Fannie, Freddie to allow walkaways in some cases

WASHINGTON – Feb. 4, 2013 – Underwater borrowers current with their mortgage payments may be able to give up their properties and get their debts erased, according to new guidelines issued by mortgage giants Fannie Mae and Freddie Mac.

Non-delinquent borrowers who have Fannie and Freddie-backed loans and can document a hardship, such as an illness, job change or other situation, can apply for a deed-in-lieu transaction. Eligible borrowers also must have a 55 percent debt-to-income ratio. Servicers will be required to confirm that the property has been left in good condition.

Eligible borrowers will have the forgiven debt – the amount remaining between the property’s value and size of their mortgage – erased.

“The goal is to make sure people who have suffered a hardship have the appropriate options to prevent foreclosure,” says Andrew Wilson, spokesman for Fannie Mae.

Borrowers may still be required to pay some of the forgiven debt, however, if the borrower has the means to do so.

“Homeowners applying for deed-in-lieu transactions may be asked to make cash contributions of up to 20 percent of their financial reserves, excluding retirement accounts,” Bloomberg reports about the guidelines. “Or, they may be asked to sign a promissory note for future no-interest repayments. The amount and terms can be negotiated.”

Fannie and Freddie’s new eligibility for deed-in-lieu of transactions has been met with some criticism, particularly at a time with the government-sponsored enterprises are still underwater themselves from steep losses the last few years. The GSE’s have, to date, required $190 billion of taxpayer money since 2008.

“It’s an extraordinarily generous approach for companies still in debt to American taxpayers,” Phillip Swagel, a professor at the University of Maryland’s School of Public Policy, told Bloomberg. “We’re giving people an incentive to walk away, right when the housing market is starting to right itself.”

But some argue that past programs tended to penalize borrowers on the brink of foreclosure who kept making their payments, says Julia Gordon, director of housing finance and policy at the Center for American Progress. Mortgage servicers in some cases were even advising borrowers to stop making their mortgage payment so that they could qualify for more assistance.

“Fannie and Freddie are finally recognizing that some people are stuck in their homes,” Gordon told Bloomberg. “There are a lot of families who need to move who can’t do it if they’re going to have debt hanging over their heads. There’s no winner when someone is forced to default on their mortgage – not the investor, not the homeowner and certainly not the neighborhood.”

Source: “Fannie To Allow Walkaways by On-Time Borrowers: Mortgages,” Bloomberg (Jan. 28, 2013)

Starting Jan. 1, short sales may carry hidden cost

WASHINGTON – Sept. 17, 2012 – According to the U.S. Internal Revenue Service (IRS), a homeowner who owes money to a mortgage lender is given something akin to a gift when the lender cancels out some mortgage debt through a short sale. As a result, the IRS sees that forgiven money as income and could tax it accordingly.

A 2007 law designed to help homeowners specifically forbids the IRS from taxing forgiven money on a principal residence, however, since people who can’t afford to keep their home generally can’t afford higher taxes less than a year later. But that law expires on Dec. 31, 2012.

Any short sale that occurs on or after Jan. 1, 2013 – barring further action by Congress – would face a federal income tax on the forgiven portion of their mortgage.

While Congress could agree to extend the tax forgiveness and most experts see bipartisan support to do so, a presidential election and looming end-of-the-year fiscal crisis will capture most lawmakers’ attention. An extension, even if it occurs, is not considered a sure thing by the Dec. 31 deadline.

That leaves at-risk homeowners with a dilemma. They can hope Congress extends the tax forgiveness or they can list their home as a short sale soon.

Since many short sale transactions take longer than non-short sales, a home needs to be listed – and ideally pre-approved by the lender as a short sale – while it still has enough to time to attract a buyer and close. With only three-and-a-half months remaining in 2012, the window for a new listing has started to close.

