The number of Loudoun County short-sale and foreclosure/bank-owned properties for sale has decreased significantly over the past few years. This is an important fact because it speaks to the health of the overall real estate market in Loudoun County. As you may know, the less the number and percentage of short-sale and foreclosure/bank-owned properties for sale, the better the real estate market typically is in general.
So here are the numbers…
- The number of new short-sales listings in Loudoun County went down by 42% from 2009 to 2011
- The number of foreclosure/bank-owned properties in Loudoun County went down by 53% during the same time.
And here it is broken down by year…
- Short-sales made up 19.2% of all properties listed for sale in Loudoun County
- Foreclosure/bank-owned properties made up 9.6% of all properties listed for sale in Loudoun County
- Short-sales made up 14.6% of all properties listed for sale in Loudoun County
- Foreclosure/bank-owned properties made up 6.3% off all properties listed for sale in Loudoun County
- Short-sales made up 11.1% of all properties listed for sale in Loudoun County
- Foreclosure/bank-owned properties made up 4.5% of all properties listed for sale in Loudoun County
These are refreshing numbers to see after the chaos of a market we’ve had in the latter part of the last decade. These numbers and trends along with other local real estate market statistics and “street reports” backs-up the sentiment that the worst is behind us and that the local market has and is continuing to improve.
The Treasury Department released a 43-page document in November 2009 that outlines a proposal for streamlining short-sales across the banking industry. It’s supposed to go into effect April 5, 2010. This document is being talked about as if it were the answer to all of America’s short-sale problems. The National Association of REALTORS(R) has been celebrating since the announcement and REALTORS(R) all over are being trained that this document will solve all of our problems and that the banks will be so much more pleasant to deal with.
Well, that sounds all nice and dandy…but is it more hype than help?
Rather than me breaking down and analyzing the document and its true effect on short-sales and the real estate market, I’m going to point you over to a series of excellent blog posts on this topic that have already been written by a fellow REALTOR(R) and friend of mine.
As Sarah Stelmok puts it so eloquently,
REALTORS(R) all over are being trained that this document will be the savior of the real estate market and that the banks are going to start playing nice, and rainbows and kittens will fall from the sky, and we will all reap riches from the bounty of this document. I hate to be a Debbie-Downer, but when’s the last time our government proposed guidelines that were actually effective when it came to the banking industry. Ahhhh, that’s right, after the S&L scandals. Didn’t that take years to recover from? Well, it will take years to recover from predatory lending and a pretty little 43-page document can not fix 7 years of bad lending decisions.
So, let’s dissect the document so that a layman can understand what it says…
Sarah’s three-part series on this topic is excellent and funny and you should definitely take the time to check it out whether you’re a home owner considering a short-sale or a REALTOR(R) (if you’re a home owner considering a short-sale, click here to contact me so we can discuss your specific situation and options).
- Part One - Proposed Short-Sale Guidelines (HAFA)
- Part Two - Proposed Short-Sale Guidelines (HAFA)
- Part Three - Proposed Short-Sale Guidelines (HAFA)
If you would like more information about the proposed guidelines or are thinking about doing a short-sale yourself and are located in Northern Virginia, click here to email me or call me on my cell - 703.582.6900. If you’re located in the Fredericksburg, VA area, click here to contact Sarah Stelmok, REALTOR(R), Coldwell Banker Elite.
P.S. If you can name the most popular person in the group pictured in the photo at the top of this post and the year the song came out, you get a prize!
Many of you have gotten excited about the FHA “waiving” their 90-day “Anti-Flipping” rule beginning February 1, 2010. But hold on a second because that’s not what really happened.
In case you don’t know, the FHA “Anti-Flipping” rule prevents you - the ready, willing, able and honest home buyer - from buying a perfectly good and renovated home that was last bought within the last 90 days (bank-owned properties do not fall into this category). It has also prevented investors who have bought, renovated and flipped a property within the last 90 days from being able to sell it to home buyers that are using FHA financing.
Sounds a lot like a “lose-lose” situation, doesn’t it? That’s because it is.
