Open Houses

Fannie, Freddie accelerating short sales

Loan servicers must make decision in 30 days -- unless they need 60

By Inman News

Fannie Mae and Freddie Mac will require loan servicers who need more than 30 days to make a decision on a short-sale offer to provide weekly status updates and give a thumbs-up or thumbs-down no later than 60 days after receiving an offer.

The new short-sale timelines, announced this week by Fannie and Freddie's regulator, the Federal Housing Finance Agency, take effect in June as the first step in a broader effort to "develop enhanced and aligned strategies for facilitating short sales, deeds-in-lieu and deeds-for-lease in order to help more homeowners avoid foreclosure."

FHFA said it expects additional changes to be in place by the end of the year that address borrower eligibility and evaluation, documentation simplification, property valuation, fraud mitigation, payments to subordinate lien holders, and mortgage insurance.

Freddie Mac issued more specifics on its new short-sale timeline, which applies not only to offers on properties in Freddie Mac's traditional short-sale program, but to requests from borrowers to be considered for a short sale or deed-in-lieu of foreclosure under the Home Affordable Foreclosures Alternatives (HAFA) program.

Although Freddie Mac expects loan servicers to make a decision within 30 days, it recognizes that servicers may need more time to obtain a broker price opinion or approval from a private mortgage insurer before accepting a short-sale offer or approving a HAFA borrower response package (BRP).

If a loan servicer makes a counteroffer, the borrower is expected to respond within five business days. The servicer must then respond within 10 business days of receiving the borrower's response.

Freddie Mac, which completed 45,623 short sales last year, said the new requirements are the latest step to comply with direction from the FHFA to set consistent servicing and delinquency management requirements.

"Short sales are more complex than routine home sales since they may involve multiple parties and long-distance negotiating," said Tracy Mooney, Freddie Mac senior vice president, single-family servicing and REO, in a statement. "Freddie Mac's new timelines are intended to help make the decision process more transparent and timely for short sales under the Obama administration's HAFA program or Freddie Mac's traditional short-sale option."

Last week, Bank of America announced its cut decision times on short-sale offers to no more than 20 days, down from 45 days or longer. If offers fall through, agents have five days instead of 14 days to submit a backup offer.

The housing crash was no accident; maybe it’s time to start assigning blame!

By Michelle Lenahan

If you have ever been in an auto accident, you know that insurance adjusters from both sides examine the accident to determine the comparative negligence. If the fault was fifty percent yours, you are responsible for 50 percent of the damage.

Having tracked hundreds of thousands of foreclosures, we have yet to see a single case where the owner was making their payments, did everything right, and still lost their house. This seems to be lost on most that see foreclosures as “the problem”.

We have long said foreclosures are not the problem, negative equity is. Despite what you may hear about the housing crisis, negative equity was not caused by a downturn in the economy, nor job loss. A run away credit bubble caused it. While we believe banks and government deregulation were primarily to blame, do homeowner’s really have no responsibility?

Let’s look at two real life examples:

Owner purchases a property in 2004 for no money down. Over the next two years she pulled out $140,000 of equity. In 2007 she defaults on the loan.  In 2011 the bank takes the property back in foreclosure. One year later, 2012, she is finally evicted from the property after living there for five years without making a payment. She is now in the news for breaking back into the home to fight what she says is an “unlawful foreclosure”. The lender was forced to secure the property with steel doors and window coverings to keep her out. What really are her damages? What consideration does she deserve? What consequences should she suffer?

An eighty-year-old couple in poor health needs money for medical bills. They are collecting social security and yet qualify for three back-to-back option ARM loans in a three-year period, resulting in outstanding debt of $500,000. Each time they refinanced, the loan fees and prepayment penalties nearly exceeded the amount they received at close of escrow. Now that the payments are increasing, they can no longer afford to stay in the home they have owned for 30 years. Clearly they were refinancing of their own free will, using the cash they received, but were also put into loans they could obviously not afford. Who is at fault here? Should they be entitled to live out their final years in the home?

Both of these examples are of people who took cash out of their homes. Should the rules be different for them, then for those who purchased with no money down and never took cash out, but are now upside down? And what about those who did everything “right” and put 20 percent or more down, yet now find themselves underwater?

These are real questions of fairness that we rarely see addressed.

First it seems to us that it would be fair and equitable, to not allow any principle reductions on cash out. Instead we think the underwater, cash out, portion of any mortgage should be converted to unsecured debt. This allows lenders to fully pursue collection, while allowing borrowers the right to eliminate the debt in bankruptcy without fear of losing their home. If the borrower doesn’t want this option, then they can try to negotiate a short sale, or deal with the consequences of foreclosure – fair all around.

As for principle balance reductions, those should be strictly limited to amounts used to purchase a home, where the home has since fallen in value, through NO direct fault of the borrower. This is fair because banks were in a far better position to realize that prices were unsustainable at the peak, then the average homeowner, who kept hearing that prices would only go up, or that there was no bubble.

What’s most unfathomable to me is why anyone condones breaking the law by suggesting its ok to break and enter into homes that have been foreclosed on. Even if one intends to take a stand, is that really the right way? And is foreclosure actually bad for homeowners? Why in the world would anyone take a stand against a process that, at least in California, allows you in many cases to walk away from a huge debt with nothing but a hit to your credit report. In some countries not paying one’s debts means jail time.

The saddest thing I see today, is that the worst actors, who signed up for the worst loans, and cry the most about unjust foreclosures are the most likely to get help from the banks. While prime borrowers with great credit, traditional 30-year financing who didn’t use their house as an ATM, and showed respect for the law, rarely get a decent loan modification no matter the circumstances, and often have short sale requests declined.

What do you think? Can you honestly say only the banks are to blame?

Q&A: How to keep tree roots out of sewer line

QUESTION: Roots have been getting into the main sewer line in our front yard. The only nearby tree belongs to our neighbor, and he definitely wants to keep it. Our plumber says the roots will eventually do major damage to the line. If we sell the home, this will probably have to be disclosed to buyers. Is there any way to solve this problem? --Christine

ANSWER: The solution involves some hard work but is actually quite simple. The tree roots that grow toward the sewer line should be cut as close to the property line as possible. If you can dig a trench along the fence line, all of the roots that cross the trench can be severed. Before refilling the trench, ask the people at your local nursery about products you can bury that will retard root growth in the direction of your sewer line.

Send your questions to AraSELLy and you may be featured here!

Urgent Need - I need your help!

Real estate recovery is a long way from market bottom

By Lou Barnes
Inman News®

Another week in these odd times, public policy and theoretical economics completely dominating markets.

Federal Reserve leadership -- Vice Chairwoman Janet Yellen and New York Fed President William C. Dudley -- gave same-day speeches that clarified the following:

1. The do-nothing, hawkish regional-Fed presidents' club is alone in its treehouse.
2. If anything, the Fed has not done enough since 2009.
3. The Fed's commitment to ease through 2014 is more likely to be longer than shorter.

The Fed takes cover under its congressional mandate, saying "unemployment is too high," which is true. But the greatest danger lies overseas: Industrial production in the European Union had the worst month in two years; China's economy is slowing faster than expected; and Japan is ... who knows. The Fed cannot risk a U.S. stall now.

Bonds already had the hint: The March spurt in rates fizzled out last week. Stocks got the "more easing" message, too: a midweek rally pulling the stock market out of an incipient trench.

There is some perversity in this stock market response. The Fed would be this easy only if badly worried about domestic and global risks, and a risky economy is unfriendly to stocks. Yet stocks still responded happily to the Fed's promise of action. It's nice to know somebody still has faith in the Fed.

New domestic data tentatively confirmed the weakness in March payrolls. Weekly claims for unemployment insurance have risen from a sustained stretch -- sub-350,000 to 367,000, and then to 380,000 -- in the last two weeks. In the short term that's not big, but it's also not good.

The National Federation of Independent Business' small-business survey in March unwound months of gains, following the pattern of the 2011 spring swoon.

Housing. Kick any Wall Streeter today, and he'll say, "Housing has bottomed. Hit me for something else."

What would the turn look like, if really under way? My own backyard has turned in just the last 60 days.

The Front Range of Colorado never had a housing bubble: We danced with the "Technology Fairy" from 1999-2001, and afterward built too many houses, and made too many stupid loans, but all of that was over by 2004 when we led the nation in foreclosures.