If the end of the year looms and the short-sale tax forgiveness deadline has not been extended, Realtors and others involved in home sales could find their holidays curtailed by end-of-the-year closings as sellers rush to beat the clock.

“I’m not making any plans for Dec. 31,” Sunrise real estate lawyer Gary Singer told the Fort Lauderdale Sun Sentinel. “I expect to be in the office very late.”

For more information on the Mortgage Forgiveness Debt Relief Act, visit the IRS’s website.

© 2012 Florida Realtors®

CoreLogic: Fewer homes underwater

SANTA ANA, Calif. – Sept. 12, 2012 – CoreLogic says 10.8 million (22.3 percent) of all residential properties with a mortgage had negative equity (underwater) at the end of the second quarter 2012. That’s down from 11.4 million properties (23.7 percent) at the end of the first quarter.

An additional 2.3 million borrowers had less than 5 percent equity in their home, referred to as near-negative equity, at the end of the second quarter.

So far in 2012, 1.3 million homeowners have moved from underwater status into positive equity.

Negative equity, often referred to as “underwater” or “upside down,” means that borrowers owe more on their mortgages than their homes are worth. Negative equity can occur because of a decline in value, an increase in mortgage debt or a combination of both.

About one in four homeowners with a mortgage in the U.S. (27 percent) had negative or near-negative equity in the second quarter, a drop from 28.5 percent in the first quarter.

Most borrowers in negative equity continue to pay their mortgages; 84.9 percent of underwater homeowner were current on their mortgage payments, up from 84.8 percent at the end of the first quarter.

“Surging home prices this spring and summer, lower levels of inventory, and declining REO sale shares are all contributing to the nascent housing recovery and declining negative equity,” says Mark Fleming, chief economist for CoreLogic.

“Nearly 2 million more borrowers in negative equity would be above water if house prices nationally increased by 5 percent,” adds Anand Nallathambi, president and CEO of CoreLogic. “We currently expect home prices to continue to trend up in August. Were this trend to be sustained, we could see significant reductions in the number of borrowers in negative equity by next year.”

Highlights as of Q2 2012

• Nevada had the highest percentage of mortgaged properties in negative equity at 59 percent, followed by Florida (43 percent), Arizona (40 percent), Georgia (36 percent) and Michigan (33 percent). These top five states combined account for 34.1 percent of the total amount of negative equity in the U.S.

• Of the total $689 billion in aggregate negative equity, first liens without home equity loans accounted for $339 billion aggregate negative equity, while first liens with home equity loans accounted for $353 billion.

• Of the 10.8 million upside-down borrowers, 6.6 million hold first liens without home equity loans. The average mortgage balance for this group of borrowers is $216,000, the average underwater amount is $51,000, and 18 percent of the 6.6 million are in negative equity.

• 4.2 million upside-down borrowers have both first and second liens. The average mortgage balance for this group of borrowers is $300,000, the average underwater amount is $84,000 and 38 percent of the 4.2 million are in negative equity.
 
• Approximately 41 percent of borrowers with first liens without home equity loans had loan-to-value (LTV) ratios of 80 percent or higher and approximately 60 percent of borrowers with first liens and home equity loans had combined LTVs of 80 percent or higher.
 
• At the end of the second quarter 2012, just over 17 million borrowers possessed qualifying LTVs between 80 and 125 percent for the Home Affordable Refinance Program (HARP) under the original requirements first introduced in March 2009. The lifting of the 125 percent LTV cap via HARP 2.0 opens the door to another 5 million borrowers.

• The bulk of negative equity is concentrated in the low end of the housing market. For example, for low-to-mid value homes (less than $200,000), the negative equity share is 32 percent, almost twice the 17 percent for borrowers with home values greater than $200,000.

• As of Q2 2012, there were 1.8 million borrowers who were only 5 percent underwater. If home prices continue increasing over the next year, these borrowers could move out of a negative equity position.

