Weekly Real Estate News

Scroll down to see recent news briefs

Are short sales getting easier?

Happy Graduation! Here's Your New Home
In the last year, more parents have been shopping for apartments or condos to give to their children, real estate brokers report. These parents are wanting to take advantage of the dropping real estate prices and low interest rates while also viewing the purchase as an investment, brokers say.

In New York, these lavish real estate gifts — many which serve as graduation presents — are often studios or small one-bedroom apartments.

“The parents see it as a long-term investment and a good place to park their money,” Barry Silverman, an executive vice president of Halstead Property, told The New York Times.

As for how the "gift" of real estate is structured, some parents buy it as a gift for their children and take advantage of tax gift exclusions, others buy it as an investment property and retain ownership, and some are buying it through a family trust or joint ownership. In some cases, the parents don’t even live in the city but are buying the apartment for themselves so when the child decides to move on, they can move in.

Richard Koenigsberg, a certified public accountant, says it’s a good time to be purchasing property as a gift because of some tax exclusions on gifts.

“We are in a remarkable period of time at the moment,” Koenigsberg says. The tax exclusion on gifts and estates has increased to $5 million from $1 million until the end of 2012. In other words, a parent can give a child as much as $5 million tax free.

“It’s a big opportunity for parents who might want to help their children,” Koenigsberg says.

BofA Nears $8.5 Billion Record-Setting Payout
Bank of America Corp. is near a settlement to pay $8.5 billion to mortgage investors who claim the bank sold them fraudulent mortgage securities, The Wall Street Journal reports.

The mortgage securities in question, originally valued at $105 billion, contained home mortgages that faltered after the financial and housing crisis. Investors claim they were misled by the mortgage securities packages, arguing the securities were highly rated despite being full of loans that had borrowers with questionable credit.

The $8.5 billion payout would be the largest settlement by a financial services firm.

The settlement could prompt other mutual-fund managers and investors to seek similar settlements from other banks for loans they purchased before the housing collapse that didn’t meet expectations or were not properly managed, The Wall Street Journal reports. Bank of America, Wells Fargo & Co and J.P. Morgan Chase & Co. collect loan payments on about half of all outstanding mortgages in the country.

Investors accused Countrywide of misleading them with the securities. Bank of America purchased Countrywide in 2008 for $4 billion.

The Better Bargain: Foreclosure or Short Sale?
Short sales and foreclosures have flooded the housing market in recent years, and buyers are often drawn to the bargain prices but may be hesitant to jump into what usually is a difficult transaction and a long process.

Bankrate.com recently tackled the question of “Which to Buy: Short Sale or Foreclosure?” in an article that helps buyers weigh the pros and cons of a distressed property. Experts note that the question largely depends on buyers' situations, how quickly they need a home, and their tolerance for fixer-uppers.

Foreclosure Pros and Cons
Buying a foreclosure is often faster than purchasing a short sale. Plus, buyers often can negotiate closing costs and price in foreclosure sales, Elaine Zimmermann, a real estate investor in Memphis, Tenn., told Bankrate.com.

However, abandoned homes in foreclosure can deteriorate very quickly so the buyer may need to weigh the condition of the home and whether they want a fixer upper. Scarred walls and carpets and appliances that were damaged by the former owner are not uncommon in a foreclosure, says David Richardson, an inspector in the Detroit area who's certified by the American Society of Home Inspectors.

Short Sales Pros and Cons
A short-sale home is still owned by the occupant, so it tends to be in better condition than a foreclosure, experts say.

"The short sale is, in my opinion, far better than buying a foreclosure because the home is generally in better condition because it's been occupied," says Gwen Daubenmeyer, a certified distressed property expert with RE/MAX in Detroit. "The utilities have been maintained, usually the lawn is maintained, those kinds of things."

But short sales often can take a longer time than a foreclosure to close. However, the federal Home Affordable Foreclosure Alternatives program, or HAFA , may be able to help speed up the short-sale process since it has created a timeline to hold mortgage lenders accountable, but still “it’s not perfect by any means,” Daubenmeyer says.

Source:  Bankrate.com (June 2011)

In 7 States, Foreclosures Make Up 32% or More of Sales
Foreclosure sales are making up a big chunk of home sales across the country. In the first quarter (January through March) of this year, bank-owned home sales and homes in some stage of foreclosure made up 28 percent of all home sales in the country — which is up slightly from the fourth quarter of 2010 (27 percent), RealtyTrac reports. In some states, that percentage was even higher.

According to the latest RealtyTrac data for the first quarter of 2011, here are the states where foreclosures make up the largest percentage of home sales, along with the average foreclosure price and the percentage discount over a non-distressed property.

Nevada
Percent of sales: 53%
Average foreclosure sales price: $128,589
Percentage discount over non-foreclosure sales: 18%

California
Percent of sales: 45%
Average foreclosure sales price: $247,623
Percentage discount over non-foreclosure sales: 34%

Arizona
Percent of sales: 45%
Average foreclosure sales price: $128,289
Percentage discount over non-foreclosure sales: 25%

Idaho
Percent of sales: 33%
Average foreclosure sales price: $141,845
Percentage discount over non-foreclosure sales: 15%

Florida
Percent of sales: 32%
Average foreclosure sales price: $116,583
Percentage discount over non-foreclosure sales: 27%

Michigan
Percentage of sales: 32%
Average foreclosure sales price: $70,358
Percentage discount over non-foreclosure sales: 34%

Oregon
Percentage of sales: 32%
Average foreclosure sales price: $175,957
Percentage discount over non-foreclosure sales: 24%

Banks Rush to Revamp Foreclosure Rules
The rush is on for banks to meet a mid-June deadline in offering up plans on how they plan to meet a set of guidelines by U.S. regulators to clean up their foreclosure procedures. The banks will have another 60 days after that deadline to implement the changes.

As part of the rules set by U.S. regulators, 14 financial institutions will be required to provide a single point of contact to borrowers trying to modify a loan or in the foreclosure process as well as set “appropriate deadlines” for deciding whether borrowers can get a loan workout. Regulators are also requiring banks to ensure their staffing levels are on par to handle the flood of foreclosures and loan modifications.

Several banks have already taken steps to implement the changes.

For example, J.P. Morgan says it’s developing a software program to make it easier for employees and borrowers to track loan modification requests. It also has started providing borrowers with a “relationship manager” to help navigate the loan modification or foreclosure process.

Citigroup, which already provides a single point of contact, says in the next few months it'll debut a “concierge" system that will provide a small team of employees to guide delinquent borrowers and home owners at risk of default.

Banks are also making efforts to speed up their loan modifications, after customers have complained of long delays from banks in responding to requests. For example, Los Angeles Neighborhood Housing Services says it takes an average of 141 days for its borrowers to get an answer on an initial loan modification request. Wells Fargo was found to have the fastest turnaround: Initial reviews averaged 79 days. But the bank says now 60 percent of its borrowers receive a decision five days after the company receives the request.

Banks are also increasing their staffing. J.P. Morgan has announced it’ll add up to 3,000 new home-lending jobs, and Bank of America plans to hire about 3,000 employees to focus on its troubled mortgages.

New Incentives From Fannie, Freddie

Banks and mortgage servicers also must meet new guidelines from Fannie Mae and Freddie Mac, announced this week, that aim for more loan modifications and prevent foreclosures from taking too long.

Mortgage servicers will be required to approach borrowers earlier, making contact frequently after just one missed payment.

The GSEs are also offering incentives: They’ll pay $1,600 in incentives depending on how quickly servicers complete a loan workout. They also will impose a $500 compensatory fee on servicers who do not complete loan modification applications within six months after the loan goes delinquent. The changes will go into effect in the second quarter.

Source: The Wall Street Journal (April 29, 2011)

Many Borrowers Lack Mortgage Knowledge
A recent survey by Zillow Mortgage Marketplace found that borrowers who received a home loan in the past five years spent, on average, five hours researching their options. That’s about half the amount of time borrowers spent researching a car purchase (10 hours). What’s more, nearly one-third spent two hours or less, according to Zillow.

While a home purchase is typically one of the largest investments people make, the lack of mortgage knowledge can be a costly mistake, experts say.

Here are a few basics about home loans that more customers need to know about.
1. What type of mortgage do you have?
Alarmingly, some people aren’t even aware if they have a fixed-rate mortgage or adjustable-rate mortgage. Unlike a fixed-rate mortgage, an ARM can have low rates early on that later rise significantly over time, which from a financial planning perspective can become a costly surprise if the borrower isn’t even aware they have one.

2. Do you have mortgage insurance?
Home owners who purchased a home with conventional financing and a down payment of less than 20 percent may not even realize that they likely are paying private mortgage insurance, which costs about $25-$100 extra a month. Once home owners have sufficient equity in their home (20 percent), they no longer need to pay mortgage insurance and should contact their lender for some savings.

3. Do you understand all of your loan options
Many borrowers don’t understand all of the loan options available to them — conventional loans, FHA, VA, USDA, etc. Experts recommend researching and comparing various mortgage rates and loan types to see what works best for their situation.

4. Is there a prepayment penalty?
Some loans have a prepayment penalty if a borrower pays off the loan earlier than intended. Typically, prepayment penalties are charged when borrowers sell or refinance their homes in the first few years of the mortgage. FHA, VA, and USDA loans do not have prepayment penalties. But it’s important home owners with other mortgages become aware whether their loan has a prepayment penalty and understand the pros and cons of accepting such a penalty, experts note.

Banks Get Failing Grade in Foreclosure Handling
Banks continue to receive backlash for their handling of a flood of foreclosures across the country. A new report released this week by federal regulators finds that banks failed to do a good job in handling foreclosures and sometimes evicted home owners when they clearly should not have.

The problems were “significant and pervasive” and added up to “a pattern of misconduct and negligence,” according to the Federal Reserve. The Fed says it soon plans to announce monetary penalties against mortgage servicers.

The report revealed several cases “in which foreclosures should not have proceeded due to an intervening event or condition,” such as families in bankruptcy or home owners who were eligible for a loan modification or even in the process of doing a loan modification.

The report also noted that banks had inadequate and poorly-trained staffs and improperly submitted paperwork to the courts.

In response to the report, several mortgage servicers signed a consent agreement this week, agreeing to changes that include new oversight procedures of foreclosures and reimbursing home owners who were wrongly foreclosed upon. One of the servicers signing the agreement, JPMorgan Chase, says it would add up to 3,000 employees to meet the new regulatory procedures.

“The banks are going to have to do substantial work, bear substantial expense, to fix the problem,” says John Walsh, the acting comptroller of the currency.

About two million households are in foreclosure, and several million home owners have already lost their home to foreclosure.

More Penalties Coming

The banks still face punishment and settlement talks with other agencies. The state attorneys general are conducting their own probe into shoddy foreclosure procedures and working with the Obama administration to overhaul the foreclosure process to prevent future abuses

NAR News: “Prompt Decision for Qualification for Short Sale Act of 2011″

Gov't to Lenders: Pay Up for Foreclosure Errors
The nation’s largest banks reached a settlement with federal regulators, agreeing to compensate home owners who were wrongly foreclosed upon and to overhaul their operations.

The settlement also directed financial firms to hire auditors to determine if they improperly foreclosed on home owners in 2009 and 2010.

However, the settlement reached with federal regulators on Wednesday is hardly the end of punishment and investigation into banks’ shoddy lending practices and wrongful foreclosures, officials say. Officials warn fines will be determined later for the lenders and banking companies, which include Bank of America, Wells Fargo, JPMorgan Chase, and Citigroup.

Wednesday’s settlement with banks was reached with three federal banking regulators: the Office of the Comptroller of the Currency, the Federal Reserve, and the Office of Thrift Supervision.

Banks still face settlement talks — which are believed to be even more stringent — with the 50 state attorneys general, the Treasury and Justice departments, the Federal Trade Commission, and the newly created Consumer Financial Protection Bureau. This group has called for tougher measures, including detailed document procedures and even guidelines for modifying loans that include reducing the mortgage principal of struggling borrowers.

Banks continue to face investigations and punishments from abusive lending practices that plagued the industry, including probes that have revealed banks approved foreclosure paperwork without proper reviews, court filings that weren’t properly notarized, mortgage documents that weren't transferred properly, and having inadequate staff to handle the foreclosure process.

How Can You Beat a Cash Bidder?
Cash buyers are flooding the real estate market in record numbers to take advantage of bargain housing prices. But these buyers may put consumers who need financing at a disadvantage.

Sellers often prefer cash deals because it can mean faster closings and transactions that are less likely to fall through. Some sellers are even accepting lower offers because they are from cash buyers than higher offers from a financing buyer just because they view it as a more solid deal that will be quicker to the closing table.

So how can your financed buyers compete? Experts offer a few tips.

Get pre-approved or pre-qualified for a mortgage. “The smartest thing they can do is make sure they talk to a competent mortgage banker … to pre-approve them ahead of time,” says Mike Litzner, broker and owner of Century 21 American Homes in New York.

Show you’re in good standing. You'll improve your chances of getting a seller to accept your bid by having more cash that you’re willing to put down, showing you have a stable job, and good credit, Litzner says. Also, a well-prepared, typed-out contract that includes a cover page summary of the contract deals is another way to show you’re a serious buyer, says Dan Quinn, a real estate professional with Prudential Carruthers REALTORS® in the Silver Spring area of Maryland.

Offer more earnest money. Offering a high down payment and high deposit can also help improve your chances of beating out a cash bidder, Quinn says.

Act quickly. “What I found out is with these cash buyers, they act quickly,” Quinn says. “To compete, you have to act quickly. A lot of times, these are investors and they have a relationship with these listing agents.” Buyers' agents should develop rapport with the listing agents too, Quinn says.

Realize, however, that while some sellers may be highly motivated to accept a cash buyers offer, even if it’s lower than others, sellers with more equity in their homes may be less wooed by lowball cash offers, says Donne Knudsen, a mortgage loan originator with Cobalt Financial Corp. in Los Angeles. Instead, sellers who still have equity in their homes likely will be more motivated by the best and highest offer, since closing quickly may not be as critical to them, she says.

Mortgage Industry Cuts Workforce by 50%
The mortgage industry has reduced its workforce by more than 50 percent since the housing market peak. The industry has gone from more than 500,000 employees in late 2005 to 248,000 in February, according to the Bureau of Labor Statistics.

That marks the lowest for the industry since August 1997, according to the Mortgage Bankers Association.

Wells Fargo & Co. alone has eliminated nearly 2,000 home-lending jobs.

Besides the sluggish housing market, another possible reason for the shrinking number of lenders could be new licensing requirements for employees of nonbank lenders, which was part of the aftermath of the subprime crisis. The new licensing requirements has made it more costly for independent brokers and mortgage bankers to maintain their payrolls, industry insiders told The Los Angeles Times.

Source: “Mortgage Industry Workforce Plunges by More Than 50% in Five Years,” The Los Angeles Times (April 11, 2011)

Rising Rents Make Rentals Less Appealing
Apartment bargains once dominated the housing market, but those bargains have slowly faded away. As vacancies decrease and rents rise, renters are finding fewer deals.

Analysts expect vacancies to decrease even more and rents to continue to rise through 2013, as the economy continues to improve.

Rental activity recorded its best start for the year since 1999, according to Reis Inc. Vacancy rates have fallen to mid-2008 levels and rents have increased for the past five quarters, now averaging $991 per month nationwide.

Renters are finding the fewest deals along the coasts, such as New York, Washington, D.C., Boston, Los Angeles, San Francisco, Seattle, and San Jose, Calif. These cities are experiencing low vacancy rates. Also, a boost in these cities’ economies is sending rents higher. New York City alone has seen double rent increases compared to the national average and has the lowest vacancy rate in the nation.

The best rental deals can be found in Las Vegas, Tucson, Ariz., Phoenix, and several cities in Florida--all cities where unemployment and foreclosures remain high. According to Reis, Las Vegas was the only city to see rents fall last year.

However, analysts say that bargains across the country are getting fewer, and renters should expect to see an increase in rents over the next three years.

NAR Applauds Short Sales Bill
A new bill to improve the process for approving short sales may soon bring relief to distressed home owners who are unable to keep their homes and hope to avoid foreclosure. The bill, introduced in the U.S. House yesterday and strongly supported by the NATIONAL ASSOCIATION OF REALTORS^®, would impose a deadline of 45 days on lenders to respond to short sale requests.

The legislation, the “Prompt Decision for Qualification for Short Sale Act of 2011,” was offered in Congress by U.S. Reps. Tom Rooney (R-Fla.) and Robert Andrews (D-N.J.). “The current short sale process can be time-consuming and inefficient, and many would-be buyers end up walking away from a sale that could have saved a home owner from foreclosure,” said NAR President Ron Phipps.

“REALTORS® and consumers continue to raise issues about delays in the short sale process, because lenders are unable to decide whether to approve a short sale. After many months of delays, and with no response from lenders, potential buyers are losing patience and cancelling their contracts, often resulting in the property entering foreclosure. A short sale minimizes the negative impact on sellers and generally costs the lender less than a foreclosure,” said Phipps.

NAR has been actively pushing the lending industry to improve the process for approving short sales, which represent about 13 percent of recent home sales according to NAR data. Phipps praised Reps. Rooney and Andrews for their efforts on the bill and urged Congress to pass the bill quickly.

“As the leading advocate for home ownership and housing issues,
REALTORS^® want to help more home owners avoid foreclosure by facilitating a short sale when a family is absolutely unable to keep their home; however, that can only happen if lenders and servicers approve short sale offers in a reasonable amount of time,” said Phipps. “Streamlining short sales transactions will reduce the amount of time it takes to sell the property, improve the likelihood that the transaction will close and reduce the overall number of foreclosures. This benefits sellers, lenders, buyers, and the entire community.”

Homes Turned Into Billboards Get Free Mortgage
Adzookie, a startup advertising firm, has an unusual proposition to home owners: The company wants to turn the exterior of their house into a massive billboard.

Of course, they don’t expect home owners to do this for free. Adzookie says it will pay home owners’ mortgage every month that the exterior billboard remains on the home.
The home-size ads will feature Adzookie’s logo and social media icons. Participating home owners must agree to keep the house painted for at least three months. By the end of the agreement, Adzookie will paint the house back to its original colors.

Adzookie made the offer to home owners on Tuesday and by late afternoon, the company already received more than 1,000 applications from home owners (one application even came from a church).

"It really blew my mind," says Adzookie CEO Romeo Mendoza. "I knew the economy was tough, but it's sad to see how many home owners are really struggling."

Adzookie is a mobile ad network that places local businesses' ads for free but the businesses must also agree to allow ads to be placed on their own mobile sites.

Revamped Foreclosure Procedures Coming Soon
The country’s top mortgage servicers have reportedly reached an agreement on changes to their foreclosure procedures.

The consent agreement has not yet been made public, but The New York Times was able to get a preview of what the agreement contains from individuals who spoke on the condition of anonymity.

Among the proposed changes include:

• Greater oversight of foreclosures. The oversight will happen from third party groups that include law firms, who mostly will be charged with doing the actual work of eviction, The New York Times reports.
• Improved training of foreclosure staff.
• A single point of contact for every defaulting home owner with the servicers. Mortgage servicers will no longer be able to foreclose while borrowers are pursuing loan modifications.
• Servicers will hire independent consultants to review foreclosures that have been completed in the past two years. Mortgage servicers have agreed to compensate any owner who is found to have been improperly foreclosed on or made to pay excessive fees.

Analysts say that in order for mortgage servicers to meet these revamped rules they’ll need to hire more employees so they can be thoroughly review the cases of home owners in default or servicers will need to slow the pace of foreclosures even more (The average household in foreclosure has been delinquent for more than 500 days/)

House Votes to End HAMP
The House voted Tuesday to end the Home Affordable Modification Program (HAMP), the Obama administration’s flagship program for foreclosure aid.

HAMP provides federal money to help banks modify mortgages for borrowers who are behind on their payments.

"To many struggling Americans seeking permanent mortgage relief, HAMP offered little more than false hope,” Rep. Darrell Issa (R-Calif.), who chairs the House Oversight Committee, said in a statement. “More home owners have been kicked out of the program than have received permanent relief."

The program has faced criticism that it hasn’t done enough to help struggling borrowers and is costly to taxpayers.

The House voted 252 to 170 to end any new funding for HAMP. The bill will now go before the Senate.

In recent weeks, President Obama has threatened to veto any bill that tries to end the administration’s foreclosure aid programs. House Republicans already have passed three other bills to stop funding of smaller programs, which are aimed at helping families, those who have lost their jobs, and neighborhoods dealing with foreclosure.

Despite being a mostly Republican led fight to end HAMP, Democrats have also urged government officials that HAMP needs to help more home owners.

"Yes, the HAMP program has a lot of problems," says Rep. Barney Frank (D-Mass.) on the House floor. "But, the absence of any program leaves home owners worse off."

Source: “House Votes to Kill Obama Mortgage Plan,” CNNMoney.com (March 29, 2011)

'Worst' Trashed House Attracts Lots of Offers
A once luxury home in Huntington Beach, Calif., is moldy, cement was poured down the drains, and a Jacuzzi tub was left running water for months. But after being listed on the market for less than two weeks for $1,142,000, it has already received five offers. What’s more, two of the offers were “well over” the list price, the real estate agent Tom Moon told The Orange County Register.

Moon says the 3,321-square-foot house was the worst example of “malicious vandalism” of foreclosed homes he had ever seen. Chemicals and cement had been poured down the drains and a floor in the home actually caved in from the weight of a pile of wet clothes and trash. Appliances, sinks, toilets, cabinets, countertops, and flooring were taken from the home too.

“This home needs drywall completion and installation of all interior decor,” Moon says. Mold remediation and new pipes have been completed since the home went on the market.

The home went to a foreclosure auction last August but failed to attract any bids.

This time around the home, which is on a cul-de-sac along a golf course in a guard gated community, has attracted plenty of buyer interest. However, getting to the closing table may still be a challenge. The winning bid of the five bids received on the home was the highest all-cash offer with a 2-week escrow period. Yet, shortly after completing inspections, the buyers initially walked. But the deal may be back on, according to the latest reports from the Orange County Register.

Banks Suggest Changes to Mortgage Servicing
Five of the country’s largest banks have sent government officials a proposal of new mortgage-servicing standards they’d agree to as part of a settlement into lending abuses.

The proposal--called the “Draft Alternative Uniform Servicing Standards”--includes timelines for processing loan modifications, third-party review of foreclosures, and a single point of contact for borrowers who are struggling with their mortgages, The Wall Street Journal reports. The draft document also includes a “borrower portal,” which would allow customers to check the status of their loan modifications online.

The draft document from the banks comes at a time when federal agencies and the state attorneys general have been working to determine penalties for banks from mortgage-servicing abuses that surfaced last fall from the foreclosure “robo-signing” scandal of hastily reviewing foreclosures without proper review.

Earlier this month, the state attorneys general drafted their own proposal for a settlement with banks, including a call for banks to reduce the mortgage principal for troubled borrowers.

Yet, the banks' draft settlement does not include anything about offering principal mortgage reductions.

Representatives from the banks--Bank of America Corp., J.P. Morgan Chase & Co., Wells Fargo & Co., Citigroup Inc., and Ally Financial Inc.’s GMAC unit--will meet for the first time on Wednesday with the state attorneys general, U.S. Department of Justice, and the Department of Housing and Urban Development to discuss the settlement proposals.

8 Bills to Chip Away at Fannie, Freddie
House Republicans plan to introduce eight bills on Tuesday in what some are calling a “bite-sized approach” to phasing out government-sponsored enterprises Fannie Mae and Freddie Mac, the Associated Press reports.

Fannie and Freddie, along with other federal agencies, have backed about 9 in 10 new mortgages over the past year. The federal takeover of the GSEs in 2008 following the housing market collapse has cost taxpayers $150 billion, which has prompted many in Congress and even the White House to call for the GSEs to be phased out gradually over a five-year timeline.

Earlier this month, Rep. Jeb Hensarling, R-Texas, a member of the House GOP leadership, took the first shot by introducing a wide-ranging bill to end the government's ownership of Fannie and Freddie in two years, either phasing them out completely or making them fully private companies within five years. However, experts say that the bill has little chance of surviving the Democratic-run Senate.

The eight smaller bills would include many of Hensarling’s proposals but by taking a “bite-sized approach” may have a better shot at weaving its way through Congress, aides and lobbyists told The Associated Press. The proposals are also expected to include a gradual increase in Fannie’s and Freddie’s fees as well as reduce the size of loans they’ll be able to back.

What Is a 'Safe' Mortgage?
Later this month, the Federal Deposit Insurance Corp. will consider new rules that define what a safe or “qualified” residential mortgage is as part of the Dodd-Frank financial overhaul law.

Experts say the classification will likely have broad sweeping effects on the mortgage market..

The Dodd-Frank financial overhaul law, which was passed last summer, contains a risk-retention requirement that requires issuers of securities backed by mortgages and other assets to maintain 5 percent of the risk of a loan, if it is packaged into a security and sold to investors, Dow Jones reports. The idea is that lenders would be more careful with making loans since they would face steeper losses if a loan went bad.

Six federal agencies are working to resolve numerous issues on the proposal but one of the most controversial issues yet to be resolved is which loans are exempt from the risk-retention requirement and would be considered safe or “qualified” mortgages.

Expecting some heated debate, regulators have suggested issuing two different plans for public comment: One plan would call for a minimum 20 percent down payment, and another plan would recommend a 10 percent down payment as well as mortgage insurance.

FDIC banking regulators have called for a minimum 20 percent down payment requirement for new mortgages, but lawmakers and consumer advocates have argued that number is too high and could hamper an already sluggish housing market.

Loans guaranteed by Fannie Mae and Freddie Mac, which make up about 70 percent of the mortgage market, are expected to be exempt as long as they remain under government control. Government agencies such as the Federal Housing Administration are already exempt.

Scam alert: Scammers use real estate listings for ID theft

Renting May Soon Get Pricier
Industry experts are forecasting double-digit rent hikes soon.

With vacancy rates dipping below the 10 percent mark, demand is picking up, which is expected to put upward pressure on rental prices.

"The demand for rental housing has already started to increase," says Peggy Alford, president of Rent.com. "Young people are starting to get rid of their roommates and move out of their parents' basements."

By 2012, Alford predicts the vacancy rate will drop to 5 percent, causing prices to rise.

Rent hikes have been modest the past decade, averaging less than 1 percent a year in adjusting for inflation.

Source: “U.S. Set to be High-Rent Nation,” Chicago Tribune (March 16, 2011

Future of 30-Year Mortgages at Risk?
Proposals to phase out Fannie Mae and Freddie Mac may make 30-year fixed-rate mortgages harder to find, housing experts say.

An outline drafted by the Treasury Department, the Department of Housing and Urban Development, and the White House and circulated last month calls for winding down Fannie and Freddie over the next five to seven years. Congress continues to debate the future of Fannie and Freddie, and how and whether it should move to phase out the government-sponsored enterprises (GSEs). For its part, the Obama administration has argued for scrapping the GSEs, but replacing them with some form of federal involvement in mortgage financing.

But housing experts warn that 30-year fixed rate mortgages — a popular choice among buyers — might become harder to find and more expensive without Fannie and Freddie to buy these loans. Banks may be less willing to extend credit at a fixed rate over such a long term, housing experts note, since investors often prefer loans with adjustable rates rather than loans with longer terms, which expose them to interest rate risk.

“Traditionally, banks have been less willing to keep 30-year fixed-rate mortgages on their balance sheets, so in the absence of a vibrant securitization market, banks would more heavily favor adjustable-rate products,” John Mechem, a spokesman for the Mortgage Bankers Association, told The New York Times.

There is a lot of uncertainty about the process of phasing out Fannie and Freddie and how it will affect mortgage products, Barry Zigas, the director of housing policy at the Consumer Federation of America, told The New York Times.

Alex J. Pollock, a former chief executive of the Federal Home Loan Bank of Chicago, told The New York Times that he believes 30-year loans would remain available regardless of a federal guarantee, but they might be more difficult to find and lenders might require larger down payments and better credit scores.

“One of the reasons that American housing finance is in such bad shape right now is the 30-year mortgage,” Pollock argues. “For many people, it’s not at all clear that that’s the best product.”

2011 Rebound: Affordability High, Investors Back
Plenty of signs point to the housing market finally bottoming out and moving into rebound mode this year, experts say in a recent article in The Wall Street Journal.

Investors, who were burned when the housing bubble burst in 2006, are back on the market, betting on a rebound, and snagging up houses and condos in all-cash deals.

What’s more, housing is at the most affordable it has been in decades nationwide — when home prices and average incomes are taken into account, according to analysts at Moody's Analytics. The cost of a house is equal to about 19 months of income for an average family, which is at the lowest level in 35 years. (Prices generally average nearly two years of pay.)

"Pricing is down so much in some markets that when you analyze renting versus owning it makes much more sense to own,” Michael Larson, a real-estate analyst at Weiss Research in Jupiter, Fla., told The Wall Street Journal.

Housing prices likely will bottom in 2011, says Scott Simon, a managing director at the money-management firm Pimco in Newport Beach, Calif. While he expects housing prices to possibly drop another 5 percent, he says that is a small amount when in some markets prices have dropped by half or more since housing prices started falling in 2006.

Investors Flock to Foreclosures, But Hit Snags
Investors continue to eye home foreclosure sales, but postponements or cancelled auctions and disagreements over a fair price are making it difficult to close deals, they say. Many investors buy foreclosures to fix them up and re-sell, but buying the property from the banks has become increasingly challenging in some parts of the country.

In California alone, about 12,279 auctions were cancelled in January, according to ForeclosureRadar.com.

Many auctions are being cancelled as banks look into modifying loans, opting for a short sale, or reviewing their foreclosure documentation for any mistakes. Bank of America Corp., the largest U.S. mortgage-servicing company, says it expects continued postponements as it sets out to do more loan modifications.

Home owners also are holding onto properties longer hoping that all the robo-signing allegations made at the banking industry will mean their lender may not have had the right to foreclose on them in the first place, says Bruce Norris, president of The Norris Group in Riverside, Calif.

Source: “Investors’ Foreclosure Appetite Grows, Headaches Arise ,” Reuters News (Feb. 18, 2011

Foreclosure Process Gets Longer
Banks and mortgage servicers are taking more time to foreclose on defaulting home owners--a process that can take up to 2 years now, USA Today reports.

A backlog in foreclosures has occurred within a number of the nation’s banks, triggered by the large number of home owners defaulting on loans, a lengthy review process for loan modifications, and recent lawsuits that have accused banks of improperly filing foreclosure documents .

Meanwhile, defaulting home owners are being allowed to stay in their homes longer. In December 2010, the average borrower in foreclosure went 507 days without making a mortgage payment, according to LPS Applied Analytics. (Prior to the housing crash, the norm was considered 250 days in default.)

Diane Pendley, managing director of Fitch Ratings, estimates that delinquent borrowers stay in their homes an average of 19 to 20 months before they're evicted. She expects that average to grow to 22 to 23 months by the end of the year--the longest on record.

The delays in the foreclosure process are expected to lead to less inventory of foreclosed homes for sale and higher prices for these homes, in some markets, experts note. However, the longer wait also means foreclosures could weigh on the real estate market much longer, they say.

Source: “Home Loans in Default Drag On ,” USA Today (Feb. 21, 2011)

New Fed Rule May Lower Costs for Borrowers
A new Federal Reserve rule that takes effect April 1 is expected to lead to lower costs for borrowers, but some experts say it’s going to hurt the mortgage industry.

Under the new rule, borrowers who get their mortgages through brokers likely will pay less for services and brokers will be required to offer borrowers the lowest possible interest rate and fees that they qualify for. Most banks and other direct lenders, including some mortgage companies that operate like banks, are exempt from the rule.

The new Federal Reserve rule--the “Loan Originator Compensation amendment to Regulation Z”--is to help prevent borrowers from being steered into high-cost or risky loans.

Mortgage brokers used to earn more money on a loan the higher the interest rate and points. But the new rule covers how a loan originator is paid, setting a fixed commission and no longer tying the amount to the loan terms.

Some in the mortgage industry aren’t happy with the new rule, saying it makes mortgage brokers less competitive against the big banks.

“I will now get paid the same amount to process a plain-vanilla loan as I will a complex loan of equal size that requires more work,” says Mark Yecies, an owner of SunQuest Funding, a mortgage broker and lender in Cranford, N.J.

Officials with the National Association of Mortgage Brokers also have expressed concerns, saying the rule would likely put a lot of independent brokers out of business.

Bye-Bye Fannie, Freddie? What It Could Mean
The Obama administration announced on Friday plans to reform the housing finance market, including winding down government-controlled mortgage giants Fannie Mae and Freddie Mac and turning most of the market over to the private sector, as well as requiring larger down payments. The White House proposed three approaches to replacing Fannie Mae and Freddie Mac rather than offering up one final plan.

The administration’s proposal is expected to reshape the way Americans buy and own homes.
Among the plans outlined in the administration’s “white paper”:

▪ Shrinking the size of the portfolio of mortgages held by Fannie Mae and Freddie Mac by at least 10 percent a year.
▪ Creating an insurance fund for mortgages, supported by premiums paid by lenders.
▪ Winding down government subsidies of mortgages by raising the fees charged to cover the risk of default.
▪ Raising fees for borrowers and requiring larger down payments for home loans.

The administration also recommended measures to make government-backed mortgages more expensive in order to allow the private-sector to better compete in the mortgage market. For example, it called for reducing by this fall the size of mortgages Fannie and Freddie may purchase from $729,750 to $625,500.

Raising Rates?

Some critics of the proposal are concerned that the administration’s overall plan would raise mortgage rates.

Treasury Secretary Timothy Geithner said that mortgage costs likely will rise in the coming years, as government support is withdrawn and the private sector takes on a bigger role. Credit Suisse has estimated that rates on a 30-year fixed mortgage may rise as much as 2 percentage points if the government withdraws its backing of Fannie Mae and Freddie Mac.

Higher borrowing costs could be a thorn for a recovering housing market, since interest rates greatly affect how much buyers can afford, experts say.

“Reducing the government’s involvement in the mortgage finance market is necessary for a healthy market, but should not be done at the expense of the economy or home buyers,” NAR President Ron Phipps said in a public statement in response to the Obama administration's plan . “Any proposal for increasing fees and borrowing costs beyond actuarially sound levels will only make it harder for working, middle-class individuals to achieve home ownership, and only the wealthy will be able to achieve the American dream.”

NAR’s economists estimate that a retreat of capital from the housing market will negatively impact the economy too. For every 1,000 home sales, 500 jobs are created for the country, NAR notes.

Geithner estimates that reducing the government’s role in the mortgage market may take five to seven years for the transition.

“Most people in Congress understand that this is a very political, contentious issue,” says David Berson, a former Fannie Mae chief economist. “It’s going to be a very volatile ride as we move toward what ultimately will be the future of Fannie and Freddie. It’s hard to know what that’s going to be.”

Home Ownership Offers Plenty of Tax Benefits

The following is a few of the tax benefits to home ownership, according to Stephen Fishman, an author and lawyer who specializes in small business, tax and intellectual property law.
▪ Home mortgage interest deduction: Home owners can take an itemized deduction on interest paid on a mortgage or mortgages of up to $1 million for a principal residence and/or second home. This deduction could potentially reduce the cost of borrowing by one-third or more.
▪ Property tax deduction: Home owners can deduct from their federal income taxes the state and local property taxes that you pay on the home.
▪ Deductible home buying expenses: Several closing costs in a home purchase are also deductible, such as loan origination fees (points), prorated interest on a new loan, and prorated property taxes paid at settlement.
▪ $250,000/$500,000 home-sale exclusion: Home owners who have lived in their home for two of the prior five years prior to its sale do not have to pay income tax on the majority of their profit — $250,000 for single home owners and $500,000 for married homeowners who file jointly.
▪ 14 days of free rental income: Home owners can rent the home up to 14 days during the year and pay no tax at all on the rental income.

NAR Praises FHFA's Proposed Transfer Fee Rule
The National Association of REALTORS^® applauded the Federal Housing Finance Agency (FHFA) for moving ahead with a proposed rule to restrict government-sponsored enterprises Fannie Mae and Freddie Mac and the 12 Federal Home Loan Banks from investing in mortgages encumbered by private transfer fee covenants.

NAR has long been vocal in its opposition to private transfer fees, which are often attached to a property by developers and require payment of fees back to the developer each time the property is resold; the covenants can be difficult to reverse and may be attached to a deed for up to 99 years.

“As the leading advocate for home ownership, we commend FHFA for the proposed rule to ban private transfer fees, which we believe often decrease affordability, negatively impact equity and provide little benefit to property purchasers,” NAR President Ron Phipps said. “FHFA is taking the necessary steps to ensure that these fees are no longer used to simply generate revenue for investors and private developers.”

The proposed rule would exclude private transfer fees paid to some home owner, condominiums, and cooperative associations. “We understand that FHFA believes that some private transfer fees have a legitimate place in real estate markets, and support their decision to exempt certain organizations from the proposed ruling where there may be a direct benefit to the home owner; however, FHFA must ensure that the fees paid are reasonable and fully disclosed to home buyers well in advance of closing,” Phipps said.

According to FHFA the proposed rule would only apply to private transfer fee covenants created on or after the date of publication of the rule.

Since there is virtually no oversight on where or how private transfer fee proceeds can be spent, on how long a private transfer fee may be imposed, or on how the fees should be disclosed to home buyers, as many as 19 states have banned or restricted private transfer fees. The Federal Housing Administration has also restricted private transfer fees through its home loan programs.

Dems Want Bankruptcy Mediation for Home Owners
Senate Democrats think bankruptcy judges are the perfect fit for the job of overseeing negotiations between troubled borrowers and lenders.

Senate Democrats are asking Congress to encourage the development of state-level programs that would put bankruptcy judges in charge of the negotiations.

Sen. Sheldon Whitehouse (D-R.I.) introduced a bill that would give courts the authority to establish such programs, but would not make it a requirement to do so.

"The mere act of sitting the home owner down with someone who has the authority to modify the mortgage or agree to another commonsense settlement often is enough to avoid a costly and painful foreclosure," Whitehouse said at a Senate Judiciary Committee hearing. "It is often the first time the home owner gets that chance."

About 20 states already have some type of foreclosure mediation program for borrowers and lenders in reaching a settlement. Three states--New York, Connecticut, and Florida--make mediation mandatory.
2/2/11

Federal Reserve announces online publication about credit decisions
Lenders often consider a consumer's credit history or credit score when deciding whether, and at what cost, to extend credit.  A new online Federal Reserve publication helps consumers better understand new notices they may receive from lenders when credit reports or credit scores affect a decision to grant credit.

The publication, "What You Need to Know: New Rules about Credit Decisions and Notices," describes the types of notices consumer may receive and provides links to sample notices.  It includes information about what consumers should do if they receive a notice, including instructions on how to dispute credit report errors.

The notices are required by rules issued by the Federal Reserve Board and the Federal Trade Commission.  The new rules, which took effect January 1, 2011, generally require a creditor to provide a consumer with a notice when, based on the consumer's credit report, the creditor provides credit to the consumer on terms that are less favorable than those provided to other consumers.  Consumers who receive this "risk-based pricing" notice will be able to obtain a free credit report to check the report's accuracy.

As an alternative to providing risk-based pricing notices, creditors can choose to provide consumers who apply for credit with a free credit score and information about their score.  Today, most consumers must pay a fee to obtain their credit score.

Keep Your Home California introduces new program for unemployed
Unemployed California homeowners now can apply for up to $3,000 a month in mortgage assistance to tide them over for up to six months while looking for work.

The Unemployed Mortgage Assistance Program (UMA) is the first of four programs the state is scheduled to roll out as part of an initiative called “Keep Your Home California.”  The programs are supported by $2 billion in federal dollars provided through the Hardest Hit Fund.
Eligible homeowners who are struggling to make their mortgage payments after suffering a job loss may qualify for assistance.

House Flipping Fraud on the Rise
A high percentage of mortgage applications from house flipping is causing investigators to become increasingly alarmed. House flipping is when investors buy properties for quick resale and profit.

Lenders have reported greater occupancy fraud, employment fraud, and undisclosed debt on many of these mortgage applications.

Mortgage fraud continues to increase across the nation, rising by more than 20 percent since fraud rates reached a low point in early 2009, according to CoreLogic’s 2010 Mortgage Fraud Trends Report. CoreLogic’s recent study also found that one in every 24 REO sale transactions are associated with a fraudulent resale.

“Fraud continues to shift to areas of the lending business where large volume increases occur over short periods of time, or where advanced risk mitigation processes are not squarely in place,” says Tim Grace, senior vice president of Fraud Solutions at CoreLogic.

The biggest home flipping hot spots are Southern California, Phoenix, Detroit, and Atlanta.

Housing Industry Stands Ready to Protect MID
The National Association of Home Builders is the latest housing group to announce it plans to fight Congress to preserve mortgage interest deduction, which is expected to become a target of Congress as it looks to control mounting deficits. The National Association of REALTORS® and Mortgage Bankers Association have also been lobbying to protect MID.

"There are a couple of sacred cows in the tax code, and the mortgage interest deduction is one of those. Politicians take it on at their own risk," warns J. P. Delmore, the senior federal legislative director for the National Association of Home Builders.

At its recent International Builders Show last week, NAHB outlined a strategy on how it plans to lobby on behalf of mortgage interest deduction, including plans for aggressive media coverage and an emphasis on how removing MID will cause home prices to fall by possibly 15 percent. NAHB also recently launched a Web site, Savemymortgageinterestdeduction.com , to rally public support.

Experts predict tax legislation to advance in Congress either this year or next year. One idea being proposed in some circles is to replace the interest deduction with a 12 percent tax credit.

Banks Lose Pivotal Foreclosure Case
A recent decision by the Massachusetts Supreme Judicial Court is expected to have sweeping implications for the nation’s banking industry when it comes to how they’ve approved foreclosures and may even invalidate thousands of foreclosures across the country.

The court, in affirming a lower court’s ruling, invalidated two mortgage foreclosure sales because the banks failed to prove the home owners actually owed the mortgages at the time of foreclosure.

In recent months, the industry has been under fire across the country for using “robo signing” to review foreclosure affidavits, a process in which low-level employees went through hundreds of foreclosure affidavits a day without verifying any of the documents. Such blanket procedures have hurt the banks’ ability to prove that they owned the mortgages.

In the Massachusetts case, the court found that the banks — who were not the original mortgagee — failed to show that they held the mortgages at the time of foreclosure, which called into question whether the foreclosure sale was valid.

"There is no dispute that the mortgagors of the properties in question had defaulted on their obligations, and that the mortgaged properties were subject to foreclosure,” wrote Justice Robert Cordy about the court’s decision. “Before commencing such an action, however, the holder of an assigned mortgage needs to take care to ensure that his legal paperwork is in order.”

Attorney Paul Collier III, who represents Antonio Ibanez, one of the home owners in the case, said the ruling stands to affect thousands of mortgages across the country.

"For home owners and foreclosures in general, it means that any mortgage foreclosure which was initiated by a securitized trust at a time when the trust had not obtained a mortgage assignment which gave it the lawful right to do so is void," Collier told the Associated Press. "Those home owners, like Mr. Ibanez, still own the property."

Housing Values Drop, But Insurance Rises?
Home prices are falling across the country, but many home owners are paying more to insure their homes. So why is insurance going up when a home’s value is going down?

“The price of homeowners’ insurance is based on the cost to repair or rebuild your home. The price of a home is based on the market value of that home and the land upon which it sits,” Robert Hartwig, president of the Insurance Information Institute, told MSNBC.

But the cost of labor and materials needed to rebuild a home has not necessarily gone down, even though the home’s price has, Hartwig said.

The premium for homeowners’ insurance rose nearly 62 percent between 2000 and 2007. Prices did dip by nearly 4 percent in 2008 to $791, according to the most recent data from the National Association of Insurance Commissioners. However, Hartwig attributes the dip to home owners dropping extra coverage options or increasing their minimum deductible.

The cost to rebuild a home actually could be more than what you could sell it for, and insurance usually has to cover how much is owed on a person’s mortgage, even if it’s more than the current value of the home, experts say.

In certain regions of the country, home owners may find their paying even more to insure their homes. For example, Louisiana and other places hit by hurricanes or other weather related disasters have seen increases in average premiums. Florida, Texas, and Louisiana are the most expensive states to buy homeowners’ insurance.

Tax Deal Has Home Owner Benefits
Home owners were among those who benefited from the tax compromise that President Obama signed last week. Among the most home owner-friendly provisions are:

Deductions for private mortgage insurance: The agreement extends through 2011 a provision allowing home owners to deduct mortgage insurance premiums. To qualify for the full deduction, homeowners must have an adjusted gross income of $100,000 or less. Taxpayers with AGI of $100,000 to $109,000 can claim a partial deduction. Borrowers can’t deduct mortgage premiums on home loans that closed before 2007.

Tax credits for energy-efficient home improvements. Home owners who install insulation, new windows or other energy-saving improvement in 2010 are eligible for a tax credit worth 30 percent of the cost up to a lifetime maximum of $1,500. Improvements must be bought and installed by Dec. 31. Those who delay improvements to 2011 still get a tax credit, but it is capped at $500.

Source: USA Today, Sandra Block (12/21/2010)

Wells Fargo Settles Pick-a-Payment Suit
Wells Fargo has agreed to settle a class-action lawsuit involving pick-a-payment home loans.

The proposed settlement makes available at least $50 million in compensation for borrowers who lost their homes. The plaintiffs argued that these loans violated federal truth-in-lending laws because the documents didn’t adequately disclose the potential for the loan balance to increase if borrowers chose to pay less than the interest due.

Wells Fargo also agreed to offer loan modifications to borrowers who still reside in their homes and are in default and others who are at imminent risk of default.

The bank, which admitted no wrongdoing, said that it had already forgiven $3.5 billion in principal for pick-a-payment customers.

Source: Reuters News, Dan Levine (12/15/2010)

How to Lend to a Family Member
Carrying a mortgage for a family member can be a good investment, but it can also be tricky. Here are a few things to consider.
The lender must be comfortable with the deal. While a 30-year term is a popular bank loan, private lenders are sometimes more comfortable with shorter loan periods like 15 or 20 years. A 30-year term could be made more attractive to the lender by introducing a higher rate of interest at 10-year or 15-year intervals.

Questions to answer before agreeing to make the loan include:

▪ How will the loan be paid off if the borrower dies or is otherwise unable to complete payment or sell the property for enough to pay off the loan?
▪ What happens if the borrower goes into bankruptcy?
▪ What if the borrower fails to make timely payments?
▪ Will the lender require the borrower to escrow the property taxes and insurance?

Also, put the details of the transaction in writing and record it at the local recorder of deeds office so the borrower can’t get another loan on the property or sell the home without paying off the borrower.

Source: Real Estate Matters, Illyce R. Glink and Samuel J. Tankin (11/27/2010)

Second Liens Roadblock for Short Sales
Second mortgages have become one of the biggest roadblocks to closing short sales.

There are about 450,000 properties in some stage of the foreclosure process with at least one junior lien, according to real estate research firm CoreLogic. These second liens are a primary challenge for Freddie Mac, said Mark Johnson, who oversees short sales for Freddie.

Holders of second liens have little left to lose so some of them are willing to get in the way of a deal in hopes of being thrown a bone, said Jon Goodman, a real-estate lawyer and investor in Boulder, Colo.

Source: The Wall Street Journal, Nick Timiraos (11/27/2010

The Long Process of Foreclosure Gets Longer
The foreclosure process is getting longer and longer. According to statistics from LPS Applied Analytics:

· Delinquent loans in five judicial-process states spend more than 500 days in the foreclosure pipeline with the average time in process at 358 days, a week short of a full year.
· In the case of loans where the borrower is delinquent for 90 days or more, on average no payments have been made for 16 months.
· States that take the longest time to process delinquent loans are Florida and New York among the judicial process states, and Maryland, California, Virginia, Nevada, Massachusetts, Rhode Island, and Arizona, among the non-judicial states.

AGs Pressure Banks to Fix Mortgage Mess
State attorneys general are increasing the pressure on lenders to modify more mortgages in order to settle their multi-state investigation.

Iowa Attorney General Tom Miller, who is spearheading the 50-state probe, told the Senate Banking Committee this week that the attorneys general won’t settle without a standardized loan-modification agreement among lenders and servicers.

Miller also said that the attorneys general would like to penalize lenders that don’t fix their loan-modification systems.

Those close to the investigation say the attorneys general hope to wrap up the probe in December.

Jumbo Loans Come Out of Hiding
Jumbo mortgages are more readily available than they have been for the last two years. Both small and regional banks are beginning to offer them again.

In the second quarter of this year, jumbo lending rose 30 percent compared to the first quarter, according to Inside Mortgage Finance Publication, which provides industry data.

J.P. Morgan Chase home lending unit has increased jumbo lending by 146 percent in the first six months of this year. Wells Fargo’s jumbo lending is up 47.5 percent in the same time period.

Securing these loans continues to be difficult. Borrowers need excellent credit scores, verification of income and a down payment of somewhere between 20 percent and 40 percent. Some borrowers report that approval time can be faster at smaller banks.

Source: The Wall Street Journal, M.P. McQueen (11/06/2010)

Time to Give Your Kids the House?
Anyone who's contemplating bequeathing a home or some other property to someone other than a spouse or a charity might consider making the gift this year when there is no estate tax.

After Jan. 1, 2011, the estate tax rate will be 55 percent (60 percent in some cases) on all but the first $1 million, unless Congress changes the law.

If the original owner wants to keep using the property he gives away, he will have to pay fair-market rent to the person or trust that has become the owner. It might seem awkward, but it is an excellent tax strategy.

There are several strategies that help the giver avoid gift taxes as well, but they are rather complex. In general, all of these transfers require advice from an attorney, a tax expert, or both.

Source: The New York Times, Deborah L. Jacobs (10/21/2010)

New Credit Score Tailored for Lenders
The three major U.S. credit reporting agencies are offering a new FICO score for prescreening, originating, and servicing home loans that better predicts the likelihood of default.

The FICO 8 Mortgage Score from Fair Isaac Corp. uses the same 300-850 scoring range but more effectively flags accounts 90 days or more past due, which corrals more risky borrowers into the lower levels.

The new product also includes additional codes that help lenders understand and explain the ratings to applicants.


Source: Inman News (10/28/10)

Extendinig Loan Limits

Fannie and Freddie Offering Hard-to-Beat Deals
Beginning this week, Fannie Mae and Freddie Mac are trying to sell off 150,000 foreclosed homes by offering low down payments, no requirement for mortgage insurance, and up to $30,000 added to the mortgage for renovations. In addition, the real estate practitioner selling the property gets a $1,500 bonus.
In some neighborhoods, these properties undercut the average listing by $100,000.
Fannie and Freddie already have repaired the biggest problems with the property including roofs, plumbing, and electrical work.
Buyers who plan to live in the properties get a 15-day chance to view the homes before investors can purchase them. Investors with cash will likely snap up any properties remaining at the end of the grace period.
“Our goal is to recover as much as we can to offset our loss and not to be low balling properties just to move them,” says a Freddie Mac spokesperson. “We absolutely have no motivation to be leading a downward spiral in home prices."
Source: Smart Money, Anna Maria Andriotis (09/28/2010)

Are Cramdowns the Answer to Underwater Properties?
The rising number of home repossessions could encourage Congress to pass cramdown legislation, something lenders fought vigorously and prevailed against when bankruptcy laws were reformed.

But the cramdown concept has been working successfully in Chapter 12 of the bankruptcy code, which affects farmland.

Cramdowns, or more properly “bifurcation,” divide the value of the debt between that which reflects the current appraised value of the property and that which is now unsecured because the underlying value has declined. The borrower is required to pay the secured portion of the loan and the remainder is treated as unsecured debt – and generally forgiven.

Economists for the Federal Reserve Bank of Cleveland wrote in a research paper that is getting a lot of attention that the negative effect of cramdowns in agricultural lending has been minor. Cramdowns succeed in keeping farmers on their properties and banks get what they would have gotten if they had foreclosed.

Source: Universal Syndicate: Lew Sichelman (09/19/2010)

Bernanke: Bursting Bubble Wasn't an Option
Federal Reserve Chair Ben Bernanke told the Financial Crisis Inquiry Commission, meeting in Washington, D.C., on Wednesday that bursting the housing bubble wasn’t an option.

“To significantly affect monthly payments and other measures of housing affordability, the FOMC (Federal Open Market Committee) likely would have had to increase interest rates quite sharply, at a time when the recovery was viewed as ‘jobless’ and deflation was perceived as a threat," the Fed chair said.

Bernanke did admit that government regulators were slow to "forcefully or effectively" end risky practices by banks, and he conceded that regulators neglected to quickly recognize and correct abuses in the U.S. financial system that eventually triggered the economic crisis.

Source: Housing Wire, Jacob Gaffney (09/02/2010

Fannie Mae to Prohibit 'Appraisal Cutting'
Fannie Mae is banning a common practice known as "appraisal cutting," starting next week.
When lenders selling loans to the firm challenge a valuation, the underwriter will have to contact the appraiser directly; if the lender is unable to settle the dispute, its only option will be to order a second appraisal.
Lenders will be unable to simply cut the value of the appraisal or shop around for the best appraisal.
Source: American Banker, Kate Berry and Marc Hochstein (08/26/10

Three Reasons to Buy a Home Now
Stocks are up 50 percent from the March 2009 bottom. Some commodities have risen dramatically. The only asset class left in the cellar is real estate, says Michael Murphy, editor of the New World Investor stock newsletter.
As a result, Murphy is advising investors to buy now for these three reasons:
• Desperate sellers: Both home owners and lenders are eager to unload a flood of foreclosed and underwater properties. Buyers with the patience to push through these complex deals can save a bundle.
• Little competition. Because most people don’t have what it takes to negotiate their way through short sales and REOs, patient investors are winners.
• Low rates. Mortgage rates are at their lowest level in 40 years. If you believe inflation is inevitable, lock in now.
Source: MarketWatch, Michael Murphy (08/19/2010)

Three Things Condo Buyers Should Know
Now could be a great time for home buyers to find a great deal on a condominium.

Here are three things that potential buyers of condos should consider:

1. Is this condo likely to fall further in price? Part of the answer is in falling or rising local inventory – even if sales have picked up recently.

2. Is this a fair price? Condo prices are more volatile than single-family homes. One big consideration is whether buyers in this particular complex are likely to be able to qualify for a mortgage. If the complex has too many renters, for instance, the Federal Housing Administration won’t approve loans to buy units.

3. Is the condo association in good fiscal shape? Are they maintaining the grounds and the amenities as well as staying on top of needed structural improvements?

Source: Money Magazine, Beth Braverman (06/29/2010)