HAFA – a misunderstood program

As April 5th approaches, everyone is excited about the official start of the Home Affordable Foreclosure Alternatives (HAFA) program. HAFA is a major development to curb the number of foreclosures by allowing home owners the opportunity to sell their home through the short sale process. Many incorrectly misunderstand the program to approve all short sales; however, it is a measure to facilitate lenders’ loss mitigation processes (the process that lenders use to determine the manner in which to dispose of property and lose the least amount of money) that includes short sales, deed-in-lieu (of foreclosure), and foreclosure.

To provide assistance to financially challenged home owners, the Making Home Affordable program (MHA) was announced February 2009. The program was devised to assist eligible home owners retain their homes by either mortgage modification or refinance. HAFA was introduced in May of 2009 to provide structure to the seemingly convoluted loss mitigation process (www.treas.gov).

You probably already know that a short sale occurs when a home owner sells their home for less than what they owe their lender. In a short sale, the lender is asked to give their blessing and to “forgive” the difference between the sale price and what is owed. Home buyers often seek out short sales as a means of purchasing a “bargain” priced home. Unfortunately, the traditional short sale is typically a lengthy process that is full of pitfalls; but for patient home buyers the short sale is worth the wait.

On average, it is not unusual to wait 2 to 4 months to receive third party approval for a short sale; some short sale approvals can take much longer. Reasons for lengthy waits for short sale approvals are complex and varied, but may be due to (and not limited to) consultations with bond holders (of mortgage backed security within which the loan was pooled), a vast backlog of files, and the loss mitigation process itself.

The HAFA program is intended to reduce the cost and impact of foreclosure to lenders as well as neighborhoods. The program allows the home owner 90 days (or more depending on the market) to procure a buyer for their home at a sale price that is set by their lender; this allows a home buyer to purchase the short sale without waiting months for a short sale approval. If the short sale period ends unsuccessfully, the home owner must give the home back to the lender via a deed-in-lieu.

Foreclosure proceedings are allowed to coincide with the short sale, however the foreclosure sale is deferred until the short sale process is concluded. Monetary incentives are given to participating lenders as well as to home owners who adhere to the program until its fruition. Eligible home owners will be accepted into the HAFA program until December 31, 2012.

Since HAFA will officially begin in a few weeks, information is being provided through many outlets. It is understandable that some of the information provided is incorrect and/or sensationalized. To qualify for HAFA, the home owner must be eligible for MHA (mostly, loans that have been bought by Fannie Mae or Freddie Mac) but either did not qualify for a modification or was unable to complete the process. If you are unsure of your eligibility, program guidelines, and additional information, check with your lender and/or the Making Home Affordable website (www.makinghomeaffordable.gov).

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.

by Dan Krell © 2010

Extending Foreclosure Protections for Members of Armed Services

by Dan Krell © 2010

Extending foreclosure assistance for active duty service members
As concerns over increasing foreclosures throughout the country, foreclosure assistance and relief for active members of the United States Armed Services that was included in H.R. 3221: Housing and Economic Recovery Act of 2008 is set to expire December 31, 2010. In response and support for those who are actively serving, Rep. Thomas Perriello (D-VA)introduced legislation October 29, 2009 to extend foreclosure assistance for active members of the U.S. Armed Services.

H.R. 3976: Helping Heroes Keep Their Homes Act of 2009 to extend those protections to expire December 31, 2015 was introduced October 29, 2009. The bill is still alive in Congress and calls for the “Extension of enhanced protections for servicemembers relating to mortgages and mortgage foreclosure under servicemembers civil relief act (section 2203(c)(2) of the Housing And Economic Recover[Y] Act Of 2008 (public law 110-289).”

The bill was last reported by Committee on March 4th and recommended to be voted on by the house. If this bill becomes law unamended, current protections for foreclosure relief for members of the Armed Services would be extended to the end of 2015.

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. Copyright © 2010 Dan Krell

Fabulous New Bethesda Home – Backs to Country Club Fairway

UPDATE: SOLD!
This new contemporary colonial is of note because it backs to fairway of Bethesda Country Club (Country Club membership is NOT Included in sale).

The interior features an open functional floorplan that utilize natural lighting for accent and dramatic lighting depending on time of day. All the amenities one expects from a new home: Gourmet kitchen, 3 car garage, finished lower level, soaring ceilings, lots of natural light, energy efficient features, nice size lot in sought after Bethesda neighborhood.

MC7270829 Sold!

Fabulous New Home
Did you know that the Bethesda Country Club was a top rated Maryland golf course by Golf Digest magazine (2005-2006). The club also hosted the LPGA Championship from 1990-1993.

Interested in more information about Bethesda, MD? Here is a great article about the history and other information Bethesda. More information about Bethesda, MD

UPDATE: SOLD!

Bubble market or solid economic fundamentals: Lessons we can learn from the Canadians

by Dan Krell © 2010

Bubble housing markets occur when real estate markets, either local or regional, are overvalued. The cause of bubble markets is often debated, as has been hotly argued in recent times, to be the cause of speculation and/or credit policies.

There are several real estate markets that have rebounded much faster than most such that they are in danger of becoming bubble markets. Some economists rank the real estate markets in China, Australia, and Canada as having the highest risk of becoming the next busted bubble market. Because of Canada’s close proximity and similar real estate market, we’re compelled to take a closer look.