© 2012 Florida Realtors®

FHFA sells 699 Fla. REOs to investor

WASHINGTON – Sept. 11, 2012 – A controversial move to sell 699 Fannie Mae- and Freddie Mac-owned homes in bulk to an investor was closed last week, according to the Federal Housing Finance Agency (FHFA). Pacifica Companies LLC purchased the homes as part of a real estate owned (REO) pilot initiative.

Pacifica has not released details on how it will oversee the properties. Based in San Diego, the company’s website claims it has an office in Tampa, as well as Austin, Texas; Riverside, Calif.; and four cities in India.

Pacifica paid $12.3 million upfront in a joint venture agreement. It will pay an additional $49.3 million by sending Fannie Mae 90 percent of future proceeds. After that, Pacifica will collect a 20 percent management fee and pay Fannie Mae 50 percent of future proceeds. FHFA projects the total value of all payments to be $78.1 million. The total price paid by Pacifica doesn’t represent a significant discount; however, the relatively low downpayment and profit-split deal would make it attractive to most investors.

“When FHFA proposed this program, the nation was worried about an onslaught of distressed home sales and too few buyers,” says Florida Realtors’ Senior Vice President of Public Policy John Sebree. “However, NAR and Florida Realtors have always taken the position that Realtors know their neighborhoods and are in the best position to move REOs into the hands of buyers.”

The Florida REO sales impacted homes throughout the state, including Central and Northwest Florida, Southeast Florida and the West Coast. It’s still unclear if Pacifica agreed to rules regarding a future sale. NAR says it’s setting up a meeting with FHFA to find out more details.

“Going forward, FHFA, Fannie Mae and Freddie Mac may decide that we no longer need bulk sales to investors,” Sebree adds. “Florida buyers are coming out in force and many say they now face multiple bids and a limited inventory of homes to consider. If we do discover any problems with the current deal, it will hopefully be an isolated incident.”

Alan Zibel, a writer for The Wall Street Journal, thinks Fannie Mae may focus now on sales to single buyers because it’s more profitable. “In the second quarter of this year, (Fannie Mae) recovered 59 percent of outstanding mortgage balances” when it sold a REO, Zibel says, “compared to 54 percent a year earlier.”

© 2012 Florida Realtors®

More banks open to short sales

ALAMEDA, Calif. – Sept. 6, 2012 – To meet the terms of the $26 billion mortgage settlement, the nation’s five largest banks are becoming more agreeable to short sales, Inman News reports.

The five banks – Bank of America, Citi, JPMorgan Chase, Ally Financial and Wells Fargo – have issued most of their relief from the settlement so far in the form of short sales or deeds in lieu of foreclosure.

Under the settlement, the five banks are required to provide $17 billion in aid to homeowners, either through loan modifications, principal reductions or short sales.

To date, 74,614 homeowners have received an average of $116,200 each as either a short sale or deed in lieu of foreclosure.

Since January, sales of homes in the pre-foreclosure process – usually taking the form of short sales – have been rising. In fact, they reached a three-year high in the first quarter, RealtyTrac reports. Meanwhile, the number of foreclosure sales has been declining.

Besides short sales and deed in lieu of foreclosure, mortgage servicers are also increasingly offering first-lien loan modifications to struggling homeowners. According to a progress report on the settlement, 7,093 borrowers received first-lien loan modifications, averaging about $105,650 per borrower.

Source: “Banks Using Short Sales to Meet Robo-signing Obligations,” Inman News (Sept. 4, 2012)

© Copyright 2012 INFORMATION, INC. Bethesda, MD (301) 215-4688

FHFA issues new short sale guidelines

WASHINGTON – Aug. 22, 2012 – The Federal Housing Finance Agency (FHFA) announced that short sales on homes under Fannie Mae and Freddie Mac would get easier after Nov. 1, 2012. It issued new guidelines that help homeowners hit by a financial hardship, moved by the military or held back by a home’s second mortgage.

