Arn Cenedella

Archive for the 'Foreclosures' Category

Do you qualify for Obama refinance plan?

Exact details on Obama’s refinance plan will be out March 4, 2009.

Expect the lenders to take a few weeks to digest the information and set their in-house systems up to handle these requests.

Diane Tuman of Zillow gives good detailed information on what the plan is expected to be.

Obama plan part 4

There is lots of good information available throughout the real estate blogging community about Obama’s plan to reduce foreclosure and increase loan modifications.

Jillayne Schlicke of Rain City provides a lot of information and asks the very important question:

“IS A LOAN MODIFICATION IN YOUR BEST INTERSTS?”

Jillayne also tells it like it is: “If your home does not sell, the price is TOO HIGH period”. Sellers please pay attention, if your home does not sell, it is proced to high – bigger ads, more open houses won’t get it sold if property is priced above current market.

I recently sold a BRAND new home in prime west Menlo Park for slightly over $1M. This spec built home came on the market at $1.5M about 6 months ago. The price was too high since property is located on a busy street. If property was priced at $1.3M, it would have sold first week. Developer then chased the market down always behind the curve and after the stock market tanked in October 08, the market slowed further. As a result of over-pricing; my client – THE BUYER – has made an excellent purchase posied for long-term appreciation – AVERAGE price in west Menlo Park is about $1.8M.

As I have mentioned before, there are signifcant and complicated legal and tax impacts on loan modification, short sale, or fireclosure. Be sure to consult legal and tax advice before AGREEING to ANYTHING. For example, a lender could agree to a short sale but NOT release you from the balance remaining on the loan that was not paid in the short-sale.

Charles Feldman of Bigger Pockets questions as I do how effective this program will be.

Obama Plan Part 3

Obama’s plan is expected to help between 7 Million and 9 Million homeowners.

The New York Times has a neat chart which tells who qualifies and who does not.

Here is a summary:

Allows “responsive homeowners” – those who are paying their mortgages on time but whose property value has dropped so the loan balance is now 80% to 100% of the current fair market value – to refinance at a lower interest rate.

But it appears this option is only available to borrowers whose loans are held by Freddie Mac and Fannie Mae.

“Responsible homeowners” – those whose loan balance is 105% or more of the current market value can not take advantage of this program.

Folks with loans above $417,000 can not take advantage of this program.

“At-risk” homeowners who arer owner occupants can hope to have the interest rate on their loans reduced to 38% of the gross income. Additional reductions in interest rate to a 31% of gross income amount may be made by “matching” contributions from US govt and lender. Again loans above conforming limit do not qualify.

My educated???? guess is that many many folks in trouble with their mortgages will NOT be able to take advantage of this program. This program will have only a limited impact on the problem.

Obama’s foreclosure and loan modification part 2

I am confident that we will gain more insight on Obama’s plan to reduce foreclosures and increase loan modifications over the next few days and weeks.

Obama’s progrma does not address ssecond mortgages. Many folks have home equity loans on their property or obtained a second loan at time of purchase to go with a larger first loan (typical for loans with less than 20% down).

Here is what NY Times says…..

Many large lenders have agreed to hold off on foreclosure proceedings as Obama’s plan kicks into action.

Here is what Bloomberg says…..

Obama says foreclosure crisis is unraveling the middle class.

Here is MSNBC’s take on the plan……

and US News and World Report…..

I believe we will get more details and analysis moving forward.

Obama’s foreclosure and loan modification plan is out

Preliminary details are out on Obama’s plan to reduce foreclosures and increase loan modifcations.

Full and final details should be out in the next 2 weeks.

Obama’s plan contains incentives for both lenders and home owners to agree to loan modifications and keep to those promises. Borrowers and lenders can receive up to $1,000 per year if borrowers keep their payments current and lenders agree to a loan modification.

Modifications would be paid to bring interest rate down so that payments are 38% of the borrower’s income. Additional reductions down to a 31% level could be made with matching lender and government funds. These lower interest rates would be in effect for five years.

Homeowners who are “under water” and whose debts exceed 55% of their income need to agree to HUD debt counseling.

One of my big concerns about any loan modifcation program is fairness to buyers who put cash into the property and now the property has dropped in value. Under Obama’s proposal, buyers who put 20% down but have seen their property values drop so they are “under water” will be allowed to refinance to a lower rate with Freddie Mac and Fannie Mae loans. In my opinion, this is a good feature of the proposal. The government if it helps anybody should help people that actually put their own money into the property.

In addition, the Obama plan allows bankruptcy courts to “cram down”mortgages.

Lenders are not happy about this.

Of course, the devil is always in the details. I wonder how many folks will be able to helped with this program. I suspect that so many borrowers are in homes well above their means that the 38% ratio may mean lenders need to reduce their rate to near zero to bring payments in line with this ratio. Will the lenders do this? Time will tell.

More can be learned at Inman News.

Info from Trulia.

Stopping Foreclosures and Loan Abatement

Barry Ritholtz of the Big Picture has an excellent summary of potential loan modifcation and foreclosure prevention stratgies.

Hi spost makes several excellent points:

1) artificially trying to “prop” up prices will not work

2) many borrowers are in loans so large realtive to their incomes that they have no chance to pay back and therefore NO loan modifcation program will work for these folks

3) it is NOT the responsibility of US taxpayers to bail out borrowers who borrowed more than they can afford or lenders who made loans that never should have been made.

Let’s see what Obama comes up with later today.

My sense is that while his plan may sound good in theory – in practice the impact may be minimal.

Any plan will raise the issue of fairness – why should someone who makes their payments on even though the value of their house has dropped NOT receive any bailout while borrowers who can’t make their payments do.

Here is one idea I suggested……

Possible Solution to Foreclosure Problem – Open for discussion!

On the San Francisco Peninsula, the City of East Palo Alto has been ravaged by foreclosures.

There are currently 89 homes listed for sale and over 70 of these are either REOs or short sales.

The average price in East Palo Alto went from $200,000 in 1998 to over $600,000 by 2007. Tripled!

The current average price is say $250,000.

Most other peninsula cities saw average prices DOUBLE during this time.

I believe the extra run-up in East Palo Alto was due to sub-prime financing that got borrowers into loans they had no chance to pay back on homes way too expensive for them. East Palo Alto probably has the lowest per capita income of any city on the Peninsula.

I believe most of the people who bought homes in East Palo Alto the past few years are good hard-working people who due either to language issues or a lack of financial knowledge unwittingly bought homes and took loans they could not afford. This was done more by a lack of knowledge than any plan to “game” the system.

I am working with one couple recently referred to me. Before meeting me, this couple bought a house for around $550,000 in East Palo Alto about 3 years ago. When the initial teaser rate expired on their purchase loan, they refinanced and now find they can not afford the payments as the rate adjusted again. Making the situation worse, the cost of the refinance was rolled into the refinance loan. The husband works TWO jobs and the wife also works. They have a son in high school who will go to college – something his parents did not.

Their house may be worth $275,000 now and they owe $550,000.

Their lender is Countrywide. For 6 months now, they have tried to worked out a loan modification and have gotten nowhere.

These folks are good hard-working people. They want to pay their bills on time. They are NOT dead-beats. They did not take out $100,000 HELOC to buy a new Mercedes Benz and big screen TV. They fact that they can’t not make the payments has nothing to do with their personal integrity and desire to do the RIGHT thing.

Drum roll – open to comment and critique – here is my solution for folks like these.

If their lender will not agree to a loan modification, these folks should be allowed to walk from their house with NO DAMAGE to their credit rating. The government could then direct FHA to make these folks a loan to purchase a new home for say $275,000. FHA would not hold the foreclosure against them. FHA would qualify them with the STRICTIST standards. The folks may not be able to afford a $550,000 but they certainly afford a $275,000. Let them walk across the street and buy this house. Give them a 30 year fixed rate – use a 31% to 32% qualifying ratio make sure income is documented. These folks will not default on their new loan.

I guess what I am saying, why penalize these folks because the market in their area collapsed? and because the professionals (both loan and real estate) that got them into the house did not do a good job?

This approach would not require any government money and would be financed with the usual FHA MI premiums etc.

The lender would take the loss – not the government – not the US – not us.

This couple would be able to remain homeowners albeit in a different house.

And my sense is if this program would go into effect, I think you would find lenders much more willing to do a loan modification because if they didn’t buyer would walk and buy house across street.

The program might only apply to designated FORECLOSURE DISASTER ZONES – perhaps by census tract.

What do you think?

Taxpayers not on the hook. Lenders take the loss. Buyers are able to remain owners. Win-Win?

Comments please.

Congress drops $15K tax credit. Maybe $8,000? Does Congress have any idea what they are doing?

All indications are that the $15,000 tax credit contained in the Senate stimulus plan is dead.

Exact details are still to be worked out but Bloomberg reports that the credit may end up at $8,000.

Still unknown is: first time buyers? all home buyers? income limits? no income limits?

Honestly, the more Washington DC goes round and round, the more I believe they do not know WHAT THE HECK they are doing! Medicine is based on the philosophy “to first do no harm” or something like that. Maybe our leaders in Washington DC should heed that idea!

Yes we are in a recession.

Yes people are losing their jobs.

But we have been in recessions before and we survived.

Yes people are losing their homes but none of the programs put forth in my mind have any chance of working. Let the market take care of it. People with poor credit, got sub-prime loans, to buy houses they could not afford with no money down – I do not think these folks can be saved. Let the lender foreclose and TAKE THE LOSS as they should. Let the lender sell the home at a much lower price and then people will be able to ACTUALLY AFFORD the house and a new bottom will be set and the market will recover.

These Washington DC types are running around like chickens with their heads cut off.

Do not mortgage our kids future on some half-baked scheme that probably will not work.

CA Senate Bill 1137 slows down the foreclosure process

A recently passed California law slows down the foreclosure process and installs safeguards to increase the chances that homeowners are notified when a lender wants to start foreclosure proceedings.

This law also offers additional protections to tenants of homes being foreclosed upon and allows local govenrments to fine lenders who do not maintain properties they have foreclosed on.

Here is State of Califonia Government release on SB 1137

Here is a question and answer document on Senate Bill 1137

Here is the actual Senate Bill 1137

There is help out there for homeowners in trouble.

Beware of companies offering to help you for a fee that must be paid up front. 

Free assistance is available.

EPAToday interview with Henrietta June 2008 – Housing Market Update

Here is a clip of an interview I did at EPA Today with Henrietta on the housing market in June 2008.

I will be doing another market update this Thursday February 9.

Representatives from EPA Can Do will also be on the panel and the topic will be the real estate market and what can be done to keep more people in thier homes and out of foreclosure.

EPA Can Do is a non-profit organization that offers legal assistance to East Palo Alto residents.