I just read and article in my Florida Realtors newsletter about what the architecture of a new house will look like once the market for new builds revives. It is and easy read and I agree with what it predicts.
Here is the most interesting part of the article:
"Andy Chambers has seen the boom and the bust. He’s president of both MasterCraft Builder Group and the Northeast Florida Builders Association. “Are people going to build bigger, higher-cost houses for the most part?” he said. “I think not.”
Rooms that encourage just a single use -- formal living rooms and dining rooms, isolated media rooms --will be the first to go.
“People are just looking more carefully at the space that’s useful,” said Skinner.
In coming years, look for multi-use rooms of flexible design, featuring lots of open space. That central living area is more spacious, tied into a kitchen that’s functional but not over-the-top.
The family area will be focused even more so around the TV screen, which will be even larger, said Skinner: “The TV has taken the spotlight, and people aren’t as ashamed of it as they used to be.”
He also expects kitchens to be more practical than extravagant. And bathrooms? They won’t be the “palaces” of past years. They’ll be nice, sure. But who really needs a palace for a bathroom?
Skinner said there’s plenty of room in the future for modern-looking houses, but he expects something of a return to a more traditional look. “I think there’s this sense of what a home looks like,” he said. “Proportions will become closer to something that looks classically driven; the scale of homes will be more pleasing to the eye. There’s been a lot of movement in the directions of neighborhoods that are more into the Avondale, Riverside, San Marco design.”
For years, people have been envisioning smart “Jetsons”-style houses packed with centralized high-tech systems that will run the whole building. Those predictions were likely overblown, said Chambers, the builders association president. “The high-tech houses, quite honestly, have never taken off, and I think that’s because technology has exceeded the high-tech houses, because of wireless for the most part.”
And the much-ballyhooed green house? People are slowly moving that way, though Leinenweber points out that most green construction methods remain too expensive for widespread use. Better insulation and more efficient windows, however, have come down in price enough to be popular.
Leinenweber said he’s also seeing less reliance on conventional building materials. Instead, there’s more cement composite siding and recycled plastic and PVC trim."
One key issue this article leaves out is the trend toward multi-generation living. Parents and a divorced child with kids of her own sharing Mom's house. Children moving in to care for a parent; a sick and aging parent moving in with a child rather than a nursing home (the parent usually bringing along an income and some nice assets). It's very evident here and, in this Great Recession, very practical. Moranda is selling lots of six bedroom houses in Palm Coast!
Wednesday, July 28, 2010
Tuesday, July 27, 2010
Where homes are affordable in the US
CNNMoney.com published a story about "Residents who live in these 25 growing towns see their incomes go the furthest." Two of the towns are in Florida; Deltona and Deerfield Beach. Neither one offers as good a lifestyle as Palm Coast as was reported in Fortune when we were chosen one of the five top places to retire in the country.
But I did get an interesting perspective on each of the 25 they picked. They gave a little rationale about the area after each selection. You might want to skim through the article and see who was picked and why...meanwhile, I am studying Canopy Walk and all the condos in Palm Coast and have an appointment to help a homeowner do a "For Sale By Owner" in Island Estates, a gated part of Hammock Dunes on the Intracoastal that I think is the finest section of Flagler County...if you have over a million to spend on a home!
Looking for a Real Estate Consultant or Buyers Agent? Talk To Ted!
HERE'S THE LINK:
http://bit.ly/99rPhV
But I did get an interesting perspective on each of the 25 they picked. They gave a little rationale about the area after each selection. You might want to skim through the article and see who was picked and why...meanwhile, I am studying Canopy Walk and all the condos in Palm Coast and have an appointment to help a homeowner do a "For Sale By Owner" in Island Estates, a gated part of Hammock Dunes on the Intracoastal that I think is the finest section of Flagler County...if you have over a million to spend on a home!
Looking for a Real Estate Consultant or Buyers Agent? Talk To Ted!
HERE'S THE LINK:
http://bit.ly/99rPhV
Sunday, July 25, 2010
Today, It’s Almost An ‘Investors Only’ Housing Market-You Got The Cash, You Get the House.
I have written before about how difficult it is for the everyday person to purchase a house at the bargain prices most are selling for today.
Today I read the article below. It confirmed what I told my Broker/Owner cousin in New Jersey who I visited last week. “Bank-Owned” is where it’s at and only investors are savvy enough and willing to take the risks of purchasing a Bank-Owned house and put up with all the crap they give you...’take it or leave it’; ‘Our way or the highway’…and they still get multiple offers because many investors have not yet read “Aftershock” and think the housing market is near bottom. I don’t.
Here is the article. I have highlighted the good parts so you can skim it.
"Hungry for homes, buyers are edged out"
MIAMI – July 23, 2010 – When Joel Flores learned that his girlfriend was pregnant, he decided it was time to get serious about buying his first home. After 12 years of saving up, the 38-year-old computer technician set his eye on South Florida’s depressed foreclosure market, certain he could land a steal.
