Guest Post: Facing Foreclosure? Housing Bill Provides FHA Help

Well – the Senate has passed what is now referred to in the media as the sweeping housing legislation in a generation. The highlights are in the post here. The highlights of the reform remain the same. What does this all mean to you?

One part of the 700 page measure is this: If you are in foreclosure or fearful of foreclosure because of resetting mortgage rates, the bill provides an option for refinancing. It allows the Federal Housing Administration (FHA) to offer government backed, insured 30 year fixed mortgages to current homeowners at risk of foreclosure.

There is one big “If” for the successful implementation of this program: your current lender must agree to lessen the principal balance of the loan to a level that is 90% of the current value of your home.

Would a lender do this?

Maybe. It will be case by case – certainly. In hundreds of thousands of cases today, the lender is faced with delinquent or no payments from homeowners. The prices of homes have declined in most areas of the country. Homeowners and lenders have borrowed and lent more than the current housing market will bear.

The lender faced with delinquent loans faces these choices today:

1. Allow the homeowner to complete a short sale (in which the principal paid back to the lender is less than what is currently owed)

2. Initiate foreclosure proceedings due to non-payment of the mortgage

3. Enter into an agreement with the current homeowner according to this new legislation in which the lender agrees to be paid back less than they owed (90% of the current value of the home).

Short sales and foreclosures are already reaching record numbers. How about #3? Why would this make sense to a lender?

It costs a lender a lot of money to foreclose or allow a short sale. Some lenders have had to create departments at a very high cost to evaluate and execute their borrowers’ requests for short sales, and to execute the foreclosure process. There are costs for lenders to essentially buy these houses back, hold them in inventory (while not receiving monthly payments) and then resell them. There is not only the cost of the inventory but the high cost to sell the homes again.

It may make ultimate sense to reduce the principal to a lower level. The new loan would be backed by the FHA insurance which protects the lender from non-payment of the loan, the costs to carry non-performing inventory would be reduced, the staff buildup to handle short sales, and foreclosures could lessen. All in all, it may be a good thing for all involved.

And – the benefit to society? The intent of this measure is to allow homeowners to remain homeowners.

Cindy Fox, CMP, CMPS, CLA

Mortgage Planner

SunTrust Mortgage

Direct: 703.464.4345

cynthia.fox@suntrust.com

Foreclosures & Short Sales: Agents Not Updating Listings When Offers Are In!

Looking at short sales and foreclosures? Better have your agent call the listing agent before you take your time to go see them – chances are that they may already have an offer in and you’re wasting your time and energy. And if the listing agent doesn’t answer their phone or call back (which happens more than half of the time, in my experience), then I’d cross that one off your list. Let me explain.

I only have a handful of ‘rants’ on this blog, but it’s time for a new one: Banks and listing agents who don’t update listing information on foreclosures and short sales when they already have offers on those properties. Here’s the dilemma. Listing agents represent the seller (the bank, in the case of a foreclosure), so ultimately their fiduciary duty is to that seller. When an offer comes in, the agent submits it to the bank, who might sit on it for months. (See my post: Foreclosure Risks: Unpredictable Timing).

During that period, the property is continuing to be marketed as “active” so buyers call their agents and agonize over whether to buy, how much to offer, etc. Agents likely even call the listing agent to try to get more information, though in my experience, again, those agents rarely answer their phones or call back. I guess they're too busy not marketing all of their foreclosure listings. Finally when I reach someone at their office live, I’m informed “Oh we have multiple offers on that one already in process.” ARGH!

So why didn’t they update the status to ‘pending’? Because technically a contract is not yet ratified (accepted and signed by the bank.)

Why didn’t they at least update the comments to say “offers already received”? Well, that depends on the agent. My opinion is that they should disclose that fact, but the argument against it is that updating the comments to restrict further showings would not be in the seller’s best interest. Sometimes they claim the bank has instructed them not to update the listing (though I find it hard to believe that today's overwhelmed loss mitigation and REO departments find the time to micro-manage a listing like that.)

After all, contracts for foreclosures fall out all the time following inspections, review of condo documents (IF you get them, which is unlikely) or other reasons. To best represent the seller, an agent should encourage further showings. Are agents doing this to best represent their client? OR are they are just too lazy to update the listing? Besides, it’s not an inconvenience to the listing agent anyway – it only wastes the time of the buyers and their agents.