Well, the FHA has realized that it’s hurting home buyers and has made some changes to their “Anti-Flipping” rule. No - they have not canceled, repealed, gotten rid of or any such permanent thing when it comes to the rule. They have simply made some temporary small changes to the rule which allow for a small window of breathing room. But it’s ain’t much of a window.
Here are the highlights of the changes to the FHA “Anti-Flipping” rule…
The exception to the FHA 90-day “Anti-Flipping” rule is only for properties that do not have a 12 month history of flipping. The properties must have all the renovation and rehab closely documented. And the increase in sales price must be less than 20 in order for the property to qualify. If the sales price is 20 percent or more, a full home inspection and 2nd appraisal must be conducted.
And here’s the kicker…
Banks and financial institutions must adopt this exception before you, the home buyer or investor, can take advantage of it. So far, I have yet to hear of any bank or financial institution adopting it. And even if they do, they may add their own extra rules to the exception on top of the FHA’s so who knows what the final “exception” to the rule will be - if there’s one at all.
Sorry to burst your bubble folks, but better you know the real truth now rather than finding it out the hard way later.
If you have specific questions or concerns as a home buyer or investor, email or call me - 703.582.6900.
You can also read the HUD announcement and get further details regarding the changes by checking out the document below (click here if you don’t see the HUD press release regarding changes to the FHA 90-day “Anti-Flipping” rule below)…
This article about loan modifications was passed along to me by Morgan Brown from Blown Mortgage. It’s a must read if you’re thinking about asking for a loan modification from your bank/lender.
Loan Modification Math
Too many people considering whether loan modifications are right for them or not don’t know where to start. They have no idea how to tell if they have a chance to qualify or not. With the changing laws and programs for loan modifications you certainly can’t be blamed if you’re not exactly sure if you qualify for a loan modification. In this post we’re going to give you some general guidelines on what you’ll need in order to qualify for a loan modification for your home.
Please note: these are general guidelines. Each bank has its own requirements and each situation, including yours, is unique. Contact your bank for exact requirements for loan modifications for your situation.
How do I know if I qualify for a loan modification?
The bank is trying to ascertain, once they go through the hassle of getting your loan modified, how likely it is that you’ll go delinquent on your mortgage once again. Redefault rate is a hot topic right now for good reason. The government, the banks and investors are all taking a risk in that by putting money up for loan modifications they’re hoping the foreclosure tide is stemmed. Therefore, banks want to know that when they make a modification it will stick.
This is the key step in determining whether you’ll be able to qualify for a loan modification or not. Can you stay current once your loan is modified? That’s the question – and for the banks, it’s all in the math.
So how can I figure out the math behind qualifying for a loan modification?
If you remember when you bought your home, you went through a qualification process. At one point in the process you were asked for a copy of your credit report, your income documentation and copies of any major debts that you had not listed on your credit report. The person processing your home loan calculated what is known as a debt to income ratio or DTI. This ratio determines how much of your gross monthly income (dollar amount before taxes) is consumed by your house payment and your other monthly obligations like cars, credit cards, student loans, etc.
The debt to income ratio is once again king in determining your ability to qualify for a loan modification. So it’s time to break out your calculators:
Let’s show how to calculate this via an example…
Example mortgage calculation
Say you have a $165,000 mortgage that recently adjusted from 5.25% to 9.25%. Your situation would look like this:
- Loan amount: $165,000
- Term: 30-years
- Interest rate: 5.25%
- Monthly payment: $911.14
- Loan amount: $165,000
- Term: 30-years
- Interest rate: 9.25%
- Monthly payment: $1357.41
Lets say that you’re still making that $60,000 per year and that you had total monthly expenses (not counting your mortgage) of $1,800 per month.
Your DTI prior to adjustment:
- $1,800 + $911.14 = $2,711.14 / $5,000 = 54.23%
Your DTI after adjustment:
- $1,800 + $1,357.41 = $3,157.41 / $5,000 = 63.15%
Million dollar question: What is the RIGHT DTI?
Banks have tightened what they think is an acceptable credit risk – they’ve dialed it way down. And while it varies from bank to bank, the target DTI you should be looking for in hopes of qualifying is 50%.
