Will Home Prices Continue to Fall in 2012?

Will we find prices dropping in 2012?  Everyone is looking for the upside in this housing market, but this blog brings some bad news on the appraisal front.

Appraisers look at comparable sold properties to draw an analysis of value.  Many lending institutions have rules which require the properties to be sold within the last 6 months and be within a reasonable distance to the subject property.   The appraisers would typically look at similar homes which sold through an arms length transaction.  The KCM Blog shows us a different spin.

KCM Blog

Many of our readers ask us if appraisers use distressed properties (short sales and foreclosures) as comparables when doing an appraisal on non-distressed properties. We have posted on this issue on several occasions (examples: here and here). Last month, the Appraisal Institute issued a paper on the subject. In the paper, the Institute explained that:

Foreclosures and short sales can provide important information for appraisers, who develop valuations based on market data and market forces.”

On whether an appraiser should use distressed properties as comparables, the Institute was very direct (all items in bold were shown as bold in the original paper):

“An appraiser should not ignore foreclosure sales and short sales if consideration of such sales is necessary to develop a credible value opinion.”

And they explained the possible differences between short sales and foreclosures:

A short sale … might have involved atypical seller motivations and so might not be an ideal comp…

A sale of a bank-owned property might have involved typical motivations, so the fact that it was a foreclosed property would not render it ineligible as a comp.”

Bottom Line

Some will argue that distressed properties should not be used when appraising non-distressed properties. However, there is no longer any doubt that they will be.

An 80% Decline in New Construction?

When will the government realize that supporting new construction is a necessity for a complete recovery of the economyJobs are important, and new construction creates jobs in many fields. Instead of supporting the building and real estate businesses, the congress seems to be putting up road blocks to the recovery of this industries.

The National Association of Home Builders Assistant Vice President, Robert Dietz, testified before the Senate Finance Committee last week that the decline in home construction has been historic and unprecedented.

The building industry has had an 80 percent decline since the peak seen in 2006 in single family new construction. Just let that begin to sink in….80% decline in an industry which creates 1,000’s of jobs!! New Construction Jobs Plumbers, plumbing supply companies, electricians, electrical supply companies, truck drivers, gravel companies, back hoe drivers, foundation forms people, concrete companies and drivers, framers, finish carpenters, roofers, lumber yards, masons, painters, carpet installers, carpet stores and manufacturers, kitchen designers, appliance stores and manufacturers, bull dozer drivers who spread loan and landscape people who put in lawns, nurseries who provide shrubs, and many more.  Then we can talk about the Realtors who sell the new homes, mortgage  loan officers who finance the houses, title companies who research the title, insurance companies who insure the property secretaries who prepare closing documents, and lawyers who close the transactions.  There are approximately 80 people who touch a traditional real estate transaction, and that number is greatly multiplied for a new construction sale.  When the reports for unemployment talk about a 9.1% rate, remember the real number is more like 18%, because many of the people in the building and real estate industry are self-employed and they don’t show up on the unemployment numbers.

The rate for building single family homes is now 353,000 homes per year as opposed to the 1.8 million in 2006.  Based on these numbers we will soon see a serious shortage of homes.  We are also seeing a troubling turn of events with many people loosing their homes to short sales and foreclosures and having to move in with family.  We are seeing many young people graduating from college with no job prospects, and they are moving back home with mom and dad.

This will be causing a future shortage of homes and when the economy finally recovers, we could be in for some difficult times.  This may put pressure on prices of homes, because there will not be enough houses to meet the demand.   Building is one of our core home-grown industries, and we must bring some stability to the builders.

Congressmen in Washington have been threatening to eliminate the mortgage interest deduction, to end federal support for the mortgage industry through Fannie Mae and Freddie Mac backed financing, and to require a minimum 20 percent down payment on home loans.  The FHA mortgages already require an additional charge for insurance, making it more difficult and costly for buyers to get financing.  These steps are being proposed by a government that says it is trying to get the economy on the road to recovery, and many of these proposals are counterproductive.

Seven Tips for Navigating the Short Sale Process

Short SaleThere are many reasons why people decide to sell their homes during these troubled times, and it is even more difficult when that home has lost significant equity.    If you find yourself in this position. there are some important points to know about the short sale process.

Here are seven tips for navigating the short-sale process.

