The National Association of Realtors (NAR) has admitted to grossly overstating its numbers of reported home sales over the first years of this Lesser Depression. After the trusted real estate data firm CoreLogic questioned the accuracy of NAR’s numbers, the real estate trade union took a second look and revised its reported home sales data down by nearly 3.5 million homes.

Original NAR reports claimed 24.8 million homes were sold nationwide from January 2007 to October 2011. Revised data shows this figure to be off by 14% from readily available recorded data, with a total of only 21.3 million homes sold nationwide over the course of the Great Recession

(From: first tuesday)

… especially if you don’t know what you’re doing.

A recent article in the NY Times …

http://bucks.blogs.nytimes.com/2011/05/16/the-dangerous-allure-of-distressed-real-estate/?ref=business

… hit it right on the head. Which is where you and your clients can get hit if everyone isn’t REALLY careful.

It was fun reading. I’d recomend it.

Last year the Legislature passed Senate Bill 931 adding Section 580e to the California Code of Civil Procedure.  This new Section established that the beneficiary on a loan secured by a first deed of trust on 1 to 4 unit residential property could not pursue a deficiency judgment after a short sale which they had approved.  The law applies equally to purchase money, hard money and refinance loans.

 This year the Legislature passed Senate Bill 458 which amended Section 580e by making it applicable to junior liens as well.  It also applied additional limitations to the loans subject to the section. In addition to not being able to get a deficiency judgment it provides at Section (a)(1) that after a short sale no deficiency shall be owed or collected and no deficiency judgment shall be requested or rendered provided the short sale closed escrow and the lender was paid the amount they agreed to accept.

 Although the law does not specifically say so it is likely the courts will interpret that section to mean that it applies to a short sale closing either before or after July 15, 2011, the effective date of the new section.  That analysis is based on the provision that the short money cannot be collected and no deficiency can be requested.  It also will bar lenders from turning these loans over to a collection company which some lenders were doing even though the earlier section barred a deficiency judgment.

 The amended law provides at Section (b) that the holder of a note shall not require the seller to pay any additional compensation, aside from the proceeds of the sale, in exchange for their consent to the short sale.

 Some people have taken the position that, since only the seller is prohibited from providing additional compensation, the 2^nd lender can request the buyer or real estate brokers to pay them additional money above that the 1^st has agreed they can receive from the sale. 

 That might be true if only this code section applied.  But if the 1^st lender has based their approval on their consent to the 2^nd only receiving a specified amount then any attempt to pay the 2^nd more without the consent of the 1^st would likely be considered loan fraud.  If the 1^st finds there is more money available in the transaction they will rightly feel it should go to them rather than to the 2^nd.  That is the purpose of being in 1^st position.

Section 580e (c) provides that if the borrower commits loan fraud the limitations of the section would not apply.  The lender would then be able to pursue the entire unpaid balance. If you are the broker in a transaction where the 2^nd lender requests the broker or buyer to pay them some additional money either within or outside escrow you need to make sure that either the 1^st lender specifically approves the additional money being paid to the 2^nd or you run away from that transaction as quickly as possible.  Participating in a fraudulent transaction can expose you to monetary liability to the lender, revocation of your license by DRE and criminal prosecution.

The real question remaining to be answered is whether this new law will be a great protection of the seller from liability after a short sale or whether it will lead to lenders denying short sales in favor of pursuing foreclosure where a deficiency by a junior lien holder may be possible.

If you have any questions on this article or any other aspect of real estate law please contact the Hanson Law Firm at 916 447-9181 or log on to our website at www.HansonLawFirm.com.

The latest and greatest news is that FHA will allow borrowers who are unemployed up to one year of deferred mortgage payment relief (read: live for free) while they get back on their feet.

This represents about 4% of the troubled California mortgages.

Fannie Mae and Freddie Mac loans are NOT included in this program. Neither are portfolio residential loans held by banks (like all those pesky seconds out there…).

So, for the very few that the “new” program will help (the unemployed, FHA insured, one loan only borrower), congratulations!

For the rest of us: Isn’t it grand how the Government is here to help?

Next.

Zillow Mortgage Market recently reported some alarming – but not surprising – news.