If you can show a DTI of 50% or less via a loan modification to a lower interest rate, you stand a good chance of qualifying for the modification.
Note: In the above example this would mean getting an interest rate reduction below the original start rate of the loan (5.25%). Reducing the loan to its original note rate of 5.25% would leave you with a DTI of 54% - which falls above the 50% rule of thumb.
How can we give ourselves a shot at qualifying for a loan modification?
- Double check our expenses for items that shouldn’t be included (such as work-related expenses)
- Call our credit card companies and ask for a reduction in monthly payments
- Reduce our utility bills by cancelling premium cable subscriptions, opting in to programs that reduce utility bills in exchange for power-flexibility in the summer, switching to a smaller trash can size, etc.
- Exclude expenses like eating out, food, clothes and discretionary expenses from your DTI
Because your monthly expenses can fluctuate quite a bit each month you want to focus on big ticket items and not rack up lots of little dings.
What if we:
- Saved $300/month by not eating out
- Cancelled a gym membership worth $100/month
- Reduced our utilities by $50/month
That would give us a DTI of: 45.22% - bingo. That’s the number we want to work with.
Finally, we’re going to report the big ticket items that are always there, but we’re going to leave off for now the variable items that we can control, such as food, etc.
If they ask for it later we’ll give it to them; but for now we want to present a case that with a new “hoped for” mortgage amount (the modified rate and monthly payment) plus our monthly expenses that we’re a good candidate for a mortgage at under 50%.
This is the number we’ll end up calculating on the monthly expense worksheet that we’ll have to prepare for the bank. You can get a free copy of a sample loan modification monthly expense worksheet that you can use to calculate your DTI.
Tip: Never lie to your bank. What we’re doing here is making an assumption that we can control variable monthly expenses through good judgment and sacrifice in order to keep our home. If we must present this information we will.
A shot at a loan modification
With a sub-50% debt to income ratio in hand you’re a good candidate for a loan modification. If you’d like more loan modification tips and strategies please join our mailing list. You’ll receive a free report just for joining: “The 10 Deadliest Loan Modification Mistakes” you must avoid at all costs. You’ll also get our free pamphlet, Loan Modifications 101.
If you're facing foreclosure or trying to negotiate a short-sale, this video clip is a "must-see".
(If you don't see the video below, click here)
You've all probably heard the term "loan modifications" being thrown around a lot lately. It's being referred to by many as a way to help troubled borrowers and help soften the blow of the foreclosure and mortgage crisis. Many believe that if we lower the rate and/or change the terms on the subprime loans that are causing the very mess we're in, we'll be able to help borrowers while getting through this mess faster and with less destruction.
But not everyone feels the same way, especially the subprime lenders who gave out those sub-prime loans in the first place. After crunching the numbers, many subprime lenders feel that modifying subprime loans will cost them more than just letting those in trouble default and go into foreclosure.
Perhaps to you and I… But remember that these subprime lenders are businesses - they're concerned with their bottom line and shareholders, not the well-being of borrowers. If they have to sacrifice a few borrowers for the greater good of their bottom line, they will do so.
There's an excellent post by Rob Blake over at BiggerPockets.com on this topic. It reveals some recent Fed research and statistics that go along with the notion that subprime lenders would rather just let the inevitable (foreclosures) happen than help troubled borrowers.
Here's an excerpt:
So the researchers factored in the cost of the “accidental helping” of those who didn’t need it…which does occur when you do en mass loan modification ala Sheila Blair’s method. With this factored in, the subprime borrower now shows a negative “Net Gain” of -12.7%. The bank loses money even after reducing the principal amount…a no-win situation.
Combine this fact with the fact that 67% of subprime home-owner borrowers were going to pay in full without any help whatsoever, we get a reluctant banking industry when it comes to principal reduction loan mods.
Another argument Rob makes in his post is that "loan modifications" and other such help are actually delaying the inevitable and interfering with the natural course of the market. I believe that there is truth to that. But I share in his sentiment…
I say this with equal parts relief that the debate is over…and overwhelming sadness the only logical conclusion means, in this case, “help” turns into hindrance.