“The new standard short sale program will also provide relief to those underwater borrowers who need to relocate more than 50 miles for a job,” says FHFA Acting Director Edward J. DeMarco.

“We hope these new guidelines will allow many more hardworking American homeowners that would have previously been denied a short sale to now be approved and avoid defaulting on their mortgage loan,” says NAR President Moe Veissi, broker-owner of Veissi & Associates Inc. in Miami.

Details

• Mortgage servicers get greater authority to approve short sales for borrowers who are not delinquent but facing a financial hardship: divorce, family death, long-term or permanent disability or employment transfers to different parts of the country.

• Borrowers facing one of the approved hardships don’t have to be delinquent.

• Service members with Permanent Change of Station orders have greater flexibility, including the elimination of back-end debt-to-income ratios or a cash contribution promissory note.

• Fannie Mae and Freddie Mac won’t pursue deficiency judgments in exchange for a financial contribution if a borrower has enough income or assets to make a cash contribution or sign a promissory note. Servicers will evaluate borrowers’ as part of the short sale approval process.

• FHFA will give servicers more consistent guidelines to process and execute short sales and consolidate existing short sales programs into a single uniform program

• FHFA also says it will try to avoid problems when a short sale takes place during a foreclosure by issuing new guidelines.

• Fannie Mae and Freddie Mac will offer up to $6,000 to second lien holders to expedite a short sale. Previously, second lien holders could slow down a short sale by negotiating for higher amounts.

For more information, visit http://www.realtor.org/topics/short-sales.

© 2012 Florida Realtors®

Fannie, Freddie to make short sales faster

PHILADELPHIA – May 3, 2012 – Government-backed housing giants Fannie Mae and Freddie Mac are adopting new guidelines to streamline the process for short sales, which most real estate observers expect will outpace foreclosures in the coming year.

The guidelines, required by the Federal Housing Finance Agency and effective June 15, would require servicers of mortgages backed by Freddie and Fannie to review and respond to requests for short sales within 30 calendar days of receipt of a buyer’s offer.

A short sale is a transaction in which a lender agrees to accept less than the amount owed on the mortgage. It is a “strategic default,” designed to get a borrower out of financial trouble without having to go through the drawn-out legal tangle of the foreclosure process.

A short sale does affect the seller’s credit score, reducing it as much as a foreclosure would, according to Fair Isaac Corp., which developed the system.

On average, according to recent data from foreclosure search engine RealtyTrac, short sales are taking 306 days from start to finish, compared with 113 days in 2006 as the housing market started to unravel.

Area real estate agents who handle such transactions have acknowledged that they do take a long time to complete, and that delays often result in loss of the sale.

But lenders are becoming more accommodating, though they have issues with short sales because unscrupulous investors and others have abused them, perhaps to the tune of $375 million in annual losses nationwide.

In January, there were more than 35,000 short sales nationwide, on pace for more than 105,000 pre-foreclosure sales for the first quarter. That would be the highest quarterly total since the first three months of 2009.

This is not the first time the government has acted to accelerate the short-sale process. In late 2009, the Treasury Department proposed financial incentives and simplified the procedures for completing them. That included a $1,000 payment to servicers and a maximum of $1,000 to go to investors who signed off on payments to subordinate lienholders, the Treasury said. Borrowers were to receive $1,500 in relocation expenses.

The rules, which took effect in April 2010, were supposed to reduce the short-sale process to 10 days, but didn’t.

The pending Fannie Mae/Freddie Mac guidelines will mandate weekly status updates to the borrower if the short sale remains under review after 30 calendar days.

Servicers also will be required to make and then inform borrowers of final decisions within 60 calendar days of receipt of an offer.

By the end of the year, Fannie and Freddie will announce other “enhancements” to the short-sale process, including borrower-eligibility evaluation, simplified documents, and payments to subordinate lienholders.

Housing Finance Agency acting director Edward J. DeMarco said the changes were being considered as “additional tools to prevent foreclosure, keep homes occupied, and help maintain stable communities.”