Buyers still don’t know how to do mortgage math.
More specifically:

■ 44% admitted they were not confident in their comprehension of the mortgage process;
■ 57% did not understand how adjustable rate mortgages (ARMs) work;
■ 34% were not aware loan terms vary from lender to lender, lender fees are negotiable and different lenders charge different fees for appraisals and credit reports;
■ 55% did not know mortgage rates are constantly fluctuating;
■ 45% believed they should always purchase mortgage discount points (prepaid interest) regardless of the length of time they intended to keep their home;
■ 37% were under the impression that pre-approval for a loan is synonymous with obtaining permanent financing; and
■ 42% believed Federal Housing Administration (FHA) loans are only available to first time homebuyers.

In a marketplace where (in California) it is possible (perhaps for the first time since, what, 1953?) to buy a single family home and rent it out with POSITIVE cash flow, investors and/or Joe and Martha Buyer still don’t grasp mortgage fundamentals.

So, brokers and agents should not despair. There is still a client base out there that NEEDS your help.

The New York Times recently reported that “high value” homes are going to lose government support in the secondary mortgage market – and that that loss will likely further deteriorate the real estate recovery. It was right.

“By summer’s end,” it reported “buyers and sellers in some of the country’s most upscale housing markets are slated to lose their biggest benefactor of the economic downturn: the deep pockets of the federal government. In [Monterrey, CA, a] seaside community of pricey homes, the dread of yet another housing shock is already spreading.

‘We’re looking at more price drops, more foreclosures,’ said Rick Del Pozzo, a loan broker. ‘This snowball that’s been rolling downhill is going to pick up some speed.’

For the past three years, federal agencies have backed new mortgages as large as $729,750 in desirable neighborhoods in high-cost states like California, New York, New Jersey, Connecticut and Massachusetts. Without the government covering the risk of default, many lenders would have refused to make the loans. With the economy in free fall, Congress broadened its traditionally generous support of housing to an unprecedented degree.

But Democrats and Republicans agree that the taxpayer should no longer be responsible for homes valued well above the national average and are about to turn a top slice of the housing market into a testing ground for whether the private mortgage market can once again go it alone. Michael Barr, a former assistant Treasury secretary, said the federal government’s retrenchment would be painful for many communities.

‘There’s always going to be a line, and for the person just over it, it’s always going to be an arbitrary line,’ said Barr, who teaches at the University of Michigan Law School. ‘But there is no entitlement to living in a home that costs $750,000.’

As the housing market braces for the trouble, homeowners everywhere have been reduced to hoping things will some day stop getting worse. In some areas, foreclosures are the only thing selling. New-home construction is nearly nonexistent. And CoreLogic, a data company, said Tuesday that house prices fell 7.5 percent over the past year. Each month, the number of faltering cities rises.

Federal agencies last year backed nine out of 10 new mortgages nationwide, and losses from soured loans are still mounting. Fannie Mae, which buys mortgages from lenders and packages them for investors, said last week that it needed an additional $6.2 billion in aid, bringing the cost of its rescue to nearly $100 billion.

Getting the government out of the mortgage business, however, is proving much more difficult than doling out new benefits. As regulators prepare to drop the level at which they will guarantee loans — here in Monterey County, the level will drop by a third, to $483,000 — buyers and sellers are wondering why they should be punished simply for living in an expensive region. Sellers worry that the pool of potential buyers will shrink. ‘I’m glad to see they’re trying to rein in Fannie Mae, but I think I’m being disproportionately penalized,’ said Rayn Random, who is trying to sell her house in the hills for $849,000 so she can move to Florida.

The National Association of Realtors is making an extension of the loan guarantees a top lobbying priority.

‘Reducing the limits will put more downward pressure on prices,’ said president Ron Phipps. ‘I just don’t think it makes a lot of sense.’ But he said that in contrast to last year, when a one-year extension of the higher limits sailed through Congress, ‘there’s more resistance.’
Federal regulators acknowledge that mortgages will get more expensive in upscale neighborhoods but say the effect of the smaller guarantees on the overall housing market will be muted.”

Really? No “entitlement” to live in an expensive house? Let Wall Street come up with a private secondary market for expensive (i.e. anything over $500,000?) homes? Who are they kidding? Especially in CA, CT, NT, VT.

This “sock it to the ‘rich’” business is a bunch of baloney.

Oh how I do LOVE first tuesday. Here’s their latest take on Bank of America’s “new and improved” loan modification centers. (And, while they don’t use the word ‘bullshit’ – which I would – they come pretty darn close!)

“Six new Bank of America (BofA) mortgage help centers will be opened in Los Angeles, San Diego, Riverside/San Bernardino, Antelope Valley, Modesto and Bakersfield by early summer. These new mortgage help centers will provide homeowners in danger of foreclosure on a BofA loan the ability to discuss their individual loan situations with BofA staff in hopes of obtaining the near-mythical permanent loan modification.

