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One-Third of Homeowners Underwater

25 May

According to Zillow’s Negative Equity Report released today, approximately one-third of all homeowners with a mortgage are underwater. As dismal as that sounds, only one in ten mortgage holders are behind on their payments. We can hope that means that the majority of underwater homeowners can still afford their payments and plan to ride out the storm and wait for their equity to return.

Whether a homeowner should short sale their home usually depends on a few factors, including:

1. How much underwater are we? 2.4 million homeowers (15% of the underwater mortgages) owe more than twice what their home is worth.

2. How many years will it take to be able to sell with equity? Assuming a 3% average appreciation, some of our clients may have to wait 15 plus years to sell with equity.

3. Can we afford our current payment? And does our overall budget allow for other expenses, medical care, college savings, retirement, etc.?

4. How do expiring tax laws impact our decision? With the uncertainly surrounding whether or not the Mortgage Debt Relief Act will be extended, many homeowners who do not short sale this year may be prevented from doing so in the future do to taxes that would be paid on their forgiven mortgages. This “Cancellation of Debt” can be taxable unless you qualify for an exemption.

5. How long do we plan on staying in this house? With growing families or plans for retirement on the horizon, many homeowners only plan on keeping their homes for another 3 – 4 years. If they won’t have equity for an estimated 10 years, they may be handcuffing themselves to their house longer than they planned.

With historically low amounts of inventory and higher demand matching 2005 levels, we hope we are seeing the start of our recovery, followed by reasonable appreciation that does not outpace other economic indicators.

Nancy Moeller, CPA, Real Estate Broker

Seven Gables Real Estate

License #01727426

www.TheMoellerTeam.com

Direct: 714 276-7006

Fax: 714 917-2293

Short sales – average discount 32%

3 Nov

According to a recent article on the Realty Trac Blog, lenders are now approving more short sales which translates to bigger discounts. Approximately one third of all home sales in the 2nd quarter of 2011 were foreclosures or short sales. This is no wonder considering 27% of all California borrowers have negative equity in their homes.

In the local market:

RealtyTrac  data shows that properties sold via short sale in the second quarter took an  average of 192 days to sell from the date they entered the foreclosure process. The  Los Angeles-Long Beach-Santa Ana metro area had more short sales than any other  metro in the nation during the second quarter, registering 9,145 short sales in  Q2 2011. Buyers saved 32 percent on their short sale transactions. 

32 percent discount? These homes create our sold comparables and determine pricing for next quarter’s equity and REO sales. Don’t expect a market bottom until the number of distressed properties improves considerably.

Nancy Moeller, CPA, Real Estate Broker

Seven Gables Real Estate

License #01727426

www.TheMoellerTeam.com

Direct: 714 276-7006

Fax: 714 917-2293

New Study Shows Some Improvement in Loan Modifications

13 Jul

Office of the Comptroller of the Currency and Office of Thrift Supervision just completed a study in which they reviewed the trends of what happens to mortgages after a loan modification has been approved.

The good news: loan modifications have been more successful every year since 2008.  There have been more approved modifications and more homeowners are staying current on their new terms.

The bad news:  When mortgage payments are decreased less than 10%, there is about a 40% re-default rate.  More importantly, since 2008, close to 2 million mortgages have been modified, while only 52% remain current or paid off.

Now that last statistics is just an ugly one!  However, I think it is very important that the general public and banks know just what the odd are for loan modifications to be a long term fix.

 

Pay Option Pandemonium

21 Mar

According to Fitch Ratings, $134 Billion in Pay Option Arm loans are set to recast by the end of 2011

The Pay Option Arm loan served a useful purpose for a specific type of buyer or homeowner. It definitely was NOT intended to be used by people looking to buy more home than they could otherwise afford, yet that is exactly what happened. Now these homeowners most likely find themselves facing the very real possibility of losing their homes.

The majority of Pay Option Arms originated in 2005, 2006, and 2007. Typically, these loans have a 5 yr. scheduled recast date which means they would recast between 2010-2012 and approximately 50% of the recast will happen this year.