But like many other middle-income Floridians looking to buy, he found savvy investors were beating him to the punch on foreclosures in the under-$150,000 market he could afford.
As South Florida’s home sales have continued to outpace national trends, distressed properties are still dominating the market, with more than half of all homes and condos sold last month at some stage in the foreclosure process. And cash-happy investors have been scooping up these bargain basement deals at a fast clip, often before middle-income buyers can get financing.
According to figures released Thursday by Florida Realtors, South Florida’s sales of existing homes and condos saw increases in June compared to the same month last year, even as national sales slumped with a post-tax-credit hangover. Miami-Dade sales of single-family homes increased 1 percent to 686, and condo sales jumped 33 percent to 855.
In Broward, single-family home sales were down 2 percent year-over-year to 862 in June, and 1,003 condo sales represented an 8 percent increase for the year.
Year-over-year prices are down nearly across the board, and a deeper look offers up one reason for the ever-falling home values: Most of sales taking place these days involve distressed, discounted properties. Short sales and purchases of bank-owned home accounted for 60 percent of home sales in Miami-Dade last month, and 56 percent of sales in Broward. Nationally, distressed properties have accounted for about 30 percent of sales this year.
With plenty of properties still defaulting – South Florida has had 95,357 foreclosures in the first six months of 2010 – investors from across the country and abroad have decided to come to the rescue, cash in hand, and often to the detriment of people needing a mortgage to buy a primary residence.
“It’s outrageous,” Flores said. “Investors have a pretty good monopoly on it.”
Since foreclosures sell at an average discount of about 25 percent, their dominance of the local real estate market – and the presence of investors negotiating all-cash deals – have put additional downward pressure on average home prices.
Median sales prices for single-family homes in Miami-Dade were $203,300 in June, down about 4 percent from June 2009. That price represents an increase of 3.4 percent from May. For Miami-Dade condos, median sales prices were $128,800 in June, down 9 percent from the same month a year earlier.
In Broward, the median single-family home sold for $209,600 in June, up 2 percent from the year before, but down 3 percent from May. Broward condos saw their median prices slip to $78,600 last month, down 6 percent for the year and 3.5 percent for the month.
Statewide, median home prices were at $143,400 in June, down 3 percent for the year. Florida condo prices found a median at $95,000, down 16 percent for the year.
The low prices and deluge of foreclosure filings have given Miami-based investor Julian Dominguez plenty of properties to choose from as he decides where to invest his money and the funds of clients who have hired him.
Tough deals
Dominguez, president of Foreclosure Investment Systems, said market forces are at play, and while those forces tend to prefer investor cash over the often-uncertain financing of the average buyer, the market may actually be protecting the novices from themselves.
He said he has watched many unprofessional buyers try to take advantage of a foreclosure deal, only to be frustrated by how difficult and unpredictable the process is. Many inexperienced buyers, he said, have had to learn the hard way that along with deep discounts, foreclosures often come with baggage – huge repair bills, complex contracts and other unexpected problems.
“It’s a very dangerous thing to do,” he said of buying foreclosures without having full knowledge of the process. “But it’s a fair competition. Whoever [offers] the most takes it. If you don’t know what you’re doing, you could end up spending a lot of money.”
Flores said the discounted prices – and his girlfriend’s upcoming delivery date – encouraged him to take the plunge into homeownership after more than a decade of preparing for it financially. But each time he tries to pick up a low-priced home, he said, he finds savvy, well-connected investors standing between him and his property of choice. One investor even offered to buy Flores’ property of choice at auction and sell it to him at a 20 percent premium.
Condo-mania
Vanessa D’Souza, a sales associate with Coral-Springs based Exit Team Realty, said the swarm toward Broward County condos has intensified this year.
“We’ve seen a lot more with investor interest,” she said, pointing to Broward County’s off-peak prices as the main draw. “I’d say on average they’re getting between 10 and 12 percent return.”
While some investors, like Dominguez, aim for a quick flip, the Broward buyers D’Souza has worked with are using acquisitions to generate rental income.
In Miami-Dade, investor interest has sparked bidding wars in the under-$100,000 market, an analysis from Esslinger-Wooten-Maxwell Realtors shows. Single-family homes selling at five-figure prices account for 20 percent of all sales and spend an average of 67 days on the market, down from 98 days last year and less time than any other price bracket. Short sales are up astronomically, with 562 single-family short sales in the second quarter of 2010, compared to just 10 in the same period last year.
The average short sale is purchased after about five months on the market, down from about 10 months a year ago. Bank-owned properties are being scooped up after an average of 37 days on the market, compared with 77 a year ago.
Flores, who has about seven months until his first child is born, said he plans to continue his search for a high-quality, low-cost foreclosure deal.
“I’m going to keep trying,” he said. “But from what I see my chances of getting a foreclosure deal are pretty low.”
Copyright © 2010 The Miami Herald, Toluse Olorunnipa. Distributed by McClatchy-Tribune Information Services.
