Real Estate News and Commentary

October 14, 2010October 5, 2019

Housing recovery may be in jeopardy; Allegations of foreclosure processing irregularities

For a housing market that seemed to have begun the healing process, the bandages appear to be unraveling. Recent reports of fraud during the foreclosure process as well as questions of mortgage note ownership have had several lenders, most recently Bank of America, freezing their foreclosure process until they can assure the foreclosure process is conducted legally and with integrity.

At first, everyone seemed shocked to learn of the alleged fraud involved in preparing foreclosure documents necessary to pursue a foreclosure. Some allege that the fraud, although not rampant within the industry, is systemic; it is a symptom of a high volume industry that is typically understaffed. Reports of robo-signing of thousands of documents per week (used to attest to the accuracy of the foreclosure documents) have become so vociferous that some state Attorney Generals are seeking investigations.

Most recently, news of a mortgage registry set up to facilitate the bundling and sale of mortgages on the secondary market cannot foreclose on delinquent home owners. The recent accounts of denying MERS (Mortgage Electronic Registration Systems) during the foreclosure process are just another blow to an already fragile housing market.

Much like allegations that foreclosure processing fraud is not new, the MERS situation should also not be a surprise. Way back in 1989, Henley Saltzburg (“Avoiding Legal Pitfalls”, Mortgage Banking; Apr 1989; 49, 7; pg. 38) highlighted documentation problems in secondary market by stating, “Incomplete or inaccurate documentation is a primary source of contractual litigation in the secondary market…” Furthermore, according to Steve Cook, of Real Estate Economy Watch, since 2006 Fannie Mae has ordered servicers to not name MERS as a plaintiff in foreclosure proceedings (“Straightening Out the MERS Mess”).

The recent media coverage of these developments have people wondering about the short and long term affects on the housing market. Many fear that delaying the disposition of foreclosed properties by prolonging the foreclosure process may push home prices even lower. Even Mark Zandi, chief economist at Moody’s Analytics, was quoted in an October 4th Wall Street Journal article (Robbie Whelan. “U.S. News: Foreclosure? Not So Fast”) describing the current foreclosure situation as a “…growing mess in the foreclosure process…” and will be looking to a now prolonged housing recovery.

Industry experts are looking to clear up these matters as soon as possible. Fannie Mae Executive Vice President, Terry Edwards, issued a statement on October 1st saying that “steps” are being taken in coordination with regulators to ensure that servicers adhere to “the exact requirements of the law” as well as strengthen the review and due diligence procedure to protect borrowers’ rights while conducting the default process.

To highlight this crisis, the Senate Banking Commission Chair, Senator Chris Dodd (D-CT) announced that the commission will hold a hearing on November 16th to investigate allegations of impropriety in mortgage servicing and foreclosure processing.

Although some home owners are not fighting their lenders during the foreclosure process, some are clearly taking advantage of the foreclosure freeze by attempting to renegotiate their mortgage terms with the actual note holders. However, if you’ve purchased a foreclosure or short sale or you’re considering doing so- consult with your title attorney to ensure that your owner’s title insurance covers claims that may arise from such disputes.

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 11, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell.

October 6, 2010October 5, 2019

Home ownership is still valued

by Dan Krell © 2010

The shock of the economic crisis is over; however, shock is setting in that the recession is over. Oh, you haven’t heard? The Business Cycle Dating Committee of the National Bureau of Economic Research declared that the recession ended in June 2009. Although the recession has been declared statistically “over” (because of an uptick in GDP in that quarter) recent indices and polls might suggest otherwise.

Unemployment, GDP and consumer confidence leads gloom and doom indices that may project how many people feel about the current economic environment. For example, the national unemployment rate is 9.6%; while in Maryland unemployment is 7.3%, which is slightly less than the highest mark since the beginning of the recession (bls.gov). Additionally, GDP measures have been low and/or not meeting expectations; estimates from the second quarter of 2010 have been revised to 1.6% (bea.gov). And, consumer confidence has recently declined.

Although these indices do not instill confidence, recent polling data and housing statistics may be good news.

A Harris Poll (published by Harris Interactive; harrisinteractive.com) of consumer spending that was released on October 4th appears to illustrate the state of the economy through planned consumer spending. The Harris Poll indicates that “economic growth will be sluggish” because of careful spending amid continued unemployment concerns; the overall sentiment is that consumers are not planning to increase their spending anytime soon, especially on “big ticket items.”

However, although all indicators of the Harris Poll point to continued consumer caution, the bright side is that an increase number of consumers are planning to purchase a home in the next six months (10% indicated they are planning a home purchase within six months compared to 7% in May 2010).