This newly-announced move comes in response to a scathing critique (full of bark, but oddly bite-less) of the Big Banks’ loose lending and servicing procedures which precipitated the Great Recession.

The housing counselors staffing these new mortgage help centers will be comprised largely of existing BofA employees the Big Bank is looking to redistribute during the current slowdown in loan originations.

But will these six new mortgage help centers actually help? The critics are skeptical. Like many Americans, the pundits have taken a “we’ll-believe-it-when-we-see-it” attitude to the multitude of reform promises made by the Big Banks. These centers, after all, aren’t changing BofA’s modus operandi; they merely provide friendlier faces for their refusals.

first tuesday Take: Count us as one of the critics, but don’t believe the modifications will somehow magically flow forth. Viewed in the best light, BofA is 1) providing its homeowners with a more reliable way of reaching someone who will deny their loan modification requests, and 2) giving its under-employed employees something to do. But we are talking about a bank here, so the likelihood that this move will live up to the best possible interpretation is pretty darned miniscule.

It’s been clear for awhile that marking all these loans to market will hugely undermine (and that’s a nice way of saying “topple”) BofA’s claim to solvency. And even if you believe BofA cares for its customers, it doesn’t care enough for them to go out of business. [For more on mark-to-market vs. mark-to-management accounting, see the October 2010 first tuesday article, Deflation’s push on the real estate recovery.]

So, we’ll say this for BofA: they can be congratulated on their ability to get press coverage on their staffing acuity while they avoid increasing the swollen ranks of California’s unemployed. But mortgage assistance? Don’t count on it.”

From first tuesday Journal Online — P.O. Box 20069, Riverside, CA 92516

The Ney Work Times reported on teh story May 5. Some of its commentary:

“Just over two million homes are in foreclosure nationwide, according to LPS Mortgage Monitor, and another two million borrowers are severely delinquent.

Additional centers may open later this year, the bank said. Counselors fluent in languages including Spanish, Korean, Vietnamese and Russian will be available for non-English speaking customers.

‘There are some people that prefer a face-to-face experience,’ said Rebecca Mairone, national mortgage outreach executive for Bank of America. ‘They prefer telling their story face to face or need additional information about documents or other counseling. We’re committed to helping distressed customers.’

Most of the counselors in the new centers will be transferred from other areas of the mortgage business, like sales and originations, which have slowed with the decline in mortgage demand.

Bank of America officials said their internal foreclosure procedures had changed in the wake of public criticism, and that the centers were being opened partly in response to customer feedback.”

“THERE ARE SOME PEOPLE THAT PREFER THE FACE TO FACE EXPERIENCE”?

“WE’RE COMMITTED TO HELPING DISTRESSED CUSTOMERS”

“MOST OF THE COUNSELORS WILL BE TRANSFERRED FROM OTHER AREAS OF THE MORTGAGE BUSINESS”

What a crock.

It would have been more honest to say: “We don’t want any more bad press so we’re not going to announce layoffs of our mortgage staff, and it’s better public relations to give our customers a face to face denial.”

Senator Dodd and Congressman Frank, the people who were key players in allowing the financial collapse, have brought us legislation to “fix the problem”.

 The Dodd-Frank Act is 2,314 pages of disjointed and wide spread enabling legislation that will impact all areas of the financial structure.  To see the briefest summary I have been able to locate, 16 pages, go to http://banking.senate.gov/public/_files/070110_Dodd_Frank_Wall_Street_Reform_comprehensive_summary_Final.pdf.

Among other things the Act creates a new federal agency, the Consumer Financial Protection Bureau (CPF), funded by the Federal Reserve system.  The CPF, which comes into existence on July 21, 2011 unless delayed for up to one year, will have broad sweeping enforcement powers in all areas of consumer finance including home loans, car loans, student loans, payday loans, credit cards, all mortgage related businesses and credit reports. It will also oversee banks and credit unions with assets in excess of $10 billion.  And the CFP has the authority to write its own regulations and then enforce them.

It is the most far reaching intrusion of government into the financial lives of its citizens in the history of the world. Many of the regulations they will be charged with enforcing have not even been written or finalized yet so the true scope of the CPF is not known, and it comes into existence in a few days.