1. Know who you owe

A short sale has to be approved by any company that has a mortgage or lien against your home. That includes your first, second, or even third mortgage lender, your home equity line lender; your homeowners or condominium association; and any contractors who’ve placed a lien on your home. Make a list and start talking to everyone early in the process. Ask what documents they’ll need from you.

2. Pick your short sale team

You’ll need to work with a team of short sale experts, including a real estate agent, real estate attorney, and your accountant. Look for agents and attorneys who advertise themselves as short sale experts.  There are special training classes and certifications for Realtors, such as Loss Mitigation Certified, and you should look for experienced and well-trained Realtors.  Interview at least three, and listen carefully for signs that they understand the complexities of the short sale process.

Agents should explain how they’ll arrive at a suggested price for your home. Ask them to show you a sample short-sale package or for an example of a prior short-sale success.

The attorney is a very important member of the short sale team, and you must choose an attorney who has successfully closed a number of properties.  You might ask for referrals to check with his clients about their experiences.

3. Get your documents ready

Gather the paperwork your creditors and mortgage lenders asked to see, like your listing agreement and a hardship letter explaining why you need to do a short sale. You’ll also need proof of what you earn and what you owe as well as copies of your federal income tax returns for the past two years.

4. Expect delays

Despite a federal rule saying banks participating in the federal government’s Making Home Affordable loan modification program must respond to short-sale offers within 10 days, it may take weeks or months for your lender to decide whether to allow you to sell your home in a short sale—and even longer if you must negotiate with more than one lender or lienholder.

Your lender and lienholders don’t have to agree to your proposed short sale. They can reject your terms or make a counter offer, which can create further delays.

5. Anticipate demands

Discuss with your short-sale team how you should respond to common short-sale demands from lenders. For example, are you willing to sign a promissory note agreeing to pay outstanding amounts after the sale is complete?

6. Know the tax implications

Any unpaid amount of your mortgage “forgiven” by your lender through a short sale may be considered income to you under federalForeclosures tax rules. Ask your attorney or accountant whether you qualify to exclude that amount as income on your tax returns under the Mortgage Forgiveness Debt Relief Act and Debt Cancellation Act. Also ask if you’ll be required to report amounts “forgiven” by other lienholders, if applicable.

7. Consider how the short sale will affect your credit and what you must pay

Ask whether your lender will report the short sale to credit-reporting agencies. Having a portion of your debt forgiven may negatively affect your credit score, but a short sale typically damages your score far less than a foreclosure or bankruptcy.  A short sale also puts you in control of the process.  A foreclosure make take years to complete and the bank is in control of this time frame.  Two home I knew about Repair your creditpersonally took over four years to finish the foreclosure process because the bank continued to make mistakes.  When you finish a short sale, you will be able to start to repair your credit immediately, and then you will be able to buy another home in a reasonable amount of time.

Ask you lawyer whether you’ll be responsible for paying back the lenders’ loss. If the lender says it will forgive any losses on the sale of your home, get that promise in writing.

When you are ready to evaluate whether a short sale is the right decision for you, contact several Realtors and begin to ask which one can give you the best guidelines.  Put the agony of this financial situation behind you.

Fannie Mae’s Seven Year Penalty

If you are a homeowner who is upside down on your mortgage, you may be considering walking away from this situation.  If you are capable of paying your mortgage, this may be a very bad idea.

Fannie Mae has set guidelines to penalize homeowners who walk away from their underwater mortgages, when they have the capacity to continue to pay them. Fannie Mae is expecting homeowners to work in good faith with their lenders to find an alternative solution, including a loan modification, a short sale, or a deed in lieu of foreclosure.

If the borrower does not participate in an alternative workout, Fannie Mae may penalize the borrower for up to seven years before they would qualify for a Fannie Mae approved mortgage. In certain states, Fannie Mae could go after other assets to satisfy the delinquency.

If the borrower has extenuating circumstances, like a job loss, and they work with their service provider to secure an alternative solution, they may be qualified for another mortgage within two to three years.  This is very good news for troubled borrowers.

The Fannie Mae Selling Guidelines will be in force on July 1.  The Eligibility Matrix can help analyze the situation of a borrower.

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Short Sale Information

Good news for people who are doing a short sale.  The government has implemented a program to expedite the short sale process.   This will be a great benefit to the homeowners who have made a decision not to keep their homes.

Certain banks and mortgage companies planning a foreclosure of a property must contact their homeowners to offer a mortgage modification.   If homeowners do not quality or do not wish to continue to own the home,  the bank or mortgage company must work with them to either offer a short sale solution or a (DIL) deed-in-lieu of foreclosure.   This video provides a comprehensive  explanation of the new short sale process.

Here a list of the mortgage companies that are a part of the HAMP (Loan Modification) program. Those companies that are signed up for the HAMP program must offer the HAFA (Short Sale) program to homeowners and if the Short Sale does not work, they have the option of the DIL (Deed in Lieu) of Foreclosure.

Homeowners should check this list only if they do not have a FHA financing loan. Fannie Mae is the actual overseer of the HAFA program guidelines.

Servicers Participation

1.American Home Mortgage Servicing, Inc
2.Assurant, Inc.
3.Aurora Loan Services
4.Bank of America
5.Bayview Financial
6.Carrington Mortgage Services, LLC
7.Citigroup, Inc. (Citi Mortgage / Citi Residential)
8.First Horizon Home Loans and First Tennessee Home Loans
9.GMAC Mortgage
10.Home Loan Services, Inc. (d/b/a First Franklin Loan Services & NationPoint Loan Services)
11.HomEq Servicing
12.HSBC Finance-Beneficial
13.HSBC Finance-HFC
14.HSBC Mortgage Corporation
15.HSBC Mortgage Services
16.JP Morgan Chase
17.Litton Loan Servicing
18.LoanCare Servicing Center
19.MetLife Home Loans
20.Nationstar Mortgage, LLC
21.Ocwen Loan Servicing, LLC
22.OneWest Bank
23.PMI Mortgage Insurance Co.
24.PNC Mortgage
25.Quicken Loans
26.Residential Credit Solutions
27.RoundPoint Mortgage Servicing Corporation
28.Saxon Mortgage Services / Morgan Stanley
29.Select Portfolio Servicing, Inc.
30.State Farm
31.Strategic Recovery Group
32.SunTrust Mortgage, Inc.
33.Vericrest Financial Inc.
34.Wells Fargo and Company (Wells Fargo Home Mortgage / Wells Fargo Financial)
35.Wilshire Credit Corporation

If you have any questions about this process, please contact us.  The Evergreen Realty Team members have been Loss Mitigation Certified (LMC).  We will be reviewing bankruptcy options shortly for those folks who have those type of financial questions.


Will a Short Sale Be the Best Decision for the Long Term?

When someone is unable to refinance their mortgage and unable to pay their mortgage for any reason, it can feel like everything is against you.  Information can be very confusing, and no one seems to have good answers.  Even some attorneys and financial consultants don’t have the right answers.

Bankruptcy attorneys have suggested to me that a short sale, once negotiated, may be the best solution for a difficult situation.  The credit bureaus do not view a short sale like a foreclosure, which can show up on a credit report as a strong negative for 7 to 10 years.    Some of the banks are taking one to three years to complete the foreclosure, and if the foreclosure is mishandled, it could be even longer.  The real problem is that process is up to the bank, not the borrower.

Rebuilding credit and making timely payments will start as soon as the short sale is complete.   Making the decision to do a short sale may be difficult, but the results will give people a jump start on a new financial life.

The administration has created a reasonable way to deal with the short sale issues. The new program is called the Home Affordable Foreclosure Alternative (HAFA), and it will make a big difference to people who need to get out from under crushing debt.  The clear deadlines and parameters will make a short sale much easier for both the sellers and the buyers.  The guidelines incorporate mandatory deadlines for the offer to acceptance and then a reasonable time for closing.  The buyer will have time to have a home inspection and get a bank commitment.

The most important date for homeowners is the 14 day response time once the bank makes an offer for a short sale.  Homeowners RESPOND within the 14 days, and you will have adequate time to sell your home through the short sale process.  There are also financial incentives for the homeowners to cover relocation costs and fees to banks to make this program work.  If the homeowner qualifies, the bank will fully release any future liability for the first mortgage debt.  There are several ways to deal with a second mortgage, so call if you have a second mortgage for additional information.

The banks and mortgage companies that participated in the Home Affordable Mortgage Program must offer this solution to their borrowers.   If you have any questions about this program, contact a Realtor who has had special training in Loss Mitigation Certification or Short Sale Designation.  They will help you figure out this process.

If you would like a brochure about the HAFA program, make a comment with your email.