Category: foreclosure

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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.

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This is not your father’s housing recession or recovery

by Dan Krell ©2012
DanKrell.com

homesWhen the housing market began its decent into uncharted territory in 2007, people talked of a “V” shaped housing market recovery, meaning that they braced for a market bottom followed by an upturn of increasing activity. What many experts are now talking about is an “L” shaped market recovery, where the housing market will hit bottom and not begin its ascent for a number of years. In retrospect, we have experienced the market’s bouncing along the bottom for at least 2 years (seeing inconsistent activity from month to month); although some still think that the market has yet to bottom out.

Two reasons why the housing market may continue to drag along the bottom include the dramatic loss of net worth in recent years and the recent increase in foreclosure activity.

The fact that the mean (average) income fell 7.7% is nothing compared to the 38.8% drop of mean net worth, as reported by a recent Federal Reserve Bulletin, “Changes in U.S. Family Finances from 2007 to 2010: Evidence from the Survey of Consumer Finances” (fed.gov). The report stated, “Although declines in the values of financial assets or business were important factors for some families, the decreases in median net worth appear to have been driven most strongly by a broad collapse in house prices.” The report further clarifies, “…The decline in median net worth was especially large for families in groups where housing was a larger share of assets, such as families headed by someone 35 to 44 years old (median net worth fell 54.4 percent)…”

This report underscores what many in the industry have known, but have not fully admitted about the weak move-up market; the dramatic loss of home equity in recent years has not only made it difficult for many to sell their homes, but also has taken away the means to purchase another [home]. Additionally, the combination of diminished net worth and reduced income has forced many would-be first time home buyers to wait on the sidelines.

Additionally, foreclosures have not been news for some time, but the reduced foreclosure activity in the past year was said to be temporary in response to legal challenges and the robo-signing fiasco. As the shadow inventory (homes in foreclosure or bank owned) has been building up, many speculate the impact when foreclosure activity picks up.

A recent RealtyTrac (realtytrac.com) press release reveals that foreclosure filings have picked up and discusses the possible outcome. Besides a 9% increase in nationwide default notices was reported in May; RealtyTrack reported, “Foreclosure starts nationwide increased on an annual basis after 27 consecutive months of year-over-year declines.”

Lenders are becoming increasingly aware of the benefits of selling distressed homes as short sales over repossessing them. Brandon Moore, CEO of RealtyTrac, was reported to say that the increase of pre-foreclosure sales is an indication that many recent foreclosure filings may end up as short sales or auctioned to third parties, rather than becoming REO (bank owned).

The dramatic loss of net worth along with continued foreclosure activity only contributes to the changing perception of home ownership. This housing recovery will certainly be recorded in the history books as one of the most protracted and having a lasting impact; this is not your father’s housing recovery.

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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 June 25, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

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Buying a home after a foreclosure or shortsale

by Dan Krell
© 2012
DanKrell.com

If you’ve been through tough financial times, you know that it feels as if your financial picture may never improve. But for most people, experiencing a financial challenge turns out to be just a blip in time; they eventually move on with their life. Given that notion, mortgage lenders know that people endure temporary financial problems through their lives- underwriting guidelines may allow for a past foreclosure, short-sale, or even bankruptcy.

In the old days (prior to desktop underwriting), underwriting was “manual,” meaning that a loan’s approval or denial was decided by a human who reviewed your file. If you were lucky enough to borrow from the local small neighborhood lender, there was a very good chance they knew you, your family, and your financial circumstances (much like the Bailey Building and Loan from “It’s a Wonderful Life”); you had a chance to provide explanations and compensating factors to increase your chance of being approved.

Today, mortgage underwriting is mostly accomplished through automated systems, such as “Desktop Underwriter” and “Loan Prospector.” The automated systems make decisions based on algorithms and do not have the ability to weigh circumstances for negative reports on a credit history. Some lenders may still provide manual underwriting, but borrower requirements have become increasingly strict (including higher minimum credit scores).

Take heart; you still may be able to get a mortgage after a foreclosure, short-sale, or bankruptcy.

For conventional mortgages underwritten with Fannie Mae guidelines, you’ll have to wait at least seven years after a foreclosure. Likewise, you’ll have to wait seven years after a short-sale- unless you can muster a large downpayment (you may be able to qualify: after two years with a 20% downpayment; and four years with a 10% downpayment)! 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).

For FHA mortgages, you’ll have to wait at least three years after a foreclosure, two years after a chapter 7 bankruptcy discharge, and one year current on a chapter 13 payment plan (with court approval). 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; however if the loan was in default prior to short-sale, you will have to wait at least three years before you can qualify.

If you are eligible for VA financing, 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 may be reduced.

If you’re financial issues were caused by circumstances beyond your control, you may be able to get an exception that could shorten the waiting periods. However, you’ll have to provide documentation for the underwriter to review, and not all lenders grant such exemptions.

There are many different mortgage programs, and underwriting guidelines vary. The timelines and requirements posted here are as of time of article; it’s very possible that these guidelines will or have changed. It’s important to talk to a licensed loan officer to know what you need to qualify, as well as which mortgage program will be best for your particular circumstances.

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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 January 9, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

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What do visitability, foreclosure, and agency have in common?

Since the 428th session of the Maryland General Assembly ended Aprill 11th, have you read the “90 Day Report: A Review of the 2011Legislative Session” (mlis.state.md.us)? Many bills that affect real estate transactions as well as homeowners and those involved in the industry have been passed (and of course, many were defeated or not passed). Among the many new laws passed during the 428th legislative session, here are a few highlights.