In the area of real estate CPF will take over the power of enforcing RESPA from HUD. To bring about this transfer HUD has withdrawn all previously issued informal opinion letters. If your business is pursuing a business model in reliance on an informal opinion letter from HUD that it does not violate their rules you will need to be looking at the rules from the new Bureau to see if you are still ok.

CPF will take over enforcement of MARS from the FTC.  The FTC had been working with NAR to fine tune the regulation to remove real estate brokers from most of the regulatory requirements.  In early May the FTC advised NAR that they will not be revising the rule as promised, presumably because the CPF will now be responsible for the rule.

Part of the Act creates the Qualified Residential Mortgage (QRM) standards which generally will require that all buyers put 20% or more down for a conventional loan and meet fairly conservative qualifying ratios. And the lender will need to insure that the borrower has the ability to repay the loan.  Will non-QRM loans be available?  Potentially.  But if the borrower gets a non-QRM loan and then runs into trouble making the payments the borrower will have the ability to prevent foreclosure at any time during the life of the loan by claiming that the lender had no reasonable belief that the borrower could repay the loan at the time it was made.  Do you think you will see many of those loans?

What risk does Dodd-Frank bring to a real estate professional?  Any violation of CFP regulations can result in a fine of $5,000 per day.  A reckless violation can result in a fine of $25,000 per day.  A knowing or willful violation can result in a flat fee fine of $1 million.

So why have you not heard more about this in the industry or in the media? As I mentioned earlier, the regulations to implement much of this are still under development. No one is sure yet what the rules will be in order to advise you accordingly. In the future you will need to be diligent in watching for any news about Dodd-Frank and determining how it may impact you personally or professionally.

Strictly speaking…

Defining the qualified residential mortgage (QRM) is testing the mettle of the government’s commitment to stability in the real estate market.

QRMs, established under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), are loans meeting low-risk standards which exempt lenders from having to retain any part of these loans in their portfolios.

New proposals by federal agencies and the administration restrict the designation of QRM to loans in which homebuyers put down at least 20% of the purchase price of a home as down payment, colloquialized as “having skin in the game.”

The proposed down payment requirement alone has sparked fierce debate in real estate circles and the media, but it’s far from the only proposed restriction on what qualifies as a QRM. The designation of QRM is restricted to:

. first-lien mortgages to purchase or refinance a one-to-four unit principal residence;
. mortgages amortizing over 30 years or less;
. borrowers who are not currently 30 or more days past due on any debt;
. borrowers who have not been 60 or more days past due on any debt within the last 24 months;
. borrowers who have not, in the past 36 months:
– filed for bankruptcy;
– had property repossessed or foreclosed on;
– engaged in a short sale or deed-in-lieu of foreclosure; or
– been subject to a federal or state judgment for the collection of a debt;
. loans with interest rates adjusting no more than two percent in any 12-month period, and no more than six percent over the life of the loan, if the loan is an adjustable rate mortgage (ARM);
. mortgages which do not contain prepayment penalties;
. loan-to-value ratios of 70% for rate-and-term refinances and 75% for cash-out refinances;
. debt-to-income ratios of 28% for all mortgage debt, called the front-end ratio, and 36% for all debt, called back-end ratio;
. standard documentation loans;
. loans with points and fees of 3% of the loan amount or less; and
. non-assumable loans.

Any loans not meeting all the above requirements would require lenders and securitizers to hold in reserve an amount equal to 5% of the loan balance in their portfolios, as recovery funds in case of default. This means any borrower who does not qualify for a QRM — i.e., the vast majority of borrowers — would be subject to higher interest rates to cover the increased risk a non-QRM would pose to lenders.

Federal Housing Administration (FHA)- and Veterans Administration (VA)-insured loans, as well as loans sold to Fannie Mae or Freddie Mac (while they remain under government control) are not subject to the QRM requirements under the proposal.

If passed, the rules outlined in the proposal will not be implemented until mid-2012.

The zero-sum game lenders will play.

Ah, lenders. The idea of retaining any risk for the loans they originate has them running a bit scared. At this point, we can only speculate on what tricks lenders will devise to get around the rules that borrowers and the rest of the consuming public have to play by — and make no mistake, lenders will do so.

Many of the proposed QRM requirements would set groundwork for a stable housing policy (down payment requirements, strict DTI ratios), separating those who are truly financially able to take on the burden of homeownership from those who are tenants-by-nature. However, it’s important to note the distinction between QRM and a non-QRM are not prohibitive; lenders can still lend to non-QRM-eligible borrowers.