Pay Option ARM loans have been a concern for some time because of the negative amortization feature. This feature allows for the loan balance to grow over time; usually to a balance cap of 110%-125% of the original mortgage. Once the loan hits the balance cap or reaches 60 months in age, the borrower’s monthly payment increases from a minimum monthly payment to a fully amortizing P&I payment. This fully amortizing P&I payment is on average 63% higher than the minimum monthly payment, and can be more than double depending on factors such as margin and index.

Why does this matter you might be asking?  Well, consider the following:

  • 75% of the pay option loans set to recast are secured by property in California, Florida, Arizona and Nevada, the same states hardest hit by the loan crisis.
  •  94% of the people with pay option arms made the minimum payment. This means that in addition to declining property values, they’ve also added to the amount owed on their loan through negative amortization.
  •  In an attempt to minimize losses, a small percentage of the approximately 1 million Pay Option loans have been modified. However, 24% of these modified loans are 90+ days delinquent.  Because this product features a lower minimum monthly payment, even with significantly favorable modified loan terms, there still may be payment shock, causing more defaults on these products.
  • Even without further property value declines, defaults on these loans are expected to greatly rise as homeowners are unable to afford the recast payment and cannot refinance.

 These numbers are very startling and how it all plays out in our current market has yet to be seen and will depend in part, on how well the banks work with those who hold this type of mortgage. We can only infer from this data that this will indeed add to the number of distressed properties on the market, further lowering values.

If you find yourself in this situation, our team at Re-Create the Dream consists of a bank negotiator and CPA available by appointment to review all possible work out options and help homeowners execute a strategy that leads them back to their dream of homeownership with equity. The one-hour consultation is free of charge. To schedule your appointment, contact Micki O’Toole at 909.936-1744

HAMP and NSP may be terminated

11 Mar

On Wednesday, the House Financial Services Committee voted in favor of two bills that would terminate the Home Affordable Modification Program (HAMP) and HUD’s Neighborhood Stabilization Program (NSP). The bills now move to the full House.

According to the committee,the bills would save $29 billion from being spent.

The issue appears to be a party line split, with Republicans in favor and Democratics voicing opposition. According to information reported by DS News, the White House has threatened to veto the bills if they make it through.

Our view … both programs are failed government programs. Our government money is better spent on creating jobs so homeowners can afford their homes moving forward. Our attention is better applied to fixing inefficient systems and requiring lenders to respond to loan modification and short sale requests within 30 days of receipt.

1/3 of CA mortgages exceed home’s value

9 Mar

According to the Santa Ana-based property research firm CoreLogic, 31.8 percent of California homeowners with a loan are “under water” or “upside down.”

CoreLogic chief economist Mark Fleming says, “Negative equity holds millions of borrowers captive in their homes, unable to move or sell their properties.  Until the high level of negative equity begins to recede, the housing and mortgage finance markets will remain very sluggish.”

The fact is that homeowners do have options to sell and extinguish their negative equity. A successful short sale can extinguish the negative equity and allow a homeowner to buy again in as few as 24 months.

Warren Buffett on Housing

7 Mar

In Warren Buffett’s annual letter to the shareholders of Berkshire Hathaway, Buffett says, “A housing recovery will probably begin within a year or so. In any event, it is certain to occur at some point.”

Certainly a safe statement as a recovery is inevitable.

Analysis by leading industry experts, taking shadow inventory and resetting loans into consideration, would suggest a recovery is 2 – 4 years away. However, when we factor low interest rates into the overall equation of affordability, Mr. Buffett’s analysis seems more on the mark.

A one percent increase in interest rates is nearly equivalent to a 10% increase in prices when looking at mortgage payments and affordability of homeownership.

To discuss how market projections impact your housing goals, contact us at 714 276-7006 for a complimentary consultation.