Housing Bill: Buyer Credits, Loan Limit Increases, FHA Changes

Breaking news on the latest version of the Housing Bill, now on a fast-track to a vote and onto the President’s Desk, where he has signaled he will sign it. The newest developments:

• Permanently increase the conforming loan and FHA loan limits (previously $417,000, and increased to $729,750 in the Washington, DC, area in 2008) to 115% of the median home value - $625,000 in our area, effective 1/1/09
• Increase the FHA down payment from 3% to 3.5%
• Provide a first time home buyer “credit” (really, more like an interest-free loan, to be repaid over 15 years by the buyer) of up to 10% of a home’s price, to a maximum of $7500. The refund is gradually reduced for single filers with AGI above $75K ($150 for joint). It applies to home buyers who purchased between April 9, 2008 and July 1, 2009.
• Bar down payment assistance programs like Nehemiah
• Allows the Treasury to offer Fannie and Freddie an unlimited line of credit over the next 18 months to serve as a ‘backstop’ and provide liquidity. The bill also creates a regulator for the two companies.
• Gives $4 billion in grants to states to buy and rehabilitate foreclosed homes
• Create an FHA program which will help strapped homeowners who are upside-down. The program will require lenders to write down loans to 90% of the appraised values and pay an FHA fee in exchange for an FHA guarantee. Lenders and FHA would then share in any future price appreciation.

Update 8/10/08: Here are some FAQs, including one important for our answer -- can a DC homebuyer claim both the DC credit as well as the non-interesting bearing loan ("credit")? Unfortunately, no.

North Arlington Condo Market Update - July 2008

Zip Codes 22201 and 22203 (includes Ballston, Virginia Square, Clarendon)

	1 BR Units	2BR Units
ACTIVE LISTINGS as of Jul 22
Average List Price	$353,716	$518,239
Number of Active Listings	49	74
Average Property DOM(P) – Actives	69	90
SOLD LISTINGS
Average Sold Price for Previous Month (does not include seller subsidies)	$346,651	$452,120
Number of Sold Listings in Previous Month	26	16
Average Property DOM(P) - Solds	54	79

Absorption Rate (Balanced Market = 6)

1 Bedroom Condos = 1.9 Months

2 Bedroom Condos = 4.6 Months

* Statistics exclude retirement communities

Click here to see the previous North Arlington Condo Market Update

Source: MRIS data as of 07/22/2008. All data deemed reliable but not guaranteed.

Northern Virginia Real Estate Statistics - June 2008

June's Northern Virginia (Arlington, Alexandria, Fairfax, Fairfax City, and Falls Church) inventory and home sales proved to be an interesting story: Despite the spring timing, inventory dropped (slightly) for the first time since December 2007...



While sales simultaneously rose for the 5th consecutive month.



For the second month in a row, inventory has dropped below the "balanced" level of 6 months. Is this just a seasonal bump? Whether yes or no, a drop in inventory means fewer choices for buyers, and I can tell you from first hand experience that a lot of the inventory out there is junk that most people would never consider buying. So the market may present fewer choices than you think if you're serious about finding a home.

With the Fall right around the corner (though it's 90 degrees out as I write this), we can expect lower prices, but we can also expect even fewer choices. So you might get a great deal, but on a home that's already been picked over by all the Spring buyers.

There's a 'sweet spot' in the early Fall though, where there are homes on the market with sellers who are getting increasingly anxious about the end of the season -- I believe buyers will have a lot of opportunity and leverage in the August October timeframe. Contact me to discuss whether this is the right time for you to begin your search, and whether the neighborhoods you're interested in have rising or falling inventory.

Update: Housing Bill Credits for First Time Buyers

Congress continues to work on resolving conflicting versions of the housing bill first discussed back in April. Word is that they're close to a deal. Here's the latest scuttlebutt as to what is planned (remember, though, that this is NOT YET FINAL):

- The credit (yes, that's a CREDIT, which is much more valuable than a simple deduction) will be $7500 .

- Eligible properties will include condos, co-ops, and single family residences.

- The credit is available to those with an AGI of less than $70K ($140 for joint returns), and is phased out above that limit.

