Boomerang buyers return – qualifying after foreclosure or short sale

HomesThere is homeownership after a foreclosure or short sale. Home owners, who lost their homes to foreclosure or short sale during the housing downturn and recession, are apparently returning to the housing market in increasing numbers, such that their home buying activity is attracting economists’ attention.

Ken Fears, the National Association of Realtors® Director of Regional Economics and Housing Finance, wrote for the NAR Economist’s Outlook Blog (Return Buyers Prefer Safe, Affordable Financing; economistsoutlook.blogs.realtor.org; June 25, 2015) about the research and numbers associated with home buyers who previously lost a home. These “boomerang buyers” accounted for about 8% of home sales during 2014. Considering that there were about 9.3 million home owners who lost their homes between 2006 and 2014, the estimated 350,000 boomerang home buyer sales during 2014 may be just the beginning of the “homecoming.”

If you are a boomerang buyer, there may be a home in your future. Conventional, FHA, and VA mortgage underwriting guidelines have typically allowed for foreclosure, short sale, or bankruptcy with re-established credit and a waiting period. However, easing mortgage requirements may make it easier for you to qualify for a mortgage.

Fannie Mae underwritting guidelines (fanniemae.com) require you to wait at least seven years after a foreclosure, which is typically measured from the reported foreclosure completion date. If you had a short sale, the waiting period is four years. However, if you had a bankruptcy, you’ll have to wait four years after a chapter 7 bankruptcy is discharged; and two years after a chapter 13 is discharged (but four years if the chapter 13 is dismissed). However, if you had multiple bankruptcies within a seven year period, a five year waiting period from the most recent discharge or dismissal date is required.

FHA (hud.gov) has changed significantly in recent years. Besides reducing waiting periods due to extenuating circumstances, there are various caveats that may further reduce your waiting period. Nevertheless, the typical waiting periods include: three years after a foreclosure, two years after a chapter 7 bankruptcy discharge, and one year if you are current on a chapter 13 payment plan. The waiting period after a short sale is differentiated depending if the loan was in default: if the loan was not in default at the time of the short sale and your previous 12 months payments were timely, you may be eligible for a FHA mortgage without waiting; however if the loan was in default prior to short sale, you will have to wait three years.

If you are eligible for VA financing (benefits.va.gov), you will have to wait two years after a foreclosure, short sale, and chapter 7 bankruptcy (one year into a chapter 13 payment plan with court approval). However, if your foreclosure or short sale was on a VA mortgage, then your eligibility amount may be reduced.

Waiting periods may be significantly reduced if you can document that your foreclosure, bankruptcy, or short sale resulted from extenuating circumstances. However, such applications are subject to underwriter discretion; and not all lenders grant such exemptions.

If you are a boomerang home buyer, it is crucial that you consult with a lender before embarking on the home buying process. Besides guidance on mortgage eligibility, your lender can help you determine the appropriate mortgage for your circumstances. And as your lender will tell you, timelines and qualifying requirements are subject to change.

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Sequestration will affect real estate and housing markets

by Dan Krell
DanKrell.com
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Housing and Sequestraion(Dan Krell © 2013) Remember the “Fiscal Cliff?” Well, after a two month hiatus, sequestration concerns are again entering (if not intrusively) the minds of those who may be affected. And, if you remain indifferent on the matter, you might consider the local economic effect from looming government budget cuts that may begin on March 1st.

On February 14th, HUD Secretary Shaun Donovan provided written testimony to the “Hearing before the Senate Committee on Appropriations on The Impacts of Sequestration” (HUD.gov). Secretary Donovan outlined what he described as the “harmful effects of Sequestration” to not only at-risk populations, but families, communities, and the economy at large, as he concluded, “…Sequestration is just such a self-inflicted wound that would have devastating effects on our economy and on people across the nation.”

As a result, HUD counseling would be limited. According to Secretary Donovan, about 75,000 families would not be able to receive the critical counseling services that include pre-purchase counseling, and foreclosure prevention counseling. According to the Secretary: “…This counseling is crucial for middle class and other families who have been harmed by the housing crisis from which we are still recovering, and are trying to prevent foreclosure, refinance their mortgages, avoid housing scams, and find quality, affordable housing. Studies show that housing counseling plays a crucial role in those 3 efforts. Distressed households who receive counseling are more likely to avoid foreclosure, while families who receive counseling before they purchase a home are less likely to become delinquent on their mortgages.”

FHA has been the workhorse to stabilize the housing market as well as providing the means for affordable home purchases. Those directly affected by sequestration would be home buyers and home owners who are applying for FHA mortgages; as well as those seeking assistance through HAMP and HAFA. In written testimony, Secretary Donovan stated that “…furloughs or other personnel actions may well be required to comply with cuts mandated by sequestration.” As a result, “…The public will suffer as the agency is simply less able to provide information and services in a wide range of areas, such as FHA mortgage insurance and sale of FHA-owned properties.”

Another concern is the possibility of a sharp increase in interest rates. Up until now, home buyers (and those refinancing) have had the benefit of historically low mortgage interest rates. Low mortgage interest rates are one of the reasons why home affordability is also at historic levels. A sharp rise in interest rates combined with FHA mortgage delays could shock the housing and real estate market. The result could be housing activity similar to what we experienced immediately after the financial crisis. Granted, the shock would probably not be as prolonged as what occurred in 2008-2009, but nonetheless significant.

In a region that has been relatively unaffected by unemployment and economic issues due to a strong government workforce, sequestration could essentially put a damper on the local housing recovery. Home buyer activity has already been affected, as those who are concerned about sequestration have either put their home purchase plans on hold, or have changed their housing plans altogether. And of course, over time, the changes to consumer behavior would trickle down to various sectors of the economy.

But don’t worry, although sequestration is set to begin March 1st, budget cuts won’t occur all at once. Unless Congress acts on the matter, you might not immediately feel its effects.

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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of February 18, 2013. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

Don’t buy into a false economy

by Dan Krell
DanKrell.com
© 2012
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Auction Stories about housing and real estate often reported in local media are entertaining and sometimes informative. However, some stories can create an erroneous impression about what’s happening in the marketplace. If you are not careful, you may be lead to buy into a false economy; using a Realtor® in today’s market is vital to get real time neighborhood information to make the best decisions.

A recent story highlighted a DC foreclosure that reportedly received over one hundred offers, and the accepted offer was more than double the list price. The story appeared to use this home sale as an example of a hot DC market. And make no mistake – that neighborhood is a hot market for various reasons (including the limited number of active homes for sale); but there’s missing information that could distort your perspective.

First, understand that the story referred to the sale of a HUD owned property, which was most likely a FHA foreclosure. The fact that there were reportedly 168 offers on the property is not unusual for a HUD owned property located in a neighborhood with very active buyers; although some HUD properties don’t get much attention, it is not unusual for many such homes to attract a lot of attention, as well as many offers.

Most offers on HUD homes are usually at list price or below, not only because savvy buyers are seeking a foreclosure bargain; but because of financing limitations. HUD appraises these properties so as to know the market value, and usually lists the home at that price. HUD foreclosures that are eligible for FHA financing use that appraisal, and are therefore limited to that price.

The MLS listing for this home indicated that it was listed “Insured with Escrow,” which means that the home was eligible for FHA financing. And looking at recent neighborhood comps, it looks as if the home was priced competitively. Additionally, the repair escrow indicates that the home requires repairs to meet FHA guidelines.

AuctionAlthough there are some buyers who pay over list price for an “Insured” HUD foreclosure, they know they need to pay cash or find alternate financing; so unless the buyer of this home has cash, the buyer could encounter issues obtaining alternate financing. Furthermore, although the story reported that the home sold, the MLS listing indicates that the home is under contract with contingencies (home inspection). So, the home is far from settled, and it remains to be seen if this contract falls through (or remains owner-occupied as required for this sale).

Although the story about this home sale was interesting, it is not typical for the housing market. The story does not indicate that the reported 14% DC median home sale price increase compares November 2012 sales to November 2011. There is also no mention that “luxury” home sales could have impacted November’s home sale price figures; GCAAR (gcaar.com) reported that DC single family home sales priced at $1.5M and above increased about 111%! Also, according Realestate Business Intelligence (rbintel.com), the November 2012 average DC sale price is about 97% of list; the average sale price is not over list.

Don’t get me wrong, this was a good story. But the story may be about buying into a false economy and buyer’s remorse; the real story may ultimately be how you should consult with your Realtor® before making a purchase or sale.

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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of December 24, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

New laws affect homebuyers and homeowners

Two Maryland laws go into effect this month affect home buyers and home owners.

by Dan Krell
DanKrell.com
© 2012

homesTwo new laws that went into effect this month will have an effect on home buyers and home owners. One law affects home buyers purchasing foreclosed property, and the other is with regard to the Maryland homestead property tax credit.

First, H.B. 1373 Real Property – Foreclosed Property Registry, which went into effect October 1st, requires that Maryland homes purchased at a foreclosure sale be registered with the State of Maryland. According to the foreclosure registry website (www.dllr.state.md.us/ForeclosureRegistry/web/content/Home.aspx) a “foreclosure purchaser” must initially register a home within 30 days of the foreclosure sale, and a final registration within 30 days of the recordation of the deed. A “foreclosure purchaser” is defined by H.B. 1373 as being “…the person identified as the purchaser on the report of sale required by Maryland rule 14–305 for a foreclosure sale of residential property.”

You might wonder why a registration is necessary once a foreclosed home is purchased. The registry was an outgrowth of purchased foreclosed homes that remained vacant. Vacant homes are at risk for a variety of problems; and if left vacant and untended for long periods of time can not only become an eyesore, but can risk the health and safety of the immediate neighborhood. Trespassing and infestation is a major concern; the longer a home sits vacant and untended, the probability increases for vandalism, vermin, squatters, and gang activity.

The law is most likely aimed at lenders that purchase back their own foreclosure or bulk purchasers, because at one time it was possible that some of these homes sat untended for long periods of time. In the past, such homes might have been cited for health and safety code violations with the intent to have someone tend to the home. However, since ownership may not have been clear due to the foreclosure process or absence of a point of contact, some of these attempts went unheeded.

For more information or questions about the registry, contact the Maryland Department of Labor, Licensing, and Regulation (www.dllr.state.md.us).

The other law that went into effect this month is H.B. 1081 The Homestead Property Tax Credit Reform Act of 2012. The purpose of the law is to stop the abuse of applying the credit when not applicable. Home owners who are “caught” claiming multiple properties and/or rented properties may have to pay uncollected tax and possibly a penalty.

real estateBut enforcement of this law has been questioned, as was reported by Steve Kilar for the Baltimore Sun in his October 1st article (Homestead Credit Penalty Goes Into Effect This Week). Some are concerned if and how the penalty would be applied to those who are “caught” wrongly receiving the homestead credit. Enforcement may, as was reported, rely on the requirement for the State to prove “willful misrepresentation.”

The effort to weed out those undeservingly receiving the homestead credit began several years ago, when in 2007 home owners were required to apply to receive the credit. This application process is culminating to a frenzy of home owners who have not yet reapplied. And according to the Maryland Department of Assessments and Taxation, home owners who have yet to apply/reapply for the homestead credit will have until December 31st to submit the application. If you are unsure if you have applied/reapplied, you can check your status by following the instructions on the SDAT website on the homestead credit (http://www.dat.state.md.us/sdatweb/homestead.html).

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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of October 15, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

Has the housing market improved in the last four years

Dan Krell, Realtor®
DanKrell.com
© 2012

HousingIn retrospect, the beginning of the global recession in late 2007 was the end of the housing boom and may have spawned the foreclosures crisis and the financial crisis of 2008.  And although this period of time will undoubtedly become the basis of many future dissertations examining the “Great Recession;” you might ask “how much has the state of housing improved since 2008?”

If you recall, the Housing and Economic Recovery Act of 2008 (HERA) was anticipated to have wide reaching changes in the mortgage and housing industries as well as supposed to have assisted struggling home owners.  This multifaceted piece of legislation consolidated many individual bills addressing issues that were thought to either be the cause or the result of the financial crisis.  Besides raising mortgage loan limits to increase home buyer activity, the historic legislation was the beginning of changes meant to “fix” Fannie Mae and Freddie Mac, as well as “modernizing” FHA to make the mortgage process easier for home buyers and refinancing easier for struggling home owners. Additionally, this law was the origination of the Hope for Homeowners program to assist home owners facing foreclosure (www.govtrack.us/congress/bills/110/hr3221).

The Federal Housing Finance Agency (FHFA), originated from HERA, has been the “conservator” of the then sinking Fannie Mae and Freddie Mac. Since the FHFA took control, there has been conjecture as to what would become of the mortgage giants: some talked about closing their doors, while some talked about changing their role in the mortgage industry. Since FHFA became the oversight agency, Fannie Mae and Freddie Mac has strengthened their role in maintaining liquidity in the housing market by helping struggling home owners with their mortgages as well as freeing up lender capital by the continued purchases of loans (fhfa.gov)

The inception of Hope for Homeowners was the beginning of a string of government programs designed to assist home owners facing foreclosure, or assist underwater home owners refinance their mortgage.  Although there have been individual success stories, there has been criticism that these programs did not assist the expected numbers of home owners.  A January 24th CNNMoney article by Tami Luhby (money.cnn.com) reported that “…the HAMP program, which was designed to lower troubled borrowers’ mortgage rates to no more than 31% of their monthly income, ran into problems almost immediately. Many lenders lost documents, and many borrowers didn’t qualify. Three years later, it has helped a scant 910,000 homeowners — a far cry from the promised 4 million…” and “HARP, which was intended to reach 5 million borrowers, has yielded about the same results. Through October, when it was revamped and expanded, the program had assisted 962,000…” (money.cnn.com/2012/01/24/news/economy/Obama_housing/index.htm).

HousingDespite the recent slowdown in foreclosure activity, there is disagreement about the projected number of foreclosures going into 2013.  A March 29th Corelogic news release (www.corelogic.com/about-us/news/corelogic-reports-almost-65,000-completed-foreclosures-nationally-in-february.aspx) reported that there have been about 3.4 million completed foreclosures since 2008 (corelogic.com).  And although an August 9th RealtyTrac® (www.realtytrac.com/content/foreclosure-market-report/july-2012-us-foreclosure-market-report-7332) report indicated a 3% decrease from June to July and a 10% decrease from the previous year in foreclosure filings; July’s 6% year over year increase in foreclosure starts (initial foreclosure filings) was the third straight month of increases in foreclosure starts.

So, if you’re wondering if housing is better off today than it was four years ago, the answer may be a resounding “maybe;” It all depends on your situation.

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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of September 3 , 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.