Nancy Moeller, CPA, Real Estate Broker

Seven Gables Real Estate

License #01727426

Direct: 714 276-7006

50% of Riverside Homeowners are Underwater

12 Feb

Zillow just put out a new report showing home values across the nation have dropped 2.6%. According to Zillow, this is the largest quarterly decline in home values since the first quarter of 2009. The report further states that negative equity of all single family homes with mortgages rose to 27% up from 23.2%.

Pretty sobering information, isn’t it? In California we have seen a steep decline in home values overall. But, if you happen to live in Riverside you are living in the state’s highest area for negative equity. Fifty percent of the homeowners with mortgages in Riverside are underwater. In fact, Riverside is the 4th highest metropolitan area for negative equity in the nation following Atlanta, Phoenix and Orlando, according to Zillow’s report.

So what does this mean to you as a homeowner if you are living in Riverside? It means in part that it will take some time before you will recoup the equity lost during this unprecedented market. Couple that with the increase in foreclosures predicted for 2011 and the “shadow inventory” being released into the market, and we are likely to see values go down even further.

While this information may be daunting, we are optimistic that the market will recover. In the meantime there are numerous options available to homeowners in a negative equity position to either keep their homes or explore avenues that will give them a fresh start in rebuilding their lives. So if you are a Riverside homeowner in this position and you are contemplating what to do, look at all options carefully in order to make the best decision for you and your family.

Micki O’Toole

Phone: 909-936-1744
Email: Micki@InlandExperts.com 
DRE License Number: 01450265

“Shadow” inventory expected to last 4 years

3 Feb

According to analysts at Standard & Poor’s Rating Services this week, it may take more than four years to exhaust the “shadow inventory” of distressed homes. The shadow inventory is defined as properties with borrowers who are more than 90 days delinquent on their mortgage, in foreclosure or already bank owned.

Common pricing for bank owned or short sales is at or below the most recent comparables to the property. This is expecially true for short sales which take 4 – 8 months to finalize and are typically priced aggressively low to attract more patient buyers willing to wait out the process. As such, we can expect prices to continue to decline over the next three to four years.

For homeowners frustrated with their loan balance or home value, they should seek professional advice sooner, rather than later. The wider the gap between the loan balance and home value, the greater the risk of loan modification denial and the greater the possible tax and deficiency judgment risk.

The counseling team with Re-Create The Dream consists of a bank negotiator and CPA available by appointment to review all possible work out options and help homeowners execute a strategy that leeds them back to their dream of homeownership with equity. The one-hour consultation is free of charge.

To schedule your appointment, contact Nancy Moeller at 714 276-7006.

More Than 7M Mortgages Are Delinquent or in Foreclosure

18 Nov

There are more than 7M mortgages in the US that are at least 30 days past due or in the process of foreclosure, according to Lender Processing Services.

Of the more than 7 million home loans in the country going unpaid, 2,090,000 have been referred to an attorney for foreclosure, LPS says. Another 4,953,000 are 30 or more days delinquent but not yet in foreclosure, with 2,238,000 of these at least 90 days overdue.

Based on LPS’ calculations, the nation’s total mortgage delinquency rate – which includes loans at least a month past due but not yet pushed to foreclosure – stood at 9.29 percent as of the end of October.

LPS’ analysis is based on details pulled from its loan-level database of nearly 40 million mortgages, meaning approximately 18% of all mortgages are in foreclosure or distressed.

What does this mean to a growing population of homeowners? You are not alone and it’s time to be proactive about your options. Start exploring your options to modify your loan or short sale your home. The worst thing for most homeowners is almost always foreclosure, yet many homeowners are paralyzed by indecision, making the worst option the default option. Don’t let this happen to you or the people you care about.

The counseling team with Re-Create The Dream consists of a bank negotiator and CPA available by appointment to review all possible work out options and help homeowners execute a strategy that leads them back to their dream of homeownership with equity. The one-hour consultation is free of charge.To schedule your appointment, contact Nancy Moeller at 714 276-7006.

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