- Credit is available only to first time buyers, defined as those who have now owned in the previous 3 years and who purchase between April 8, 2008 and June 30, 2009.

- A portion is to be repaid each year for 15 years, so it's not exactly free money, but rather will operate more like a 'loan.' However, it is a 'refundable credit', which means that even if you owe absolutely nothing in taxes, you can get this money refunded to you when you file. If you sell the property before the 15 years are up, then you will be required to repay the balance of the credit. Clearly Congress is trying to gear this opportunity towards those who intend to stay in their residences for the long term.

Though this isn't as generous as first planned, this nonetheless is a great way for first time buyers to get an up-front $7,500 to help with down payments and closing costs, enabling them to take advantage of this buyer's market sooner.

As I've commented in this blog many times, I find it takes first time buyers a minimum of 3 months to find a home they want at a price they're comfortable with, so this deadline of June 2009 gives buyers about 9 months to get started, in my estimation. However, real estate prices often fall sharply in the Fall and Winter, so you may want to get started sooner than later, so you can maximize how far that $7,500 goes!

Stay tuned as this bill makes its way through committee.

PMI Risk Index: 80% Chance of Rising Prices in Next Two Years

PMI Mortgage Insurance Co released its latest U.S. Market Risk Index, which ranks likelihood of declining prices for the nation’s 50 largest metropolitan statistical areas (MSAs). PMI Mortgage Insurance Co is one of the largest providers of PMI in the US, so you better believe they spend a good chunk of time studying the market, prices, and defaults.
The bad news is that the decline in national prices accelerated in the first quarter of 2008. The more interesting news for our area is that the Washington-Arlington-Alexandria MSA had a risk rank of just 3 (of 5) and risk index score of 21.4, down from 29.1 last year.

This risk index reflects the probability that prices will be lower in two years. So if you're planning on waiting to buy because you think prices will drop, this report is estimating that there is a 1 in 5 chance that you will make out better if you wait two years; said another way, there is a 4 in 5 chance that prices will go up. This is no doubt tied to our area's continuing low unemployment rate of 3.6%, the lowest of all 50 MSAs.

Buyers: 80% chance prices will go up...you might want to start your search soon.

Sellers: Hold on a little longer...your odds are improving.

Read the full PMI report report here.

IndyMac Closing - Impact on Their Bank-Owned Properties?

Indymac Bank today announced they are closing down their loan operations and laying off 3800 people. While this is certainly bad news for the lending industry as a whole, it's also bad news for buyers on two fronts. First, and most obviously, fewer lenders means less liquidity.

The ripple effect though will impact foreclosures already on the market--many of which are owned by Indymac. Two effects here that I can see right off the bat: first, Indymac requires offers to be submitted by an Indymac pre-approval letter (I hate this practice whenever a lender does it...but that's another post.) I assume this requirement will be lifted now that Indymac is no longer underwriting? Or will buyers be in an endless loop because they can't get an Indymac letter but somebody in the REO department has a checklist somewhere and that box isn't checked?

Second, if you thought it took Cubicle Joe in Idaho a long time to get you an answer on your foreclosure/short sale before, how much longer do you think it will be now that he's worried his employer might go out of business? My guess is he'll spend a lot more time at the water cooler gossiping, saying goodbye to his friends in underwriting who got let go, and polishing his own resume. Your timing risk just increased exponentially.

Buyers, lower your expectations when making offers on Indymac properties, and make sure you have a back up plan.

Sellers, if your buyer's lender is Indymac, ask for a new lender letter asap; or be prepared to re-list your home.

Readers: Are you learning about these developments from me via this blog instead of from your own agent? Shame on your agent for not being plugged into the market. You might want to explore the possibility of finding a new agent.

Real Estate Market Update - Montgomery County, MD

A review of the current Montgomery County market statistics confirms what most people already know: it's still a buyer's market. Inventory is up almost 15%, and median price is down to $410,000, about 8.5% from May 2007. Number of sales is down 33% from 2007, and days on market is up 24% from a year ago.
(Click the image to enlarge)

Does this mean buyers should wait? Maybe. As always, it depends on your personal circumstances. However, with the passage of time comes the uncertainty in the lending market. Just in the past year, we've seen the elimination of 100%, 95%, and even 90% financing in many cases, meaning much larger down payments for buyers. We've seen higher interest rates, stricter credit requirements, and fewer loan options. Though FHA has become a viable option thanks to higher limits in our area, the loan limit of $729K remains temporary through the end of 2008.