Copyright © 2012 The Philadelphia Inquirer. Distributed by MCT Information Services.

Is Fla.’s shadow inventory a rebound threat?

ORLANDO, Fla. – May 1, 2012 – The term “shadow inventory” hangs over the real estate market, suggesting a thinly veiled catastrophe seen through the mist, just as the passengers of the Titanic watched an iceberg draw closer. However, a white paper written by Florida Realtors Chief Economist Dr. John Tuccillo finds the fear of a shadow inventory overrated.

“The fear … is that the inventory of delinquent and foreclosed loans (will be released onto) an already weakened market,” says Tuccillo. “(But) the reality, even in Florida where distressed properties make up a significant portion of the market, appears to be different.”

Tuccillo says lenders have no reason to flood the real estate market with more homes if doing so would drive prices down and impact the lender’s profit. While some observers worry that lenders were holding back on purpose, Tuccillo says that’s not so – that the large number of distressed properties on hold was “largely the result of confusion over the rules of the game, and thus missteps by the lenders.”

In conducting an analysis, Florida Realtors Research looked at data from MLSs around the state and data provided by CoreLogic, a statistical analysis company.

“We looked at the recent history of distressed property listings and transactions relative to normal market data, as well as estimates for the shadow inventory, and came to some conclusions about the likely course (for the) future,” says Tuccillo.

Conclusions

• Florida remains one of the nation’s hardest hit states for distressed property sales.

• Distressed property sales and listings have declined since late 2010, except for single-family-home short sales.

• Average prices for distressed and normal property sales have been stabilizing.

• In general, Realtors and lenders have learned how to cope with distressed properties in a way that stabilizes the market.

• Florida’s highest percentage of distressed property (compared to total listings) occurs in the I-4 corridor and Southeast Florida; the lowest percentages occur in Northwest Florida.

• Currently, Florida’s shadow inventory was 550,000 units at the end of 2011, a decline of about 9 percent from its peak in the first quarter of 2010.

• Currently, the flow of new seriously delinquent (90 days or more) loans moving into the shadow inventory is offset by the roughly equal flow of distressed sales (short sales and REOs).

• The number of foreclosures and REOs was significantly lower in February of 2012 than one year earlier, suggesting slower shadow inventory growth.

Tuccillo predicts that distressed properties will be a significant feature of the Florida real estate market over the next ten years, but it will be considered just one property type a buyer can consider – one that has its own unique sales techniques and documentation.

© 2012 Florida Realtors®

Florida’s ‘hardest-hit’ homeowners are eligible for more aid

TALLAHASSEE, Fla. – April 30, 2012 – Florida’s struggling borrowers will get more money and more time to get back on their feet with new rules announced Friday for a $1 billion program aimed at keeping people in their homes and out of foreclosure.

The changes to the Hardest Hit Fund, which also eliminate eligibility roadblocks, validate complaints that the original plan was too optimistic in its timeline for unemployed and underemployed homeowners to turn their lives around.

Instead of six months of mortgage assistance, homeowners can now get up to a year, while the allowance to bring a loan current was increased from a cap of $6,000 to $18,000.

To minimize credit damage and reduce late fees, the money to bring a loan current will be awarded when the homeowner is approved for the program. Under the current process, the money is given at the end.

The Florida Housing Finance Corp., which oversees the program, approved the changes during a Friday meeting, but they still need federal authorization. That is expected in May.

“These changes are really good news and beneficial to a lot of Hardest Hit applicants,” said David Westcott, the corporation’s director of homeownership programs.

They also come just two weeks after a federal report criticized the program nationwide for ramping up too slowly and helping too few homeowners.

Announced in February 2010, the program has allocated $7.6 billion to 17 states and the District of Columbia to help homeowners while they look for a better job, or any job at all.

