American financial system is how much leverage is built into the housing market and being a homeowner. People who wouldn’t consider borrowing money to invest in anything else gladly pile on the leverage when it comes to Real Estate, often borrowing close to the full purchase price of the home (a great financial strategy if used correctly). Of course that is because most of us don’t have the cash to buy a home outright – and if we did it would be the worst financial decision we could make, but that is another story for another day - but however our homes are an asset like any other. Like all assets, values go up and down and leverage magnifies both losses and gains.

Lets look at a home that sold in Roseville during the height of the market in 2005 or 2006, it sold for $450,000 and the family put 10% down when escrow closed obtaining a conforming mortgage of about $405,000. Lets assume all homes in Roseville have dropped about 25% in value since, and the home is worth now $337,500. If this homeowner stops making payments and “walks away” from the home they automatically lose their $45,000 down payment, all interest paid, and principal payments as well. A huge financial loss. People looking at this option sometimes still seem to think walking away from their home and the mortgage is the right move, capping the losses there. The Sacramento real estate market is not good for sellers and probably wont be for a while and they can probably rent the nicer house next door for less than their current mortgage payment. In a simple world this makes sense, but our world is not that simple.

This decision assumes a static housing market where home prices are fixed at their current low values (real estate always appreciates when viewed over the longer-term period and we’re already seeing prices stabilize and start to rise since last Summer). Everyone knows the ABC’s of investing, buy low sell high, but just like the stock market people do it backwards. Selling on the bad news and buying when prices have come back up, in this case it’s no different with Real Estate. People are essentially “selling” low, the exact opposite of what they should. Assuming prices continue to stabilize and appreciate at a modest annual rate of 5% (the National Association of Realtors data shows average appreciation of 6% historically, even taking into account the huge drop in home prices of the last 2-3 years) until the loan is paid off in 2035, this Roseville home will be worth approximately $1,200,000. Of course this homeowner might not want to wait 25 more years, they may want to sell 10 years from now, when this home will be worth $549,750, a decent gain of more than $200,000 more than today’s value, and still $100,000 more than the original purchase price. Which we’ll remember was purchased at the height of the market back in 2005. In my opinion that doesn’t seem too long to realize a $200,000 gain compared to almost a $100,0o0 loss by walking away today. Especially considering this investment is your home, the place you live, where you keep your stuff, raise you kids, etc. There’s a real good chance you’d been keeping it for 10 years anyways.

Then there is the opportunity cost of walking away with home prices at the bottom of the market and likely to go up. By the time those walking away today are again credit-worthy enough to obtain financing for a new home they’ll have missed years of appreciation, low interest rates, and today’s rental rates will have gone up. Possibly stuck as a renter forever because they can’t afford the current home prices at current rates five years from now. Before long their rent will assuredly be more than they original mortgage payment was and there will be nothing they can do about it.

In the end I hope you see the case for staying in many situations, and that that case is far more compelling that first it seems. Not to mention fulfilling one’s obligations is just the right thing to do. So there is more than just financial reasons for doing so (and we didn’t even take into consideration all of the lost tax benefits of not owning a home, higher interest rates paid on all other credit and other accounts, such as utilities, chance of not getting a job, a deficiency judgment levied by the current lender, massive IRS fees, etc that we won’t have to face/lose if we make the decision not to “walk away”). If anything I recommend homeowners talk to their lenders to try and get a loan modification or modified payment plan. In reality it’s the payment that matters most right now, and that payment was just fine when your home was worth more, if you can get your payment lowered it’s just the obvious and right thing to do.

~ Greg

A lot people call me each month to let me know that a short sale is much better on your credit than a foreclosure and that it will not delay buying another home. While it is true that a short sale can be a little easier on your credit score, it will be treated the same way as a foreclosure on your credit would be when you want to purchase a home. As with all situations, there are varying rules for each individual borrower and it’s true that FHA does not automatically disqualify someone from obtaining an FHA insured mortgage for any period of time after that person goes through the short-sale process, but keep in mind, FHA does not make loans, banks do. Every bank has their own guidlines overlayed onto every situation.

While I believe a short sale is a much better situation for our local economy as a whole it is not a guarantee that the seller can run out and buy another home today. In fact it’s quite the opposite: IF you were not forced from your existing home due to a job transfer or dramatic illness and therefore proceeded with a short sale, you are probably not going to get a new home loan for a MINIMUM of 24 months and more realistically 36 months.

Why am I harping on this issue so much? There is a lot of bad information being thrown around in the local real estate and mortgage world, especially in marketing (suprise suprise). Those of us that are “teachers” in the Sacramento real estate and mortgage land need to regain the trust of the home buying/borrowing community. Over the last few years, many in the general public feel they have been taken advantage of by lenders, realtors and just about everyone else. Now is a time to give good, honest advice to people: Even if it is not exactly what they want to hear and it does not meet their immediate goals.

I’m confident that as time rolls on, we will see a softening of these rules. Please feel free to call me with any questions.

Mortgage giant and GSE (Government Sponsored Entity) Fannie Mae recently announced plans for a new program that will allow “regular” homebuyers to compete with all the cash investors out there currently buying a lot of the most affordable real estate in the Sacramento market. The new program, named “First Look”, makes it so that only offers from potential owner-occupants will be able considered for the first 15 days after a property is listed.

Of course Fannie does not control everything and this will only apply to foreclosed homes that are currently in the agency’s possession but that is a big chunk of the foreclosure market and this program may make a difference. As many of you may know it’s been difficult for many people trying to buy their first home to have as they continue to lose bidding wars with cash investors. The program will also help buyers in this part of the market by accepting offers with as little as $500 in earnest money deposits, and making the process of renegotiating after a low appraisal easier.

The other GSE, Freddie Mac, says they have plans for a similar program but have not announced any detials so far.

Amidst all the bad there is some good news in California Real Estate… Housing prices are on the way up! According to MDA DataQuick, the median price in the Bay Area was $352,000 in June, up 3.1% from May but still down 27.4% from a year ago. In Southern California the median price was $265,000, up 6.4% from May but down 26.4% from a year ago. Foreclosures are becoming a smaller factor in home sales, and mortgage financing isn’t as difficult to get as it was in the fall and winter. Home sales appear to be on the rise, increasing steadily over the last ten months. Buyers are returning with the belief that the bargains won’t get any better.

In today’s “real world” a short sail should be a no-brainer. A win-win for all parties. Allowing the seller to avoid foreclosure, the buyer to get a great deal on the sale of the home, and the bank to get out of the deal without the considerable loss and expense of foreclosure proceedings. While the process is getting both better and easier we’re still not quite where we need to be. Here are some things to remember in doing it right…

BUYERS…

Have your agent do some research. Make sure the current owner’s agent is experienced with short sales. Less than half of short sales result in closed escrows so it’s important to make sure you are working with the right short sale seller or you could just be wasting a whole lot of time, possibly letting other opportunities pass while you wait.

Listen to your agent when he/she tells you what an appropriate offer is. The severe lowball offer just isn’t going to fly. Local short sale experts say to make an offer no less than 10% below current market value. And make sure to GET PROQUALIFIED before you make your offer (this goes for short sales and any other real estate transaction).

Patience is a virtue. Especially important when dealing with banks on short sales. We already talked about how important it is to work with a listing agent that is experienced with short sales but even if you do this is going to take some time. Most of my clients end up waiting a minimum of 3 weeks, up to 3 months, for the bank to get back to them on their offer. A good buyers agent will also put in a clause allowing the buyer to search for and bid on other homes while they wait. There is no reason to miss a great opportunity just because the banks are months behind of short sale offers…

SELLERS…

Be ready to provide evidence of a hardship before going to your lender with a short sale request. It’s more than likely that the bank will not approve your request just because you are upside down on your mortgage. Be able to support some sort of financial hardship. The most common would be the loss of a job, medical bills, death in the family, or divorce.

Get started in conversation with your lender ASAP. Once you have made the decision to try and sell you home by way of short sale let them know! This can possible shorten the process by months and you may end up one of the lucky ones knowing what the bank will accept in short sale before you actually get an offer on the house.

Share the pain. Even if it’s just a little. Odds are the bank is taking a bath costing them tens of thousands of dollars. Sweeten the pot for them. Maybe offer them a couple grand on top of the sale. If it is what it takes to get you out of a foreclosure or a loan on a house worth tens of thousands of dollars more than the house is worth, it just might be worth it.

That’s it for now….

Sincerely,

Greg :: The Roseville Loan Expert