Today I read the article below. It confirmed what I told my Broker/Owner cousin in New Jersey who I visited last week. “Bank-Owned” is where it’s at and only investors are savvy enough and willing to take the risks of purchasing a Bank-Owned house and put up with all the crap they give you...’take it or leave it’; ‘Our way or the highway’…and they still get multiple offers because many investors have not yet read “Aftershock” and think the housing market is near bottom. I don’t.
Here is the article. I have highlighted the good parts so you can skim it.
"Hungry for homes, buyers are edged out"
MIAMI – July 23, 2010 – When Joel Flores learned that his girlfriend was pregnant, he decided it was time to get serious about buying his first home. After 12 years of saving up, the 38-year-old computer technician set his eye on South Florida’s depressed foreclosure market, certain he could land a steal.
But like many other middle-income Floridians looking to buy, he found savvy investors were beating him to the punch on foreclosures in the under-$150,000 market he could afford.
As South Florida’s home sales have continued to outpace national trends, distressed properties are still dominating the market, with more than half of all homes and condos sold last month at some stage in the foreclosure process. And cash-happy investors have been scooping up these bargain basement deals at a fast clip, often before middle-income buyers can get financing.
According to figures released Thursday by Florida Realtors, South Florida’s sales of existing homes and condos saw increases in June compared to the same month last year, even as national sales slumped with a post-tax-credit hangover. Miami-Dade sales of single-family homes increased 1 percent to 686, and condo sales jumped 33 percent to 855.
In Broward, single-family home sales were down 2 percent year-over-year to 862 in June, and 1,003 condo sales represented an 8 percent increase for the year.
Year-over-year prices are down nearly across the board, and a deeper look offers up one reason for the ever-falling home values: Most of sales taking place these days involve distressed, discounted properties. Short sales and purchases of bank-owned home accounted for 60 percent of home sales in Miami-Dade last month, and 56 percent of sales in Broward. Nationally, distressed properties have accounted for about 30 percent of sales this year.
With plenty of properties still defaulting – South Florida has had 95,357 foreclosures in the first six months of 2010 – investors from across the country and abroad have decided to come to the rescue, cash in hand, and often to the detriment of people needing a mortgage to buy a primary residence.
“It’s outrageous,” Flores said. “Investors have a pretty good monopoly on it.”
Since foreclosures sell at an average discount of about 25 percent, their dominance of the local real estate market – and the presence of investors negotiating all-cash deals – have put additional downward pressure on average home prices.
Median sales prices for single-family homes in Miami-Dade were $203,300 in June, down about 4 percent from June 2009. That price represents an increase of 3.4 percent from May. For Miami-Dade condos, median sales prices were $128,800 in June, down 9 percent from the same month a year earlier.
In Broward, the median single-family home sold for $209,600 in June, up 2 percent from the year before, but down 3 percent from May. Broward condos saw their median prices slip to $78,600 last month, down 6 percent for the year and 3.5 percent for the month.
Statewide, median home prices were at $143,400 in June, down 3 percent for the year. Florida condo prices found a median at $95,000, down 16 percent for the year.
The low prices and deluge of foreclosure filings have given Miami-based investor Julian Dominguez plenty of properties to choose from as he decides where to invest his money and the funds of clients who have hired him.
Tough deals
Dominguez, president of Foreclosure Investment Systems, said market forces are at play, and while those forces tend to prefer investor cash over the often-uncertain financing of the average buyer, the market may actually be protecting the novices from themselves.
He said he has watched many unprofessional buyers try to take advantage of a foreclosure deal, only to be frustrated by how difficult and unpredictable the process is. Many inexperienced buyers, he said, have had to learn the hard way that along with deep discounts, foreclosures often come with baggage – huge repair bills, complex contracts and other unexpected problems.
“It’s a very dangerous thing to do,” he said of buying foreclosures without having full knowledge of the process. “But it’s a fair competition. Whoever [offers] the most takes it. If you don’t know what you’re doing, you could end up spending a lot of money.”
Flores said the discounted prices – and his girlfriend’s upcoming delivery date – encouraged him to take the plunge into homeownership after more than a decade of preparing for it financially. But each time he tries to pick up a low-priced home, he said, he finds savvy, well-connected investors standing between him and his property of choice. One investor even offered to buy Flores’ property of choice at auction and sell it to him at a 20 percent premium.
Condo-mania
Vanessa D’Souza, a sales associate with Coral-Springs based Exit Team Realty, said the swarm toward Broward County condos has intensified this year.
“We’ve seen a lot more with investor interest,” she said, pointing to Broward County’s off-peak prices as the main draw. “I’d say on average they’re getting between 10 and 12 percent return.”
While some investors, like Dominguez, aim for a quick flip, the Broward buyers D’Souza has worked with are using acquisitions to generate rental income.
In Miami-Dade, investor interest has sparked bidding wars in the under-$100,000 market, an analysis from Esslinger-Wooten-Maxwell Realtors shows. Single-family homes selling at five-figure prices account for 20 percent of all sales and spend an average of 67 days on the market, down from 98 days last year and less time than any other price bracket. Short sales are up astronomically, with 562 single-family short sales in the second quarter of 2010, compared to just 10 in the same period last year.