But as of the end of December, just 30,640 homeowners nationwide have benefited and just 3 percent of available money has been spent, according to the inspector general of the Troubled Asset Relief Program.

In Florida, nearly $90 million has been set aside as of April 1 to assist 4,955 homeowners statewide. About 350 Palm Beach County homeowners have received Hardest Hit money.

Cecka Green, communications director for the Florida Housing Finance Corp., said Friday’s changes were not in response to the federal report and had been in discussion for a while.

The agenda item corporation board members approved does note that just 12 percent of homeowners receiving the monthly mortgage stipends had found jobs with incomes high enough to make their loan payments affordable at the end of the six months and qualify to have their arrearages paid.

Previously, homeowners’ monthly expenses had to be below 31 percent of their gross income to get the money to bring the loan current.

That requirement was eliminated with Friday’s vote because the money will come on the front end now, Green said.

It means Deborah Stockhammer of Jupiter River Estates may qualify to have her $9,800 unpaid balance funded. Although working, Stockhammer, 59, was denied the money previously because her salary was too low.

Also, because the plan changes are retroactive, Stockhammer, whose six months expired in March, may get another six months in monthly mortgage help.

“If they give it to the people who really need it and deserve it, it will be helpful,” she said. “We’re all not just sitting home doing nothing wanting a handout.”

Another eligibility roadblock removed was a requirement that homeowners be fewer than 180 days behind on their mortgage. With the changes, a homeowner can’t be in foreclosure, but there is a limit on how long a loan can be delinquent.

Foreclosure defense attorney Mike Wasylik said the new plan is a “bigger Band-Aid, but still a Band-Aid.” He believes using the money to write down loan balances would be a better use.

“Why not make it permanent help by taking the $1 billion and putting it toward principal reduction?” he said. “This is an economic policy that’s not solving the real problem.”

Copyright © 2012 The Palm Beach Post (West Palm Beach, Fla.), Kimberly Miller. Distributed by MCT Information Services.

Pace of short sales increases

NEW YORK – April 20, 2012 – Short sales outnumbered foreclosure sales in 12 states in January, indicating that more homeowners are finding an easier way out of a distressed home loan.

Short sales – which occur when a lender agrees to a home sale for less than what’s owed – were up 33 percent in January year-over-year, and preliminary February numbers also look strong, according to market researcher RealtyTrac.

Its data underscore lenders’ increased willingness to do short sales, which tend to harm neighborhoods less than foreclosures. Homeowners also may regain eligibility for a new mortgage sooner than those who go through foreclosure.

More short sales “is mostly a good thing,” says Ira Rheingold, of the National Association of Consumer Advocates. One concern is that homeowners may have to short sell after being denied loan modifications that would have enabled them to stay in homes, he says.

RealtyTrac says foreclosure sales, which occur after a bank has repossessed a property, still outnumber short sales nationwide but the gap is closing.

Earlier this week, Bloomberg News reported that data from mortgage tracker Lender Processing Services show short sales surpassed foreclosures in January for the first time.

RealtyTrac’s data show that occurred in key states at the forefront of the housing downturn, including California, Arizona, Florida and nine others.

Lenders are pricing short sales more aggressively, RealtyTrac adds. In January, the average short sale price was 10 percent lower than a year earlier, exceeding the drop in U.S. home prices.

Some mortgage servicers started pursuing short sales more aggressively months ago. Bank of America says it did 107,000 short sales last year, up from 92,000 in 2010 and double the 2009 volume.

New measures are also likely to boost short sales.

Freddie Mac and Fannie Mae, which own or guarantee 60 percent of home loans, will soon require lenders to decide short sale offers within 60 days. Realtors have complained that short sale offers often linger. The recent $25 billion mortgage settlement also encourages short sales.

New rules have slowed foreclosures in many states, increasing short sales, says Florida foreclosure defense attorney Roy Oppenheim.

Copyright © 2012 USA TODAY, a division of Gannett Co. Inc., Julie Schmit.