That was a long time ago. We have the sixth-lowest level of mortgage delinquency of any state in the U.S. Our rental vacancy rate spiked to 12 percent, now below 5 percent for the first time since 1999 (it's close to zero in Boulder, Colo.).

Rents are moving up quickly. State population in the last dozen years has risen from 4.1 million to 5 million, and we're short of land to build (you could drop Rhode Island in here and never find it, but we are maniacs for "open space" reservations). Building permits have been off 85 percent since 2007. Unemployment is down to 7 percent-ish. Our listed inventory of homes has evaporated by 40 percent since last year. Buyers have lost their fear; the only problem is in finding something to show them.

Does your local market look like that? Mr. Housing has bottomed? Eh?

As perfect as our setup, are prices rising? In rich, government- and tech-payrolled, land-starved Boulder County, Colo., yes. At last. Enough to unlock sellers? Um … later.

Two philosophers have remarked incisively on speed. Stephen Hawking: "Time is what keeps everything from happening at once."

Then, Satchel Paige's description of "Cool Papa" Bell: "He was so fast he could flip off the light switch and be in bed before the room got dark. One time he hit a line drive right past my ear. I turned around and saw the ball hit his ass just as he slid into second."

Housing is the polar opposite of Cool Papa Bell.

Here in Colorado, the 1980s were tougher than this patch, and in Boulder we had all the same, lovely conditions as above by the spring of 1990, and the first, timid price increases in nine years.

It then took 18 months for prices to begin to rise on the far side of town. "Bottom" is one thing, "better" is another, and "recovery" something else entirely.

The Mortgage Guaranty Insurance Corp.'s (MGIC) newest guide to its underwriters described 73 metro areas this way: 26 of them "stable," 25 "soft," 22 "weak", and not a single one "strong."

Even if bottoming, and if surviving the release of held-back foreclosures, it will be a long time before recovery takes the brake off the economy, and puts heat on the Fed.

Stunned Home Buyers Find the Bidding Wars Are Back

Still, the sale is for nearly $180,000 less than what they paid for the house in 2005. Ms. Wetherell's husband has commuted to Reno, Nev., for five years and they have decided to relocate.

A new development is catching home buyers off guard as the spring sales season gets under way: Bidding wars are back.

From California to Florida, many buyers are increasingly competing for the same house. Unlike the bidding wars that typified the go-go years and largely reflected surging sales, today's are a result of supply shortages.

"It's a little surprising because we thought bidding wars were done with," said Andy Aley, who is looking to buy his first home in Seattle's Beacon Hill neighborhood. The 31-year-old attorney was outbid this year when he offered up to $23,000 above the $357,000 listing price and agreed to waive inspections and other closing conditions.

Competitive bidding in the current environment isn't producing huge price increases or leaving sellers with hefty profits, as occurred during the housing boom. Still, the bidding wars caused by tight inventory provide the latest evidence that housing demand is starting to pick up after a six-year-long slump.

An index that measures the number of contracts signed to purchase previously owned homes rose in March to its highest level in nearly two years, up 12.8% from a year ago and 4.1% from February, the National Association of Realtors reported on Thursday.

"We very much believe we've hit bottom," said Ivy Zelman, chief executive of a research firm, who was among the first to warn of a downturn seven years ago. Earlier this week, she raised her home-price forecast for the year, calling for a 1% annual gain, up from a 1% decline.

The Wall Street Journal's quarterly survey found that the inventory of homes listed for sale declined sharply in all 28 markets tracked. Real-estate agents consider a market balanced when there is a six-month supply of homes for sale. At the height of the housing crisis, in 2008, there was an 11.1-months' supply. In March, there was a 6.3-months' supply.

Inventory levels in many markets were at the lowest level in years. At the current pace of sales, it would take just 1.5 months to sell all the homes listed in Sacramento, Calif., and 2.4 months to sell all the homes listed in Phoenix. San Francisco and Washington, D.C., each have 3.4 months of supply, while Miami has 4.1 months of supply.

Other markets have plenty of homes. Chicago, for example, has 9.4 months of supply, while New York's Long Island has 16.1 months of supply. Even in those markets, the number of houses for sale is edging down.

Increased competition is frustrating buyers and their agents. "We're writing a record number of offers, but we're not seeing a record number of closings and that's because it's so competitive," said Glenn Kelman, chief executive of real-estate brokerage Redfin Corp. in Seattle with offices in 14 states.

Nearly 83% of offers that Redfin agents have made on behalf of clients in the San Francisco Bay area this year and 71% in Southern California have had competing bids. Redfin represented a buyer that made the winning bid on a Gaithersburg, Md., home earlier this month after agreeing to adopt the dog of the seller, who was relocating and looking to find a new home for "Buddy," a white toy poodle.

Inventories are declining for a number of reasons. Some sellers, unwilling to accept prices that are still down from their peak by one-third, are taking their homes off the market in anticipation of higher prices down the road. Meanwhile, investors have been outmaneuvering consumers for the best properties, often making cash offers that are quickly accepted by sellers.

In addition, some economists say that inventory levels are being held artificially low because Fannie Mae, Freddie Mac and the nation's biggest banks have been slow to list for sale hundreds of thousands of foreclosed homes they currently own. The lenders slowed down foreclosure sales and repossessions after record-keeping abuses surfaced 18 months ago.

Banks and other mortgage investors owned nearly 450,000 foreclosed properties at the end of March, and another two million mortgages were in some stage of foreclosure.

Inventories could rise, putting more pressure on prices, if the banks and other lenders step up their efforts to sell their properties. Real-estate agents say they aren't concerned. "There's an enormous appetite for foreclosures. Release the inventory. It will sell," said Richard Smith, chief executive of Realogy Corp., which owns the Coldwell Banker and Century 21 real-estate brands.

The declining inventory of older homes is spurring sales of new homes. New home sales are up 16% so far this year, compared with a year ago, while inventories of new homes fell in March to their lowest level since record keeping began in 1963.

Meritage Homes Corp., a builder based in Scottsdale, Ariz., reported Thursday a 36% increase in orders for the quarter ending in March versus the previous-year period.

Even though bidding wars are pushing prices higher, many homes are still selling for prices far lower than a few years ago. Increased demand is "entirely affordability driven, which tells me there will be strong resistance to price increases" by buyers, says Jeffrey Otteau, president of Otteau Valuation Group, an East Brunswick, N.J., appraisal firm.

Rents are rising at a time when mortgage rates have fallen to very low levels. The result is that the monthly mortgage payment on a median-priced home is lower than any time since the 1990s. Freddie Mac reported on Thursday that mortgage rates fell to 3.88% for the average 30-year fixed rate mortgage, near its lowest recorded level.

Rates are "so low that we can afford a house that was out of our price range before," said Aarthi Srinivasan, who is looking with her husband for a home around Palo Alto, Calif., one of the country's hottest real-estate markets.

Ms. Srinivasan says she fears that prices are being bid up too quickly. She says she had her "aha moment" earlier this year while touring a 50-year-old house that needed extensive remodeling. The home, listed at $1.1 million, received nearly 10 offers and eventually went under contract for more than $1.3 million to a buyer who hadn't even viewed the property.

"There are only so many buyers who are going to be in such a hurry, so we're hoping it'll top off soon," she says. On Monday, they offered to pay more than the $1.2 million list price for a four-bedroom, bank-owned foreclosure. They haven't found out if they made the top bid.

On the other side of those transactions are sellers like Debbie and Bill Wetherell, who had 17 offers in four days for their four-bedroom home in Danville, Calif. "I was floored. It was so fast, it was surreal," says Ms. Wetherell. The home sold on Wednesday for $796,000, more than $50,000 above the asking price.

Housing markets face other headwinds. More than 11 million homeowners owe more than their home is worth. It is a big reason that the "trade-up" market has been stalled. These homeowners can't sell their current homes, let alone come up with the down payment for their next home.

Mortgage-lending standards remain tough. Real-estate agents say an unusually high share of deals are falling apart because homes won't appraise at the price that buyers have agreed to pay sellers.

Still, borrowers with stable jobs are looking to make deals. Kelly Pajela-Fu and her husband offered to pay the asking price of $600,000 for a four-bedroom home in Marblehead, Mass., within a day of the property hitting the market.

"We just knew this house would go quickly," says Ms. Pajela-Fu, a 31-year-old doctor who had lost out on an earlier offer. Their strategy to avoid a bidding war paid off: The sellers accepted their offer before having an open house.