The international movement which advocates for construction practices for the mobility impaired has taken hold in Maryland. HB437 requires home builders to offer “minimum” visitability features in new homes. The new law applies for new developments of 11 homes or more that receive preliminary approval on or after October 1st, 2011.

“’Minimum visitability features’ are defined as (1) a ground level entrance meeting specified height, width, and accessibility characteristics; and (2) a circulation route from the ground level entrance to an unattached garage, parking space, or public right-of-way that is free of specified impediments or vertical changes in levels greater than 1.5 inches. The builder must provide (1) a point of sale document describing the minimum visitability features; and (2) a drawing or photograph showing these features as well as the lots and new home types that are conducive to the construction of these features.”

If you plan to purchase a foreclosure in the near future, take note: HB842/SB516 indicates that you cannot begin to collect rent from a remaining tenant until you provide notice. As of July 1st a purchaser of a foreclosed property cannot collect rent unless they have: “1) conducted a reasonable inquiry into the property’s occupancy status and whether any individual in possession is a bona fide tenant; and 2) served on each bona fide tenant, by first-class mail with a certificate of mailing, a notice containing the contact information of the purchaser or the purchaser’s agent responsible for managing and maintaining the property and stating that the tenant must direct rent payments to this person.” You can claim rent up to 15 days immediately prior to satisfying the notice requirements.

If your real estate agent is part of a real estate team, there is a chance that a real estate agent of the same team will represent the other party of the transaction, provided that the appropriate disclosures are provided and all parties agree. Currently, only the team’s broker can assign two team members to represent a buyer and seller of the same transaction. Beginning October 1st, HB1049 will also allow a designee of the team’s broker to appoint team members to the same transaction, provided that the broker designee is not a member of that team.

To add teeth to the Commissioner of Financial Regulation’s enforcement of Maryland’s Protection of Homeowners in Foreclosure Act and the Maryland Mortgage Fraud Protection Act, HB509 (an emergency bill that went into effect earlier this year) clarifies the authority of the Commissioner of Financial Regulation, as well as clarifying a homeowner’s ability to seek damages. The Commissioner is authorized by this legislation “ to enforce these Acts by exercising any of the commissioner’s general enforcement powers, seeking an injunction, or requiring a violator to take affirmative action to correct a violation, including the restitution of money or property to any person aggrieved by the violation.” Additionally, a homeowner can seek damages as a result of a violation of the MPHIFA and MMFPA, regardless of the status of administrative actions or criminal prosecution of the offender.

by Dan Krell
© 2011

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

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Links between life events and foreclosure

Should mortgage lenders ask borrowers about their sex lives, health habits, or other behaviors? Sure it may sound outrageous and intrusive, but some might argue that certain life events exhibit specific behaviors that could influence your financial status. To the point: recent research has pointed to correlations between certain life events and foreclosure.

Don’t get me wrong, credit reports are a great tool for providing a snapshot of your current ability to manage your financial picture. An examination of your credit report can provide something akin to a “credit risk analysis;” which is often used to predict the borrower’s ability to repay.

Although a credit report and credit score can provide a snapshot of how a borrower looks at the time of a loan application, trouble may be brewing in the borrower’s life that has not yet affected their credit history. Neil & Neil (2010) indicate that financial issues and foreclosure are often due unexpected causes. They identified the following sources as being reasons for foreclosure: loss of employment; increased debt/financial obligations; job transfer; deteriorating health; and family discord (Neil, B. A., & Neil, J. J. (2010). Financial options for mortgagors in a declining economic market. Journal of Business & Economics Research, 8(3), 25.).

Employment issues and increased debt obligations are often thought of as being linked to foreclosure for obvious reasons. However, health care and family discord are often underestimated as links to financial difficulty and foreclosure.

Determining if there is a relationship between health status and foreclosure, Pollack & Lynch (2009) compared a sample of people undergoing foreclosure in the Philadelphia, PA area to a community sample in the same region. They found that 27.7% of the foreclosure sample “owed money to medical creditors;” 36.7% of that sample met the criteria for depression; while 9% indicated that medical problems (their own or a family member’s) was the primary reason for their foreclosure. Results of their study indicate that the foreclosure sample was more likely to not have insurance coverage or not have filled a prescription within a year of a foreclosure than the community sample. They concluded that foreclosure affects an already vulnerable population, and suggest that a combination of mortgage counseling and health screening efforts be undertaken (Pollack, C. E., & Lynch, J. (2009). Health status of people undergoing foreclosure in the Philadelphia region. American Journal of Public Health, 99(10), 1833.).

It has been stated that one of the top reasons for divorce is due to financial issues; so, like health concerns, family discord can also be concurrent with foreclosure. In a study of housing counseling effectiveness, Carswell (2009) states that divorce (like medical expenditures) can undermine home ownership and contribute to one’s financial behavior; and suggests housing counseling be sensitive to these issues (Carswell, A. T. (2009). Does housing counseling change consumer financial behaviors? Evidence from Philadelphia. Journal of Family and Economic Issues, 30(4), 339).

Like Pollack and Lynch’s study, which identified a correlation between foreclosure and health concerns, direct causality between certain life events and foreclosure have not been fully established. Although it may seem common sense to say there are links between these life events and foreclosure, one must be careful not to say that one causes the other; and therefore keep questions about one’s family life and health in the physician’s office instead of a mortgage application.

by Dan Krell
Copyright © 2011

This article is not intended to provide nor should it be relied upon for legal and financial advice.  Using this article without permission is a violation of copyright laws. 

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