I really wanted it to go the other way…
Bottom lines…share holders…delaying the inevitable… All sad realities, but realities nevertheless.
Many people have asked me if it's possible to purchase a foreclosure or short-sale property using FHA financing. For some people, the question has never crossed their mind. Well, it should.
Why? Because foreclosure and short-sale properties are sold "AS IS". This means that the seller (bank) is unwilling to make any repairs on the property and "what you see is what you get" (click here for more information on what "AS IS" means).
But FHA financing includes an FHA appraisal/inspection which is different from a traditional appraisal. A traditional appraisal is a valuation of the home in it's current state as compared to similar homes that have recently sold. The person doing the appraisal is an appraiser in the traditioanl sense.
An FHA appraiser is someone who has been certified by the FHA to do appraisals on properties where the buyer is going with FHA financing. Unlike a traditional appraisal, an FHA appraisal is also an inspection of the property and provides an "inspection report" as part of the appraisal. The FHA appraiser will go through the property looking for defects that he/she may decide must be fixed or remedied in order for the property to meet FHA standards.
In other words, if the buyer or seller don't remedy the defects the FHA appraiser cited, the financing will not be approved.
This presents a potential problem for both the buyer and the seller. Should the FHA appraiser say that things need to get fixed in order for the financing to go through, the seller may be forced to fix those items in order for the sale to go through. But even though the bank wants to get the property off of their books, fixing anything whatsoever goes against the very basis of "as is".
But that's IF the seller accepts the buyer's FHA-financed offer in the first place.
Banks don't like to see FHA financing on offers due to the issue I described above. Many banks will reject offers with FHA financing. Some will counter with having the buyer use conventional financing. A few banks may accept FHA financing, but don't expect it. Even if the bank accepts an FHA-financed offer, they may try to limit the dollar amount of the repairs they will make.
If the bank agrees to your FHA-financed offer without a limit to the amount of repairs, you may want to go buy a lotto ticket.
I'm not saying that getting an FHA-financed offer accepted is not possible. I'm saying that the chances of doing so are much smaller than had you gone with conventional financing. And there's no blanket policy - the same bank may reject FHA financing today and accept it tomorrow. Each and every property should be handled on a case-by-case basis.
Many people have been asking me about companies who offer to re-negotiate the terms and rate of their loan in order to avoid foreclosure. They want to know whether hiring su a company is worth it. Many also ask if it's possible to contact their bank directly in order to re-negotiate their loan terms.
From what I gather and from what people I've talked to are saying, it's better to contact your bank directly first. There are three main reasons for doing so:
- The bank prefers hearing from the borrower directly.
- The time and energy spent using a company is almost the same as what you'll spend doing it yourself.
- You will save thousands of dollars by doing it on your own.
Many of these companies charge upfront fees of a several hundred to a few thousand dollars along with back-end fees in the thousands. This is money you're giving someone in order to do the same thing you could be doing yourself.
In addition, these companies don't (and can't) guarantee that they'll re-negotiate your loan terms. If you do it yourself and they deny you, you'll be out time and energy. If you hire a company to do it for you, you'll be out time, energy…AND money.
Here is what someone I emailed back and forth with yesterday wrote:
"I talked to my bank and they pretty much told me I could do this restructure directly with them without the high fee. As soon as I told the LEI agent that I had spoke to my bank he immediately backed off.
I read about some of these financial firms offering this service telling their customers not to talk to their bank and wanting money upfront. It's not illegal but it definitely adding more debt for the homeowners when their service is unecessary.
My bank says they don't currently have any programs for people who's mortgages are kept current. They only have programs for people who are deliquent or about to or have their mortgage balloon. They did say however that they were in the process of creating a new program for those who do keep their loans current and to call them at the end of the month. I still have 2 years so I'm going to keep researching my best options.
Thanks for your help!"
Funny how these companies back off once you tell them how you're doing in on your own. It seems that most of these companies prey on consumers that either don't know they can do it on their own or are scared to do so.
The point is…contact the bank directly yourself before you pay anyone else a penny to do it for you. And don't be scared to do so - you can save thousands by getting past your fears.