The average short sale is purchased after about five months on the market, down from about 10 months a year ago. Bank-owned properties are being scooped up after an average of 37 days on the market, compared with 77 a year ago.
Flores, who has about seven months until his first child is born, said he plans to continue his search for a high-quality, low-cost foreclosure deal.
“I’m going to keep trying,” he said. “But from what I see my chances of getting a foreclosure deal are pretty low.”
Copyright © 2010 The Miami Herald, Toluse Olorunnipa. Distributed by McClatchy-Tribune Information Services.
Wednesday, July 14, 2010
The Rules Are About To Change for Bank Loans
Knowing which real estate agent's suggested price to use to sell your home has always been a challenge. Did the agent price the home too high to show she could get the best price for the home and thereby get chosen to list the property? Did the Realtor price the home too low to insure it would be sold very quickly with little expense or effort?
Just how good is that "Comparable Market Analysis" anyway?
Well, banks need to sell loans to FANNIE MAE and FREDDIE MAC and they generally use their rules when making a loan to a borrower. And you house is probably going to sell for the amount the bank will loan on it based on the price the bank's appraiser puts on it plus the minimum down payment percentage they require. I think "Overpriced Turkey" listings will disappear from the marketplace.
Check out info from this article about accurate bank appraisals just sent out to Realtors:
"...Recognizing a problem, Fannie Mae instituted a new rule that becomes effective on Sept. 1. "...Fannie Mae told its participating lenders that they must contact the appraiser to resolve disagreement" (about whether they agree the bank's appraisal is accurate). "If that fails, banks must order a second appraisal."
As a Buyers Agent, I have been suggesting to all my customers that they have me get them an appraisal from a bank-certified appraiser to use when making their offer to purchase a property. When advising someone who is listing their property, I suggest the same thing.
Also, some real estate agents doing BPA's are being pressured to give high priced, BPA's or "Broker Price Opinions" to qualify Short Sale offers. These price estimates are very similar to the "Comparable Market Analysis" agents use for listing presentations to suggest "Market Value". Agent BPA's are much cheaper than Fee-Paid Appraisals from professional appraisers and are used to get short sale offers approved by cooperating banks. I think these BPA's are now less likely to be affected by what the homeowner wants to have the BPA come in at.
All told, the new regulation will probably do two things; tend to lower amount banks will loan so they will be sure Fannie and Freddie will back them; and provide more uniformity to house pricing so comparable houses for sale will tend more to be listed at about the same prices.
You can read the full article at
http://www.floridarealtors.org/NewsAndEvents/article.cfm?id=243247
Looking to buy a condo or a house in Palm Coast?
Talk To Ted !
Broker Associate, Sunburst Realty Group Inc.
386-503-1101
Just how good is that "Comparable Market Analysis" anyway?
Well, banks need to sell loans to FANNIE MAE and FREDDIE MAC and they generally use their rules when making a loan to a borrower. And you house is probably going to sell for the amount the bank will loan on it based on the price the bank's appraiser puts on it plus the minimum down payment percentage they require. I think "Overpriced Turkey" listings will disappear from the marketplace.
Check out info from this article about accurate bank appraisals just sent out to Realtors:
"...Recognizing a problem, Fannie Mae instituted a new rule that becomes effective on Sept. 1. "...Fannie Mae told its participating lenders that they must contact the appraiser to resolve disagreement" (about whether they agree the bank's appraisal is accurate). "If that fails, banks must order a second appraisal."
As a Buyers Agent, I have been suggesting to all my customers that they have me get them an appraisal from a bank-certified appraiser to use when making their offer to purchase a property. When advising someone who is listing their property, I suggest the same thing.
Also, some real estate agents doing BPA's are being pressured to give high priced, BPA's or "Broker Price Opinions" to qualify Short Sale offers. These price estimates are very similar to the "Comparable Market Analysis" agents use for listing presentations to suggest "Market Value". Agent BPA's are much cheaper than Fee-Paid Appraisals from professional appraisers and are used to get short sale offers approved by cooperating banks. I think these BPA's are now less likely to be affected by what the homeowner wants to have the BPA come in at.
All told, the new regulation will probably do two things; tend to lower amount banks will loan so they will be sure Fannie and Freddie will back them; and provide more uniformity to house pricing so comparable houses for sale will tend more to be listed at about the same prices.
You can read the full article at
http://www.floridarealtors.org/NewsAndEvents/article.cfm?id=243247
Looking to buy a condo or a house in Palm Coast?
Talk To Ted !
Broker Associate, Sunburst Realty Group Inc.
386-503-1101
Monday, July 12, 2010
Caught between devalued homes and job loss? Will Congress step in?
I just read this article in the latest edition of The Christian Science Monitor. It gives the clearest and most up-to-date info on what is happening with foreclosure legislation.