Additional good news on the housing front includes increased home sales and home prices. According to the National Association of Realtors (realtor.org) home sales increased about 7.6% during August 2010 (however August sales figures remain about 19% lower than August 2009) and home sale prices are up about 2.9% from the same time last year (although slightly lower from July 2010). Locally, home sales are down from a year ago in the Washington, DC Metro area, but median home prices are about 5.4% higher than the same time last year. The economic forecast provided by the NAR indicates very modest home sale and home sale price increases over the next two years (with 2010 being the bottom).

Signs of housing stability and increased home buyer interest amid continued economic turmoil may not just be a fluke of the polling process. However, it may be an indication of the intrinsic and intangible value that consumers place on home ownership; which is corroborated by research. A recent commentary entitled “Homeownership Matters: Homeownership and Civic Engagement” by Selma Hepp, NAR Research Economist (realtor.org), cited recent studies that purports the benefits of home ownership go beyond home values and is extended into the community. Research indicates that homeowners are more invested and attached to their communities (compared to renters) as evidenced by their increased community involvement and extensive social networks.

Although the shock of the crisis may have subsided, and we have adapted our lifestyles to conform to our expectations of the economy; research and housing indices could indicate that the value of home ownership placed by consumers may transcend the monetary value of the home itself.

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 4, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell.

September 30, 2010October 5, 2019

How unknown problems jeopardizes the home sale

“What you don’t know won’t hurt you” is an idiom that implies that you can be happier by not looking into the unknown. However, this does not apply to real estate transactions. Homebuyers and sellers both invest a great deal of time and money in the process prior to settlement and do not want to have it all squandered on an unknown that can ruin their home sale.

Homebuyers typically spend about twelve weeks searching for a home (according to NAR’s Profile of Home Buyers and Sellers 2009), and can spend a nice sum of money when the cost of a home inspection, loan application, appraisal, gas for driving, time off of work, etc. is totaled. Likewise a home seller invests time and money in preparing for closing all the while having their home sale depending on the performance of the buyer.

Unfortunately, a transaction can sometimes become laden with unknown landmines waiting to blow up the deal. Although most real estate agents try to vet their clients before entering into a contract, hidden issues threatening the closing may not be revealed until weeks after a ratified contract and sometimes not until closing. If you’re a buyer or a seller, it makes sense to ask about your counterpart; and if there’s opportunity, take the time to find out more about them prior to becoming invested in the sales contract.

Take, for example, divorce. Although divorce is a common issue that is encountered within a transaction, it is sometimes not fully disclosed and can affect the outcome of the home sale. A homebuyer’s ability to purchase a home could be affected by shared accounts that have not been revealed or responsibility is refused by their spouse; the resulting homebuyer’s high debt ratio could disqualify them from their mortgage. Likewise, a home seller going through a divorce can be tripped up by an uncooperative spouse who is unwilling to sign the deed.

Homebuyer issues can pose potential problems if not evaluated properly. Undisclosed credit, financial, and legal issues can pop up any time throwing a wrench into the home sale; sometimes these issues don’t reveal themselves until the end of the process because the loan officer and/or agent did not ask the right questions or ask for all the required documentation. Additionally, unlicensed lenders and loan officers that continue to attempt to do business can also be a potential problem as they may be prevented from providing the homebuyer a mortgage.

Unknown home seller issues may also jeopardize the home sale; surprise issues are typically related to providing clear title to the buyer, but can also include various legal problems. Title defects may include unpaid mortgages and (tax and mechanics) liens. Sometimes a seller may need third party approval from a trustee or lender (such as in bankruptcy or foreclosure), which can either prevent or prolong the sale.

Due diligence prior to entering a sales contract may prevent sticky problems; searching available public records and reviewing disclosures for discrepancies could provide extra information that can assist you in your decision process. Undisclosed buyer and seller issues, although aggravating, do not always kill the home sale and often are resolved. However, consulting an attorney about recourse over a soured real estate transaction is always a good idea.

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 27, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell.

September 22, 2010October 5, 2019

House Bill Proposes Prompt Short Sale Decisions: H.R. 6133 requires 45 day response

by Dan Krell © 2010

A recently published study by CoreLogic (“The Cost of Short Sales: CoreLogic Research Study”; August 2010) indicated the number of short sales tripled since 2008. The study also indicated that “short sales will continue to be a significant factor for the housing industry.” Additional telling data from CoreLogic’s second quarter Negative Equity Report (2010) indicates that 23% of all properties with a mortgage (approximately 11 million) are in a negative equity position (also referred to as under water or upside down).

For many, this news does not come as a surprise; which is why short sales have become the focus of a new bill introduced last week in the House of Representatives by Rep. Robert Andrews (D-NJ) and Rep. Thomas Rooney (R-FL). The “Prompt Decision for Qualification of Short Sale Act of 2010” was referred to the House Committee on Financial Services on September 15th and, although approximately five pages in length, could potentially impact the housing industry.

