Double Dip in Home Prices?

May 25th, 2010

If you’re wondering whether to do a short sale on your home in San Diego now or to wait it out while the economy and home prices improve, here’s the latest opinion from economist Robert Shiller, creator of Standard & Poor’s Case-Shiller  Home Price Index.

“I’m worried still about the risk of a double-dip,” Shiller said in a recent interview over the latest results from the S&P Case-Shiller 20 City Home Price Index.  Today the Index reported a 0.5% dip in home prices in March compared with February prices – and that dip occurred during the frenzy to buy homes before the $8000 federal tax credit expired.  It also marked the 6th straight month of declines, pointing to a trend.

Other economists agree that housing prices might be in for a further decline – at least until the end of 2011. IHS Global Insight economist Patrick Newport forecasts prices will fall an additional 6 percent to 8 percent and bottom in the third quarter of next year. He said the glut of homes on the market is the main reason, but he’s also worried about the rate of foreclosure. For months, many in the housing industry have been waiting for the banks to release their supply of “Shadow Inventory” onto the market, which could result in further price declines.

While the economy seemed to be improving over the last couple of months, economists point to weak job growth, tight credit and many more foreclosures ahead.  In addition, the stock market is again plummeting, down to below 10,000 over worries about the debt crisis in Greece and other European nations, as well as tensions between North and South Korea.

Meanwhile, consumer confidence is up.  A separate report Tuesday showed consumer confidence rose in May for the third straight month as hopes for job growth improved.

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New Record High for Mortgage Delinquencies

May 19th, 2010

In our last post, we reported that foreclosures were down for the first time in two years. But now, the latest reports say that mortgage delinquencies are surging to record levels. What’s up with that?

Basically, a combination of the afterglow of the lingering recession – job losses, few new employment prospects and lower income levels with banks’ increasing willingness to start recognizing delinquencies and failed mortgage modifications.

More than 10 percent of all homeowners had missed at least one mortgage payment in the first quarter of 2010, up from 9.1% a year earlier, according to the Mortgage Bankers Association.  Other analysts still anticipate a double dip in housing prices, with prices dropping another 5% or so, before starting to recover by the end of next year.

Now, rather than bad lending standards and practices, the cause of the increase in delinquencies is economic stress due to unemployment and reduced incomes – a byproduct of the recession that doesn’t seem to be going away fast enough.

Currently homeowners with good credit who took out conventional, fixed-rate loans are now the fastest growing group of foreclosures – amounting to 37% of foreclosures in the first quarter.

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Foreclosure Filings Down in April in California

May 11th, 2010

Foreclosure filings were down in April for the first time since the beginning of the year, reported ForeclosureRadar.


However, properties in default or scheduled for trustee sale only dipped slightly, mostly due to the increase in time it’s taking to foreclose.


Cancellations of trustee sales continue to climb, likely due to successful loan modifications and short sales.

Cancellations are up more than 32 percent from the beginning of the year. Of those, about 15% of the new Notice of Trustee Sale filings are re-filed from previous cancellations.  Many of those new filings are from unsuccessful attempts at a loan modification, a failed short sale attempt or a bankruptcy.

The number of properties sold to 3rd parties on the courthouse steps also continues to climb, due to better discounts than last month.


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List of Loan Modification Scammers

April 28th, 2010

There is now help for San Diego County homeowners attempting a loan modification prior to a short sale. You’ve heard that there are some scams out there, but how do you find out whether the person or company you’re considering for your loan modification is or is not one of those alleged scammers?

There is now a new website, PreventLoanScams.org, that is sponsored by Fannie Mae, Freddie Mac, the Lawyers Committee for Civil Rights Under Law and NeighborWorks America that provides you with a list of people and companies who have been sued or have had criminal charges filed against them for alleged loan modification misconduct. They also include links to search the California Department of Real Estate’s database on individuals or entities, licensed or unlicensed with complaints filed against them for loan modification services.

The website includes an electronic complaint form to report scammers, information on how to avoid a loan modification scam, state-by-state information about rules, regulations, and resources available to homeowners, and it posts news and information on enforcement efforts.

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Beware of Short Sale Fraud

April 26th, 2010

San Diego County residents needing to do a short sale should take note that Freddie Mac is stepping up efforts to control the increase in short sale fraud. Here are the red flags Freddie Mac is looking for:

  • Sudden borrower default, with no prior delinquency history, and the borrower cannot adequately explain the sudden default.
  • The borrower is current on all other obligations.
  • The borrower’s financial information indicates conflicting spending, saving, and credit patterns that do not fit a delinquency profile.
  • The buyer of the property is an entity, like a corporation, LLC or limited partnership.
  • The purchase contract has an option clause to resell the property.

What Freddie Mac is looking into is whether the short sale negotiator is inducing people to enter into a short sale who don’t appear to be in financial distress, and the negotiator offers to have its own or an affiliated company buy the property at a steeply discounted price (which it negotiates exclusively with the lender), all the while intending to flip the property for a higher price, concealing that higher offer from the lender during the short sale negotiations.

The best way to avoid such a transaction is to avoid unknown short sale “negotiator” services and deal only with licensed real estate agents who specialize in short sales and have a track record of dealing honestly and fairly with all relevant parties.  Ask for references and contact us today for more information about our short sale services.

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Re-Establishing Good Credit

April 21st, 2010

If you live in San Diego County and need to do a short sale on your house, you know that you will take a hit to your credit, but what measures can you take for credit repair?  We pointed out in an earlier entry how Fannie Mae is calculating the waiting period before you can be considered for a new home loan. Here we will discuss what Fannie Mae likes to see to re-establish good credit after a preforeclosure event like a short sale, bankruptcy or foreclosure related action.

The newest Fannie Mae guideline says:

After a bankruptcy or foreclosure-related action, a credit history must meet the following requirements to be considered re-established:

• It must meet the requirements for elapsed time since the derogatory credit event outlined in the topic B3-5.3-07, Derogatory Credit Information (eg 2 years after a short sale, assuming you can make a 20% down payment on a new property).

• It must reflect that all accounts are current as of the date of the mortgage application.

• It must include a minimum of four credit references. At least one of the references must be a traditional credit reference (a new credit card account), and one of the references must be housing-related. A housing-related reference must cover the period following the bankruptcy discharge or dismissal, foreclosure, or deed-in-lieu, and can be in the form of mortgage payments or rental payments. If rental payments were not reported to the credit repositories, the lender must obtain copies of bank statements, money orders, or canceled checks for the most recent 12-month period as a supplement to the rent verification. In other words, be prepared to show canceled rent checks for the previous 12 months.

• It must reflect three of the four credit references, including rental housing references, as active in the 24 months preceding the date of the mortgage application.

• It must include no more than two installment or revolving debt payments 30 days past due in the last 24 months.

• It must include no installment or revolving debt payments 60 or more days past due since the discharge or dismissal of the bankruptcy or the completion of the foreclosure-related action.

• It must include no housing debt payments past due since the discharge or dismissal of the bankruptcy or the completion of the foreclosure-related action.

• It must include no new public records since the discharge or dismissal of the bankruptcy or the completion of the foreclosure-related action. Public records include bankruptcies, foreclosures, deeds-in-lieu, preforeclosure sales, unpaid judgments or collections, garnishments, liens, etc.

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New Loan After Short Sale

April 19th, 2010

If you live in San Diego County and need to do a short sale on your current home, how long will you have to wait before you can get a new loan to purchase another home?

Underwriting guidelines vary, and Fannie Mae has just issued new guidelines for people who have undergone pre-foreclosure events, including a deed in lieu of foreclosure or a short sale.

According to the new rules, if you can make a 20% down payment, you may only have to wait two years before getting a new loan on another property.  For a 10% down purchase, you may have to wait four years before being eligible for a new loan. For less than 10% down, you may have to wait seven years.  However, if you can prove job loss contributed to your economic hardship, and you only have 10% down, you may only have to wait two years.

Basically the underwriting criteria is now more dependent on loan-to-value ratios, combined with the type of occupancy planned for the residence (owner occupancy is better), and whether any extenuating circumstances, such as the loss of employment, contributed to the mortgage default.  The waiting period commences on the completion date of the preforeclosure event, for example, the closing date of a short sale transaction.

Under the prior guidelines, the waiting period was determined by the type of default. For instance, the waiting period for a preforeclosure or short sale was two years, while if you had a deed in lieu of foreclosure, you had to wait four years to get a new loan.

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Don’t Pay in Advance for Loan Modification Services!

April 18th, 2010

With all the talk about loan modification services, who do you go to get help?  There are some great services out there, but consumers must be careful. Loan modification services that charge you an advance fee may be breaking the law.

Rather, go directly to your loan servicer – the entity to which you pay your monthly mortgage bills.

Alternatively, if you have a loan backed by Fannie Mae or Freddie Mac, you may be eligible for a loan modification through the Federal Government’s Home Affordable Modification Program (HAMP). A step by step outline of what you need to do, what forms to fill out, documents to collect and who you need to contact can be found at this link. To find out whether your loan qualifies, click here for a loan lookup service.  And to determine whether to get a loan modification, refinance or help with modifying a second mortgage, click here.

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Big Banks Resist Principal Writedowns!

April 17th, 2010

The biggest banks are resisting principal writedowns, the latest in the government’s effort to avoid foreclosures.  The head of home lending for JP Morgan Chase, David Lowman, stated at the House Financial Services Committee hearings on Wednesday, “We are concerned about large-scale broad-based principal reduction programs,” and other bankers stated that such programs would be used “sparingly.”


That’s bad news for homeowners hoping that a principal writedown is the only way to get out of their negative equity position. It sounds like consumers will have a hard time convincing the banks to write down their loan substantially, if at all, making a short sale the best available alternative.


The banks are concerned that principal reduction could reward households for pulling equity out of their homes to facilitate their excess consumer spending (Umm, isn’t that what the bankers were encouraging people to do with their HELOCs during the boom years?), and might punish future homeowners by raising the cost of borrowing and resulting in further restricting access to credit.

The reason for this concern is that if principal reductions are taken on first mortgages, that would effectively wipe out second mortgages or home equity lines of credit, since they don’t get paid until the first lien is paid in full. JP Morgan Chase has an estimated $133 Billion in home equity loans and lines of credit outstanding.  Bank of America has $138 Billion and Wells Fargo has $123 Billion. That’s close to $400 Billion for only 3 big banks!

And those HELOCS and lines of credit are held in their portfolios– they weren’t sold to investors as mortgage backed securities.


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U.S. Home Price Appreciation Drops, but Not in San Diego

April 16th, 2010

According to a report by Clear Capital, U.S. quarter over quarter home prices fell 3.9% for the first time in 9 months, raising fears of a double dip in home prices in some markets.

While year over year price appreciation is positive at 5%, REO saturation rates have been on the rise in various market sectors.

However, the good news for San Diego, is that it was one of the strongest markets, showing an annual gain in house prices at 9.7%.  Its REO saturation rate, while high, is only at 36.4% of all sales. A year ago that rate was more like 50%. This points to a stabilization in the San Diego real estate market.

San Diego’s performance is attributed to high investor demand and first time homebuyers trying to get into the California market.

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