I have taken the liberty of putting in bold copy that I think constitutes the meat of the article so you can skim this blog if you like. To see the whole article from its source you can go to the link provided below.
By Alissa Figueroa, Contributor to The Christian Science Monitor / July 12, 2010 Boston http://bit.ly/aATPRt
For almost a quarter century, Cynthia Johnson, a Boston homeowner, has paid the mortgage on her three-bedroom single-family house on time. But in July, for the first time, she'll miss a payment.
"I'm on [the bank's] doorstep at this point, saying, 'The savings are gone. I can't pay you as promised,' " she said.
Unless something changes, Ms. Johnson (not her real name) is set to join the nearly 2.4 million Americans with prime loans seriously delinquent on their mortgages. They are the new face of the housing crisis. Unlike subprime borrowers, most of these homeowners did everything right. They bought houses they could afford and used standard mortgages. But falling home prices and a protracted recession have pushed them into a classic squeeze: They can't keep up their mortgage payments because someone in the household has lost his or her job. They can't sell because they owe more than the home is worth.
"In the next 12 months it's going to be tragic – most people are just starting to fall behind now," said Avi Liss, a lawyer helping homeowners avoid foreclosure in the Boston area. According to the Center for Responsible Lending, a nonprofit research and policy group, as many as 9 million homeowners could go into foreclosure between 2009 and 2012.
Is there a solution? Yes, but it's controversial. Congress would have to force banks to write off part of homeowners' troubled loans as a way to keep them in their homes.
There are plenty of reasons to avoid this course. Chief among them is the moral hazard. If banks write down one homeowner's loans because of hardship, what's to keep other homeowners from claiming hardship, too? And the losses don't accrue to some faceless bank; they add up for individual shareholders and pension funds that have money tied up in mortgage loans.
"In a way, reducing principal is like rewarding [homeowners] for backing out of an obligation," said Stan Longhofer, director of the Center for Real Estate at Wichita State University in Wichita, Kan.
But the current program isn't working either, critics say. And the debt write-down happens anyway, whether a homeowner goes through foreclosure or the house is relinquished in a short sale. So isn't it better, they ask, for the bank to take its losses early and keep the owner in his home?
Foreclosed on, but kept his home
Osazee Egharevba, a Nigerian immigrant who came to the Boston area in 2000 after his wife passed away, worked two jobs and saved enough to bring over his five children in 2006. That same year he purchased a two-family home. He could afford the $3,950 monthly payments by renting out the first floor.
Then Mr. Egharevba lost one job, and the extra $800 a week it brought in, and started missing payments. Deeply "underwater" on the $510,000 property (owing more than it was worth), he was foreclosed on this past winter, after five failed attempts at attaining a loan modification.
"My children were going to be on the street because there was no way, there was no home," he said.
But he stayed in the house. In April 2010, a nonprofit called Boston Community Capital was able to buy the home and sell it back to him for $296,000 – the home's current value. His monthly payment has fallen to a manageable $2,300. Egharevba doesn't get off scot-free. He is bound to share with BCC any profit he makes when he sells the property.
"There's no incentive for someone to do this to make money," says Patricia Hanratty, who runs the loan program at BCC. "This is for people who desperately want to save their homes."
In the year that the program's been running, almost 70 homes have been either sold back or rented to foreclosed homeowners. None have redefaulted. When the group buys a foreclosed property, it routinely asks the selling bank if it wants to participate in the shared equity deal. Every one has declined the offer.
"They said it was too complicated; it wasn't something they were used to doing, they didn't want to get involved in it," said Ms. Hanratty. "Maybe that will turn, that will change in time."
A lesson from the farm?
There is a precedent for widespread principal reduction on property loans. During the farm crisis of the 1980s, young farmers who had bought farmland at inflated prices suddenly saw crop prices plunge and, soon after, land prices fall as well. It was a debt squeeze not unlike today's crisis for underwater homeowners who have lost their job. Seeing the unfolding rural disaster, Congress created a new chapter in the bankruptcy code. It allowed bankruptcy judges to modify loans, including partial debt write-downs, so family farmers could stay on their farm.
"People who will pull themselves out of trouble and be good credit risks again, those are the people who merit this kind of intervention and who will also help stabilize the markets," said Neil Harl, an agricultural economist at Iowa State University who helped write the bankruptcy language.
In 2008, Sen. Harry Reid (D) of Nevada introduced a similar bill for the housing crisis. But the measure languished, in large part because, at the time, subprime borrowers were in the eye of the storm and many of them had stretched to buy homes they really could not afford. Will the new foreclosure wave of prime borrowers change the political calculus? Professor Harl isnt’t optimistic.
"Unfortunately, people in Congress listen to [lobbyists]" said Harl. "They tend to drown out those that don't have as much money."
Instead, homeowners facing foreclosure can try to get their loan modified through the administration's Home Affordable Modification Program, or HAMP. Typically, the bank servicing the loan tries to make monthly mortgage payments affordable by extending the mortgage to a 40-year loan and reducing the interest rate. One year into the program, however, only about 300,000 of an estimated 4 million eligible homeowners have received permanent loan modifications.
Why modification requests get denied
That's partly because loan servicers were unprepared for the massive influx of loan modification requests. It's also because a loan modification is difficult to qualify for. This is particularly true for owners with big mortgages whose income has decreased, like Cynthia Johnson.
Her spiral toward foreclosure began with a divorce in 2006, which halved her $160,000 a year household income. She took equity out of her home to buy her husband out of the mortgage. When she was forced to take a $22,000 pay cut, her $2,000 monthly mortgage payments became impossible to manage.
She's gone through about $14,000 in savings to keep paying her mortgage – which now eats up more than 40 percent of her paycheck. Still, she's about $60,000 underwater and, because of that, she can't refinance again or borrow off the equity on her home. Johnson appealed to her loan servicer to adjust her monthly payments, but because she is not yet in arrears, her request was denied.
Lenders test to determine whether it is more beneficial for the investor to modify the loan and get a lower monthly payment or foreclose on the home.
"In many cases where the person's income has dropped substantially, they decide it's better to foreclose," explained Ms. Cohen.the home.
For homeowners who do qualify for a modification, few are offered principal reductions. Because less than 30 percent of the mortgages modified so far (about 98,000) included any reduction in the loan amount, many homeowners with modifications remain underwater. Some blame continued negative equity for HAMP's high redefault rate – about half of the loans modified through the program go into default.
The Treasury Department has taken sweeping steps to address problems with the program. In late March it announced a new initiative for unemployed homeowners – starting this month they will be given a three-month forbearance period before applying for a loan modification.
Underwater homeowners current on their loans will also be able to apply for refinancing from the Federal Housing Administration. This is the first time that modifications for people not yet in arrears will be performed as part of the program.
Perhaps most significantly, HAMP will now incorporate principal reduction into the refinancing process. Servicers will be required to consider the advantages of reducing principal to match the current value of the home. As an incentive, banks that reduce principal on loans will also get a fee based on how much debt was forgiven, and how deeply underwater the modified loan was beforehand.
The changes to HAMP have been hailed by housing and consumer lending advocates as a move in the right direction. But some insist that Treasury's reluctance to make one key change could significantly limit the revamped program's reach: principal reductions remain voluntary for banks.
As long as servicers can opt out of reducing principal, they will, say housing advocates – even when the only other options are a foreclosure or a short sale, which ultimately results in the property being devalued to the current market price.
"The way loan servicers get paid is that they earn a percentage of the principal balance of their book of business," said Julia Gordon, a Washington-based senior policy counsel for the Center for Responsible Lending. So when the dollar value of the principal outstanding on a mortgage is reduced, so are the bank's fees, she added. "You can see right there why the servicer doesn't want to write down principal."
Balancing risks
Mortgage bankers, though, insist that that argument is misguided. "The servicer would find some very minimal reduction [in fees] if a principal reduction is made," said Jay Brinkman, chief economist for the Mortgage Bankers Association. "But they're not the one making that decision – they make the recommendations, but the principal reduction has to be made by the investor."
Ultimately, the issue boils down to balancing risks: the possibility that banks are pushing too many people into foreclosure versus the danger that banks' leniency will encourage more homeowners to default so they can get their mortgage principal reduced.
There are effective ways to modify loans (like reducing interest) that won't encourage such defaults, Mr. Brinkman says. "While [principal reduction] might improve things for one borrower, will it help the economy if 10 more homeowners default and ask for a reduction?"
I have taken the liberty of putting in bold copy that I think constitutes the meat of the article so you can skim this blog if you like. To see the whole article from its source you can go to the link provided below.
By Alissa Figueroa, Contributor to The Christian Science Monitor / July 12, 2010 Boston http://bit.ly/aATPRt
For almost a quarter century, Cynthia Johnson, a Boston homeowner, has paid the mortgage on her three-bedroom single-family house on time. But in July, for the first time, she'll miss a payment.
"I'm on [the bank's] doorstep at this point, saying, 'The savings are gone. I can't pay you as promised,' " she said.
Unless something changes, Ms. Johnson (not her real name) is set to join the nearly 2.4 million Americans with prime loans seriously delinquent on their mortgages. They are the new face of the housing crisis. Unlike subprime borrowers, most of these homeowners did everything right. They bought houses they could afford and used standard mortgages. But falling home prices and a protracted recession have pushed them into a classic squeeze: They can't keep up their mortgage payments because someone in the household has lost his or her job. They can't sell because they owe more than the home is worth.
"In the next 12 months it's going to be tragic – most people are just starting to fall behind now," said Avi Liss, a lawyer helping homeowners avoid foreclosure in the Boston area. According to the Center for Responsible Lending, a nonprofit research and policy group, as many as 9 million homeowners could go into foreclosure between 2009 and 2012.
Is there a solution? Yes, but it's controversial. Congress would have to force banks to write off part of homeowners' troubled loans as a way to keep them in their homes.