Canada’s equivalent to the Federal Reserve Bank is called the Bank of Canada (www.bank-banque-canada.ca) and much like the Fed, the Bank of Canada is a central bank that offers advice on monetary policy. The Deputy Director of the Bank of Canada, Timothy Lane, PhD, offered his analysis on the current situation that is occurring in Canada’s real estate market in a speech given on his behalf on January 11th, 2010.

Although Dr. Lane’s speech was delivered by an advisor, in what may seem like a déjà-vu to Americans, there was somewhat of a denial of a bubble market. The Deputy Director maintained that fundamentals of the Canadian market are intact, such that recent increases in home prices are not unusual for supply and demand economics. As Canadian housing starts are below the target to meet population growth requirements, the Deputy Director made clear that inventories were diminishing as well.

Although Dr. Lane’s opinion is that housing bubbles are fueled by credit expansion, and that recent growth in the Canadian housing market is due to low interest rates and pent up demand. Mr. Lane pointed out that the Canadian housing market was not as turbulent as the market in the United States because Canadian home price appreciation was not as steep. The resulting turbulence manifested in sharp declines in American housing, while Canadian housing fared much better.

Similarities between the current Canadian housing market and the U.S. market prior to the global recession includes: historically low mortgage interest rates, reduced inventory, and increased real estate speculation. The role of increased real estate speculation is of interest because it is not only the domestic investors fueling the Canadian market, but foreign investor looking for large gains.

However, fundamental differences also exist between the markets. Dr. Lane pointed out that the Canadian mortgage system is inherently different than its counterpart in the U.S. Canadian mortgage guidelines are written primarily by mortgage insurers because mortgage insurance is compulsory for mortgages with less than a 20% down payment. Additionally, about 70% of Canadian mortgages are held by the lending institution (rather than becoming securitized) forcing the lender to make more responsible lending decisions.

Deputy Director Lane’s summation was that the Canadian housing market requires “vigilance, but not alarm.” However, they may not have much choice but to ride out market disturbances because any intervention may stall the recovering Canadian economy in a global recessionary environment.

Time will tell whether the Canadian real estate market is a bubble waiting to burst, or just a manifestation of solid economic principles. Either way, we will learn whether prudent mortgage policies can play a part in mitigating future real estate bubbles here in the U.S.

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 March 8, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell

Strategic Default: The new face of foreclosure

by Dan Krell © 2010

Foreclosures have been the focus of headlines for a couple of years. Monthly statistics of home owners losing their homes has created a debate about solving a crisis that has been sucking the life out of the economy and our communities. Clearly many financially challenged home owners do not have a choice about leaving their homes. However, the trend of homeowners who are deliberately not paying their mortgages is a telling story.

“Strategic default” is a term that is used to describe the processes of non-payment of a loan by a borrower who has the financial ability to pay. Although strategic default is typically used to describe the “walking away” from a financial obligation by a home owner who is not having financial difficulty, the term has become loosely used to encompass any home owner that walks away from their mortgage.

As home values have decreased, there are an increasing number of home owners who are realizing that the amount they owe to their lender is more than the value of their home (this is also known as negative equity). Increasing sentiment among many home owners is that they don’t want to continue paying for a home for which they no longer have equity. The growing number of strategic default advocates, which have spawned popular web sites such as YouWalkAway.com, may be indicative of a “movement” of sorts.

However, not all home owners who are under water will walk away from their homes; there are many moral and ethical arguments, as well as other consequences, against the strategic default of a mortgage.

Most of the research conducted after the recession of the early 1990’s (when mailing a house key to the lender was not uncommon) concluded that the lower the down payment (including down payment assistance) combined with negative equity results in significantly higher incidents of strategic default. So even though it was likely that lender analysts and actuaries knew the risks of borrowers not having “skin in the game,” they hedged their bets on an appreciating economy.

Contemporary research has pointed to the same factors when it comes to strategic default:

Downing, Stanton, & Wallace (An Empirical Test of a Two-Factor Mortgage Valuation Model: How Much Do House Prices Matter? Real Estate Economics. 2005, vol 33, Iss. 4; p. 681) concluded that mortgage termination models that do not include house price changes present significant bias to price and hedge ratios.

Austin Kelly (“Skin in the Game”: Zero Down payment Mortgage Default. Journal of Housing Research. 2008. Vol. 17, Iss. 2; p. 75) found that mortgages that required no money from the borrower (either zero down payment or receiving down payment from other sources) had significantly higher incidents of defaults.

Edmiston & Zalneraitis (Rising Foreclosures in the United States: A Perfect Storm. Economic Review – Federal Reserve Bank of Kansas City. Fourth Quarter 2007. Vol. 92, Iss. 4; pg. 115) concluded that the number of strategic defaults will increase as home values decrease and the owners are unlikely to sell.

As more options become available to home owners considering a strategic default, simply walking away without consideration of moral, ethical, and legal consequences may not be prudent. Lenders are increasingly becoming interested in working with home owners rather than have them walk away. As always, consult your attorney and/or CPA for assistance with such legal and financial decisions.

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 March 1, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell