Local Government and Banks Discuss Short-Sales, Foreclosures and Loan Modifications

The Dulles Area Association of REALTORS® hosted a symposium yesterday with banks and REALTORS® to foster a greater understanding of the mortgage options for troubled homeowners and challenges arising from complicated real property transactions such as short sales. The event was held at George Washington University’s Ashburn campus and featured Congressman Frank Wolf and “top dogs” from HUD, the FHA, Bank of America and the Virginia Mortgage Lenders Association.

I wasn’t sure what to expect of the event because I was afraid politics and “prepared speeches” would get in the way of actually getting things accomplished (or at least discussed openly and honestly). There was a discussion/Q&A session at the end, but not much commenting came from the “top dogs”. And as far as the “advice” given, none of it was anything many of us didn’t already know.

It seems the people near the top of these organizations/companies are out of touch with what’s really going on in real life. Or maybe they do know, but don’t want to admit it or do anything about it.

For example, one agent commented how bank negotiators never return phone calls nor emails regarding the status of a short-sale in process. The response was, “Be patient. We get 180,000 phone calls per day and we don’t have the manpower to support the volume.”

So you want people to sit around for up to 6 months before you bother to get back to them? That’s your advice?! Gee, thanks. I feel much better now

How about this…You received TARP money (aka millions of tax payer dollars) plus you’re saving thousands of dollars by working out a short-sale rather than going the foreclosure route - so hire more (competent) people!

Another example (which I have been fortunate enough NOT to experience) is that the short-sale and foreclosure departments at the same bank don’t communicate with each other. Banks have been known to foreclose on a property in the middle of a short-sale negotiation (with the same bank). It’s 2009 - there are land lines, cell phones, email, IM, text, Twitter, Skype, etc. There is no excuse for such a lack of communication between two departments within the same company.

They defended the new HVCC appraisal guidelines quite a bit even though every agent and most sellers, buyers and those trying to refinance since May 1 have a horror story (or five) to share thanks to the HVCC.

And not too much new was talked about working out a loan modification. Things such as term length increases were number one on the list of possibilities with lowering the interest rate close behind. Either way, you have to prove to the bank that you can’t afford your current (or soon to be adjusted) monthly payment due to some form of hardship.

The point is…there are lots of issues and new problems arising from foreclosures, short-sales and the new appraisal process and not much is being done about it. As a consumer, make sure you’re properly educated and be prepared for hurdles along the way. And if you’re selling your house “short” or buying a foreclosure or short-sale property, make sure you have an experienced agent who knows what they’re doing when it comes to these types of transactions (I may know of one).

Related Articles

A Seller’s Guide to the Short-Sale Process

10 Questions To Ask Before Writing an Offer on a Short-Sale

10 Things to Look Out For With Bank-Owned Property Contracts

Do You Qualify for a Loan Modification?

Second Trusts Are Holding Up, Killing Short-Sales

Imagine this… The first trust (bank who the first/primary mortgage is with) approves their short-sale within 45 to 60 days, but the second trust takes 4, 5, even 6+ months to respond. And when they do, the response is, “Sorry, but we didn’t approve the short-sale” or “Sure, but we want $XX thousand cash from the seller due at settlement.”

And picture this… The first trust finally approved their short-sale 4 months ago. But, since the second trust has not given a response on their short-sale after a total of 6 months, the first trust says “enough waiting around” and forecloses. The contract then becomes void and, after 6 months of waiting around, the buyers are back to square one looking for a place to buy and live.

Pretty crappy, huh?

Unfortunately, these are real life examples happening here often and everywhere. And it’s killing short-sale transactions and frustrating home buyers and sellers everywhere.

The chances of the you actually getting to the settlement table and buying the house are much smaller when there is more than one trust or bank involved as compared to only one trust being involved. And the time it takes to get a response can double (or triple in some cases) when there are two trusts involved.

What’s the solution?

There isn’t one at the moment. But, you can protect yourself and manage your expectations by knowing what you could be getting yourself into. Part of doing that is making sure you ask the right questions including, “How many trusts/creditors are involved in the short-sale?” - before you write an offer on the property. You’ll avoid a lot of disappointment and frustration down the road.

On a related note, the Obama administration is attempting to address this issue by agreeing to share the cost of the loss with second trust/lien holders (aka banks/creditors). We’ll see if that pans out and what effect it will have…

Happy July 4th!

Hope everyone has a great July 4th weekend!

-Danilo

Negative Equity, Not Sub-Prime to Blame; New 125% Refi LTV

Two interesting discussions are going on right now over at VAR buzz (Disclosure: I wrote one of the posts). The first is about the Home Affordable Refinance Program (HARP) increasing their loan-to-value (LTV) limits from 105 to 125 percent. The second is about how it’s negative equity loans, not subprimes or “liar loans” that are to blame for the foreclosure crisis.

HARP’s new 125% LTV ceiling

Regarding HARP’s new LTV ceiling… Some think that HARP is a horrible solution and that the new LTV ceiling will leave homeowners “stuck” in their home. I disagree and here’s why:

If homeowners were allowed to borrow more than what they currently owned, HARP would be horrible solution because it puts people further into debt. But HARP does not allow people to borrow 125% of their home value unless they owe that much already. It is a refinance – not a new purchase nor “cash out.”

“Upside-down” homeowners are already “stuck” in their home whether they refinance or stay in their current mortgage. Their property will still be worth $X, they will still owe $Y on their mortgage and their LTV will still be at 125% whether they refinance through HARP or not.

As Sweth (one of the commenters on the post) said, this is not the Home Affordable Modification program - that’s a different program - nor a neg am loan. This is simply a way to refinance the same amount you currently owe into a fixed rate mortgage at a potentially lower interest rate.

If homeowners were allowed to borrow more than what they currently owned, HARP would be horrible solution because it puts people further into debt. But HARP does not allow people to borrow 125% of their home value unless they owe that much already. It is a refinance – not a new purchase nor “cash out.”

Negative equity loans, not subprimes to blame

The other post is about how it’s negative equity loans, not sub-primes or “liar loans” that are to blame for the foreclosure crisis.

I can see where the author is coming from. Homeowners that took “zero down” or even “103 percent financing” (aka negative equity loans) had no financial stake in the property from the start. Many bought a house with less than $100 out of their own pocket. Heck, some even got money back! If you have no stake in something, you’re much more willing to let it go especially when you’re looking at a 10, 20, 40+ percent “loss” if you sell it.

And as property values fell, people were continuously counting how much money there were “losing” - the more they “lost”, the more willing they were to just walk away and be foreclosed on. If property values didn’t fall as much or were increasing, people would think twice before being foreclosed on because the may “make money on their home.” Primarily only those who were truly facing financial hardship would be foreclosed on because they wouldn’t be able to pay the mortgage regardless.

But this may very well be a, “Which came first, the chicken or the egg?” type of discussion.

What do you think?