There are plenty of reasons to avoid this course. Chief among them is the moral hazard. If banks write down one homeowner's loans because of hardship, what's to keep other homeowners from claiming hardship, too? And the losses don't accrue to some faceless bank; they add up for individual shareholders and pension funds that have money tied up in mortgage loans.
"In a way, reducing principal is like rewarding [homeowners] for backing out of an obligation," said Stan Longhofer, director of the Center for Real Estate at Wichita State University in Wichita, Kan.
But the current program isn't working either, critics say. And the debt write-down happens anyway, whether a homeowner goes through foreclosure or the house is relinquished in a short sale. So isn't it better, they ask, for the bank to take its losses early and keep the owner in his home?
Foreclosed on, but kept his home
Osazee Egharevba, a Nigerian immigrant who came to the Boston area in 2000 after his wife passed away, worked two jobs and saved enough to bring over his five children in 2006. That same year he purchased a two-family home. He could afford the $3,950 monthly payments by renting out the first floor.
Then Mr. Egharevba lost one job, and the extra $800 a week it brought in, and started missing payments. Deeply "underwater" on the $510,000 property (owing more than it was worth), he was foreclosed on this past winter, after five failed attempts at attaining a loan modification.
"My children were going to be on the street because there was no way, there was no home," he said.
But he stayed in the house. In April 2010, a nonprofit called Boston Community Capital was able to buy the home and sell it back to him for $296,000 – the home's current value. His monthly payment has fallen to a manageable $2,300. Egharevba doesn't get off scot-free. He is bound to share with BCC any profit he makes when he sells the property.
"There's no incentive for someone to do this to make money," says Patricia Hanratty, who runs the loan program at BCC. "This is for people who desperately want to save their homes."
In the year that the program's been running, almost 70 homes have been either sold back or rented to foreclosed homeowners. None have redefaulted. When the group buys a foreclosed property, it routinely asks the selling bank if it wants to participate in the shared equity deal. Every one has declined the offer.
"They said it was too complicated; it wasn't something they were used to doing, they didn't want to get involved in it," said Ms. Hanratty. "Maybe that will turn, that will change in time."
A lesson from the farm?
There is a precedent for widespread principal reduction on property loans. During the farm crisis of the 1980s, young farmers who had bought farmland at inflated prices suddenly saw crop prices plunge and, soon after, land prices fall as well. It was a debt squeeze not unlike today's crisis for underwater homeowners who have lost their job. Seeing the unfolding rural disaster, Congress created a new chapter in the bankruptcy code. It allowed bankruptcy judges to modify loans, including partial debt write-downs, so family farmers could stay on their farm.
"People who will pull themselves out of trouble and be good credit risks again, those are the people who merit this kind of intervention and who will also help stabilize the markets," said Neil Harl, an agricultural economist at Iowa State University who helped write the bankruptcy language.
In 2008, Sen. Harry Reid (D) of Nevada introduced a similar bill for the housing crisis. But the measure languished, in large part because, at the time, subprime borrowers were in the eye of the storm and many of them had stretched to buy homes they really could not afford. Will the new foreclosure wave of prime borrowers change the political calculus? Professor Harl isnt’t optimistic.
"Unfortunately, people in Congress listen to [lobbyists]" said Harl. "They tend to drown out those that don't have as much money."
Instead, homeowners facing foreclosure can try to get their loan modified through the administration's Home Affordable Modification Program, or HAMP. Typically, the bank servicing the loan tries to make monthly mortgage payments affordable by extending the mortgage to a 40-year loan and reducing the interest rate. One year into the program, however, only about 300,000 of an estimated 4 million eligible homeowners have received permanent loan modifications.
Why modification requests get denied
That's partly because loan servicers were unprepared for the massive influx of loan modification requests. It's also because a loan modification is difficult to qualify for. This is particularly true for owners with big mortgages whose income has decreased, like Cynthia Johnson.
Her spiral toward foreclosure began with a divorce in 2006, which halved her $160,000 a year household income. She took equity out of her home to buy her husband out of the mortgage. When she was forced to take a $22,000 pay cut, her $2,000 monthly mortgage payments became impossible to manage.
She's gone through about $14,000 in savings to keep paying her mortgage – which now eats up more than 40 percent of her paycheck. Still, she's about $60,000 underwater and, because of that, she can't refinance again or borrow off the equity on her home. Johnson appealed to her loan servicer to adjust her monthly payments, but because she is not yet in arrears, her request was denied.
Lenders test to determine whether it is more beneficial for the investor to modify the loan and get a lower monthly payment or foreclose on the home.
"In many cases where the person's income has dropped substantially, they decide it's better to foreclose," explained Ms. Cohen.the home.
For homeowners who do qualify for a modification, few are offered principal reductions. Because less than 30 percent of the mortgages modified so far (about 98,000) included any reduction in the loan amount, many homeowners with modifications remain underwater. Some blame continued negative equity for HAMP's high redefault rate – about half of the loans modified through the program go into default.
The Treasury Department has taken sweeping steps to address problems with the program. In late March it announced a new initiative for unemployed homeowners – starting this month they will be given a three-month forbearance period before applying for a loan modification.
Underwater homeowners current on their loans will also be able to apply for refinancing from the Federal Housing Administration. This is the first time that modifications for people not yet in arrears will be performed as part of the program.
Perhaps most significantly, HAMP will now incorporate principal reduction into the refinancing process. Servicers will be required to consider the advantages of reducing principal to match the current value of the home. As an incentive, banks that reduce principal on loans will also get a fee based on how much debt was forgiven, and how deeply underwater the modified loan was beforehand.
The changes to HAMP have been hailed by housing and consumer lending advocates as a move in the right direction. But some insist that Treasury's reluctance to make one key change could significantly limit the revamped program's reach: principal reductions remain voluntary for banks.
As long as servicers can opt out of reducing principal, they will, say housing advocates – even when the only other options are a foreclosure or a short sale, which ultimately results in the property being devalued to the current market price.
"The way loan servicers get paid is that they earn a percentage of the principal balance of their book of business," said Julia Gordon, a Washington-based senior policy counsel for the Center for Responsible Lending. So when the dollar value of the principal outstanding on a mortgage is reduced, so are the bank's fees, she added. "You can see right there why the servicer doesn't want to write down principal."
Balancing risks
Mortgage bankers, though, insist that that argument is misguided. "The servicer would find some very minimal reduction [in fees] if a principal reduction is made," said Jay Brinkman, chief economist for the Mortgage Bankers Association. "But they're not the one making that decision – they make the recommendations, but the principal reduction has to be made by the investor."
Ultimately, the issue boils down to balancing risks: the possibility that banks are pushing too many people into foreclosure versus the danger that banks' leniency will encourage more homeowners to default so they can get their mortgage principal reduced.
There are effective ways to modify loans (like reducing interest) that won't encourage such defaults, Mr. Brinkman says. "While [principal reduction] might improve things for one borrower, will it help the economy if 10 more homeowners default and ask for a reduction?"
Should Children Learn About Condos in Kindergarten?
Well if their parents are looking for one in Palm Coast, Florida they should learn about the Canopy Walk Condominiums. This, in my estimation, is one of the most desirable family oriented condominium complexes in our area with its child friendly swimming pool and water playground and its Tree House Playground. For older kids it has play lawns, a sand volleyball court, and a basketball court.
Got a boat? It has boat slips with lifts and a gazebo on the Intracoastal Waterway for fishing, or dolphin watching; a Sandy beach for launching canoes or kayaks; a seven-mile nature trail and stocked fishing lakes!
I am a Buyer’s Agent. There are great buys available in this condo complex. It has a very solvent Homeowners’ Association. Its Marina is only available to occupants and it, too, is very solvent. May Management Services manage the complex and they are about the best.
There are foreclosures, short-sales, for-sale-by-owners and MLS listed properties in Canopy Walk. Priced from below $200,000, I would love to hunt one up for a well qualified prospective buyer.
A group of local realtors with listings in the complex and headed up by Branka Damaini, Broker Associate with Palm Coast Real Estate worked with May Management and the Homeowners Association to organize a well-run Real Estate Open House that is held the first Sunday of each month. I visited the Open House for a couple hours yesterday and chatted with some of the real estate agents. My conversations confirmed this would be a very good place to buy a condominium on the Intracoastal.
The Homeowners Association allows you to rent your condo for a day, a week, a month, or a year…take your choice. You can see and read more about it at www.canopywalkca.com. Any interest in renting or buying a condo in Palm Coast? Condominiums are one of my specialties, so TALK TO TED! 386-503-1101 or tedleshersr@gmail.com
Got a boat? It has boat slips with lifts and a gazebo on the Intracoastal Waterway for fishing, or dolphin watching; a Sandy beach for launching canoes or kayaks; a seven-mile nature trail and stocked fishing lakes!
I am a Buyer’s Agent. There are great buys available in this condo complex. It has a very solvent Homeowners’ Association. Its Marina is only available to occupants and it, too, is very solvent. May Management Services manage the complex and they are about the best.
There are foreclosures, short-sales, for-sale-by-owners and MLS listed properties in Canopy Walk. Priced from below $200,000, I would love to hunt one up for a well qualified prospective buyer.
A group of local realtors with listings in the complex and headed up by Branka Damaini, Broker Associate with Palm Coast Real Estate worked with May Management and the Homeowners Association to organize a well-run Real Estate Open House that is held the first Sunday of each month. I visited the Open House for a couple hours yesterday and chatted with some of the real estate agents. My conversations confirmed this would be a very good place to buy a condominium on the Intracoastal.
The Homeowners Association allows you to rent your condo for a day, a week, a month, or a year…take your choice. You can see and read more about it at www.canopywalkca.com. Any interest in renting or buying a condo in Palm Coast? Condominiums are one of my specialties, so TALK TO TED! 386-503-1101 or tedleshersr@gmail.com
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