Waiting might bring lower prices, but with the looming threat of inflation, high rates become more and more likely, and unless you have large cash reserves AND outstanding credit, changes in credit guidelines may surprise you (would anyone be surprised if 20% down payment requirements again became the norm given how badly banks were burned by defaults??)

Further, market statistics may be lulling buyers into a false sense of security that time is on their side. Similar to Arlington (see my 2007 Post: Some Sellers Do Get It, and Get It in 30 Days) the average days on market in Montgomery County of 103 is very misleading, and buyers may be fooled into thinking they have plenty of time to think about whether or not to make an offer on that house that they love.

(Click the image to enlarge)

A review of the successful sales in May reveals that over 1/3 of the homes that sold were on the market less than 30 days, and almost 2/3 were on the market less than 90! Then, as with every market in our area, there are the homes with sellers that drop and drop and drop the price to what is eventually the 'correct' price, and they sell sometime in or after the 4th month.

As I've mentioned before, once a buyer sees 10-12 homes in a given neighborhood, it becomes pretty easy for one to identify the 'value priced' homes, that is, that 1 in 3 that will sell quickly. The issue for buyers is that all the other circling buyers out there recognize it too, and at least some of them will jump on the opportunity when they see it.

Montgomery County is a big place, and it's unfair to paint the entire area with one brush. Contact me to discuss the neighborhood you have your eye on, and to see whether it's one that is following the trend, or whether waiting may not bring as much benefit as you hope. After all, an average is made up of points higher and points lower--see where your dream neighborhood falls in the range.

Interested in learning more? I will be teaching a free, one-house first time home buyer class at Montgomery County Library on July 31st at 7:30. We will be covering a general market overview in addition to the mechanics of the home buying process, including tips and tricks. There is no cost to attend, but registration is required. Contact me to sign up.

Local Free Summer Concerts

Click to enlarge image

There are a multitude of free events in our nation's capital, including free summer concerts every day of the week! Some of the most popular include jazz in the Sculpture Garden on Fridays, the Marine Band on Tuesdays, and concerts in Reston, Silver Spring, Strathmore Hall in Bethesda and more. No matter what day you're looking to go out, you can find some live music to enjoy.

How Do I Start My Home Search?

If you read my recent post "Why I May Not Be Able to Represent You" then you know that it's imperative that you choose an agent early in your home search process. But what happens when you meet with an agent for the first time?

Everyone is different of course, but here is a general idea of how many of my first meetings with clients go. Typically, we'll spend about an hour to go over the basics:

1) Go over the home purchase process.

2) Get an idea of needs vs. wants (i.e., 'must haves') - Bring any listings that you are already interested in.

3) Discuss neighborhoods, what you get for the money, etc.

4) Discuss the financing process. Before we go out to look at properties, you will need to be pre-approved by a lender. If you have already spoken with a lender by this point, bring your Good Faith Estimate(s) and I will go over some key points on them.

We'll also briefly discuss buyer agency agreements, and our mutual obligations.

Depending on the situation, we may even go out to tour properties following this initial meeting. If not, then we'll work together to identify some properties that might fit your needs. If/when we have a few properties (about 6-8) that you wish to view, we'll set up a block of time that we can go see them.

I find that most buyers need to see 8-10 properties (through a combination of open houses and agent tours) in a given neighborhood before they have a good idea of what they like and what they get for the money. Typically during our first few weeks working together we get you "caught up" to homes that are already on the market. Following that, it's easy to keep up to date and see what's new via open houses and brief (1-3 property) tours.

The search process may take longer than you think, though it varies widely by person. The search process itself takes anywhere from a few weeks to a few months. I've had buyers make an offer after just one or two days of looking--it's part focus, part preparation, and part luck.

From contract to settlement (for loan processing, appraisal, home inspections, etc.) then takes 30-60 days additional. You should count on at least 3 months from start to finish.

Shoot me an email today if you'd like to discuss starting your search!