And Americans still have a huge appetite for homeownership in spite of the unmanageable financial risks it poses to most homeowners. A recent study shows Americans are still very willing to glut themselves on housing and mortgage debt, regardless of the financial malaise which follows. Thus, the strict definition of the QRM will only lead to more marginalized types of borrowing — the non-QRM-eligible borrowers will almost certainly be charged higher interest rates, thus perpetuating the cycle of non-QRM-eligible borrowers being more likely to default.

Likewise, the three-year restriction against borrowers who participated in a short sale or deed-in-lieu of foreclosure carries the weight of punitiveness by classification, not ability to pay. Borrowers may have taken it upon themselves to buy (or refinance) when the market value of their properties were worth more than fundamentals dictated, but lenders had no qualms about originating these loans at the time, knowing quite well their conduct was a financial accelerator recklessly driving home prices up. Will restricting short-sale participants from being eligible for a QRM really lead to fewer people overpaying for their homes or defaulting?

Solution or punishment?

The importance of a stable housing policy promoting stable homeownership is paramount, but the strictness of the QRM may be based on reactions to the most recent housing crisis rather than truly crafting a stable housing policy. The strict differentiation between QRMs and non-QRMs merely gives lenders the ability to pawn off their 5% risk-retention onto underqualified homebuyers and homeowners; it’s a zero-sum risk reduction for lenders.

Brokers and agents would do well to be aware of how this proposal fares in the coming months. The proposal is open for comment through June 10, 2011. Comment can be submitted to any of the participating agencies via methods outlined on pages two and three of the proposal, which can be read in its entirety on the Federal Deposit Insurance Corporation (FDIC)’s website.

From: the first tuesday Journal Online — P.O. Box 20069, Riverside, CA 92516.

Lance Churchull writes:
“One thing I have wondered about in the past is why the two government-sponsored entities, Fannie Mae and Freddie Mac, found it necessary to have different rules for short sales, but then I remembered that the “G” in GSE stood for government and, of course, the government usually makes things more complicated than they should be. Well, on April 28, 2011, the Federal Housing Financing Agency (FHFA), which has been overseeing Fannie Mae and Freddie Mac since their near financial collapse, decided it would be better if they had uniform rules for delinquent mortgages. The FHFA has directed that Fannie Mae and Freddie Mac align their guidelines for servicing delinquent mortgages they own or guarantee with the stated purpose of creating an updated framework that will establish uniform servicing requirements for how delinquent mortgages are handled, including the short sale process. The director of FHFA said, “Once fully implemented, the enterprises’ aligned policies will require earlier contact, more frequent communication and prompt decisions.”

The aligned guidelines will also govern the “dual track” foreclosure process by requiring the servicers to immediately contact delinquent borrowers in an effort to resolve a delinquency. The foreclosure process may not commence if the borrower and the servicer are engaged in a good faith effort to solve the delinquency. In the event that the property is referred to foreclosure, financial incentives would be provided to encourage the servicers to help continue the borrowers pursue a foreclosure alternative such as a short sale.

Freddie Mac and Fannie Mae must issue the new guidelines to their servicers on or before September 30, 2011. Having reviewed the actual and very detailed servicing announcements by both Fannie Mae and Freddie Mac that seems like an awfully long time to implement the new rules. However, given the fact it took Fannie Mae and Freddie Mac eight months to implement a HAFA program that was nearly the same as the Treasury Department’s program, I guess it is reasonable for them to take five months to align their loss mitigation rules.

One of the new policies that agents will like is that Fannie Mae and Freddie Mac will have the same borrower package for borrowers to be considered for all workout and foreclosure avoidance solutions, including HAMP modifications and short sales. When the borrower’s package is received, it is required that at the beginning of the process there be a simultaneous evaluation of borrowers for both the HAMP and HAFA programs. An additional new standard that agents will applaud is that there will be a uniform case escalation process which requires acknowledgement of an escalation request within three business days after receipt and adherence to a 30-day maximum total time to resolve an escalated case.

Since Fannie Mae and Freddie Mac short sales constitute a large portion of the short sale market, new uniform short sale guidelines and procedures for non-HAFA short sales would certainly be welcomed by the real estate industry. Let’s hope that the new guidelines, when they are issued, will actually simplify and expedite the process, and that the servicers will effectively implement the new rules. Stay tuned for updates on this topic, but don’t hold your breath in anticipation of seeing the newly aligned Fannie Mae and Freddie Mac short sale rules very soon.”

I couldn’t agree more.