Representative Rooney stated, in a September 16th press release regarding the bill, that short sales in his state of Florida are rising, “but lenders haven’t always been able to keep pace”… “By requiring lenders to make decisions on short sales within 45 days, this legislation would speed transactions and help prevent homes from going into foreclosure.”…”This bill would spur growth in the housing market by helping sellers and buyers complete short sales quickly.”

Anyone familiar with a short sale knows that there is uncertainty as to the length of time the seller’s lender will respond to a short sale request; which prompts many buyers and real estate agents to shy away from them. Additionally, some buyers who take a chance on a short sale walk away because the transaction takes too long. These are just a few factors that contribute to failed short sales which add to the foreclosure roll.

The bill, also known as “H.R. 6133: To Require The Lender Or Servicer Of A Home Mortgage, Upon A Request By The Homeowner For A Short Sale, To Make A Prompt Decision Whether To Allow The Sale,” is intended to provide a timeline for the lender to provide a response to a short sale request. The basics of the bill states that the home seller’s lender has 45 days to provide an answer to a short sale request when the seller submits all lender required short sale information and a fully executed sales contract. The lender’s response could be an approval, a conditional approval, or a request for additional information. If the lender fails to respond to the request within 45 days, then the short sale request will be considered to have been approved.

Although the bill puts a necessary spotlight on one weakness of the housing market, the bill obviously falls short in a number of areas. Besides the limitations already specified within the bill, the bill fails to address the complexity of a short sale with multiple lenders as well as the possibility that lenders may “game the system” by issuing requests for additional information or provisional approvals by the 45th day then take several additional months to make a final decision.

Unfortunately, many bills do not make it out of Committee and the odds of passing this particular bill are slim. Ironically, we won’t know the outcome for several or more months.

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 20, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell.

September 15, 2010October 5, 2019

Assumable mortgages and housing

The case to expand availability of assumable mortgages

by Dan Krell © 2010

When the financial markets went into crisis mode a couple of years ago, ideas were tossed around to help a housing market sliding into an abyss. One of the least compelling and unpopular, yet sensible proposals in the last two year to assist the housing market was increasing the availability of assumable mortgages. Because the appeal of assumable mortgages is somewhat of a long term plan and the severity of the crisis was deemed to require immediate and direct intervention, the assumable mortgage will have to wait for its day to come (again). That day may be arriving soon.

Besides the criticism about being an unfeasible short term solution to the housing market on the brink, some of the assumable mortgage proposals were unnecessarily complex and suggested immediate changes to existing mortgages and deeds of trusts; in fact some suggested immediate interest rate drops of existing mortgages to provide incentive to home buyers to purchase homes assuming those mortgages. Critics of assumable mortgages also claimed possible interference to the secondary mortgage markets proclaiming additional loss to the industry due to reduced mortgage originations.

If you’ve never heard of an assumable mortgage, it is a mortgage that allows someone to take over mortgage payments from a home seller as part of a home purchase transaction. Up until the late 1980’s many home mortgages were assumable; however of the mortgages originated today, only FHA and VA mortgage programs allow the homeowner’s loan to be assumed.

The features of an assumable mortgage that make it attractive to home buyers and sellers also make it disadvantageous. Besides allowing a home buyer purchase a home acquiring a mortgage with a lower interest rate than prevailing rates, which can make the mortgage payment more affordable; the home buyer undergoes a streamlined credit and income qualifying procedure; which reduces the overall stress of the mortgage process.

The benefits of an assumable mortgage for a home seller include the possibility of using the loan as a selling point to buyers looking to qualify at a lower interest rate with a streamlined mortgage process.

The downside is that the seller’s mortgage interest rate may be higher than market rates. Additionally, if the loan is significantly less than the purchase price the home buyer will most likely have to come up with a higher down payment. Other disadvantages may also include assuming the terms and conditions of the loan- including penalties and any prepayment conditions.

Assumable mortgages assisted lagging housing markets of the past, when sky rocketing interest rates and tight credit made it difficult to buy a home. Like past housing slumps, today’s housing market can also benefit from assumable mortgages. Besides reducing some lending pitfalls, today’s low interest rates could be assumed at a later time (when interest rates may be significantly higher). Although assuming someone else’s mortgage may not seem attractive today, it’s clear that historically low interest rates will not remain at this level much longer; increasingly difficult mortgage underwriting guidelines and higher interest rates will certainly make today’s mortgage attractive to future home buyers.

A simple solution to a probable enduring sluggish housing market is to expand the availability of assumable mortgages beyond FHA and VA so home buyers will have more options and incentive to purchase a home in years to come; in good economic times and bad.

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 13, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell.