The state of short sales in America

According to new data from Lender Processing Services, Inc. (LPS), the number of short sales exceeded the number of foreclosures for the first time, pointing to evidence that banks have become more apt to sell homes for a small loss through a short sale than having foreclosed homes on their books indefinitely.

LPS reports that short sales accounted for 23.9 percent of all home purchases in January, which is the most recent month they are reporting for, so it is conceivable that the volume of sales that are short purchases could rise in coming data reports. Meanwhile, foreclosures account for 19.7 percent of home sales in the same period.

This marks a slow, yet significant rise as in January 2011, LPS reported that short sales accounted for 16.3 percent of transactions while 24.9 percent of sales were foreclosures – we are seeing a reversal of roles.

Many real estate practitioners would argue that it makes sense for all involved to pursue a short sale over a foreclosure, especially the banks, given the volume of foreclosures in the current economy. Now that banks are giving incentives on short sales in a push to close a deal, we will likely see more of a shift toward short sales rather than the stubborn old foreclosure playbook.

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New Initiative Looks Again to Refinancing

By Gino Blefari
President & CEO
Intero Real Estate Services, Inc.

The buzz in housing economics this week is all about Obama’s revamped home-loan refinancing program and the hope that it will help hundreds of thousands of underwater homeowners. The new program makes significant changes to the original HARP program – viewed as a total failure by most critics because it was supposed to help “millions” of borrowers, but only helped 894,000 to date.

HARP stands for the Home Affordable Refinance Program. It was rolled out in 2009 to help borrowers who owed more on their homes than their current value, enabling them to refinance and take advantage of lower interest rates, which would lower their housing costs and ease their financial burden.

First, let’s look at the changes:
Some fees will be reduced or eliminated
No more 125% loan-to-value ratio cap
Streamlines refinancing process by eliminating appraisals and extensive underwriting requirements for most borrowers, as long as they are current on their mortgage payments
Encourages shorting the mortgage term
Program now extended to December 31, 2013
What hasn’t changed:
The program is only open to borrowers whose mortgages are owned by Fannie Mae or Freddie Mac.
Borrowers must be current on their mortgage payments to be eligible. (So this program really is not for homeowners facing foreclosure, but rather aims to stop people from walking away from their underwater mortgages.)
Why refinancing?

Officials estimate that changes to the program will save the average eligible family about $2,500 every year – the equivalent of a substantial tax cut. They anticipate the number of people enrolled will double as a result of the revamp.

A lot of folks have criticized the administration’s refinance efforts through HARP because the number of borrowers it has helped pales in comparison to those in need. Five million homes have been lost to foreclosure and another 3.5 million foreclosures are anticipated over the next two years, according to Moody’s analyst Mark Zandi. And analysts peg the number of homeowners who owe more on their mortgages than the current market value at 15 million.

The reality, though, is that there’s only so much the government can do to help the underwater situation without completely devaluing the mortgage securities market. A mortgage is a contract by which a borrower agrees to pay under specific terms. The government can’t just rewrite all these contracts. This is why you see efforts that are met with little fanfare. But we have to remember that one program isn’t going to completely fix all of housing’s problems.

Will these changes make a difference? I say every home saved from foreclosure – whether it’s an owner walking away or an owner who can’t pay his mortgage anymore – will make a small difference in some way. That’s one less foreclosure on the books and one more family that stays in their home, and there’s something to be said for that.

For more information about how to enroll in HARP, visit MakingHomeAffordable.gov. (Note: This page still displays the old requirements and details, not the latest changes.)

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When it comes to credit, sometimes the largest challenge is the most difficult to surmount: we simply don’t know what we don’t know, so our assumptions and inaccurate beliefs run wild and free through our mental real estate. Most of the time, there’s no harm; following finance fundamentals like paying every bill on time, every time, keep us out of credit danger zones.

But when it’s approaching the time to buy, refi or even rent a home, relatively small credit score differences can stop you from getting your dream home, and can cost (or save) you thousands of dollars in interest over the life of your loan.

If you’re at a time in your life where it makes sense to invest some time and effort into optimizing your credit score, here are five common credit myths we’d like to help you bust without further ado:

Myth #1: Having lots of cash, a great income, or tons of equity, makes your FICO score less relevant.

Fact: No matter how much cash you have, if you want a mortgage, you must meet the lender’s FICO score guidelines. Of course, if you’re flush with cash, it should be relatively easy to make your monthly payments on time. But if you have come into cash relatively recently or you’re coming off a rough financial patch, lenders don’t not look at your credit score on the theory that your other assets diminish your credit riskiness. Most lenders want nothing more than to avoid having to foreclose on a home, even if the homeowner has other assets.

And the best predictor of whether you’ll default on a loan in the future is how you’ve handled your credit in the past, so your credit score will drive whether you qualify for a home loan and what interest rate you’re charged, no matter how much you make.

Two exceptions: if you buy a home with all cash, or take a hard money loan, which usually requires a much larger-than-average down payment and interest rate, you might be able to bypass credit score scrutiny, but you’ll pay for it.

Myth #2: Having no debt or no late payments means you have great credit.

Fact: Financial responsibility and good credit are two different things. Your FICO score is meant to be a measure of your responsibility when it comes to managing debt, as proven by the fact that you have credit accounts, use them regularly and don’t abuse them.

Having no credit accounts or debts doesn’t give you good credit – it gives you no credit. And on the other end of the credit usage spectrum, being maxed out on various credit accounts all the time, submitting lots of credit applications and other credit moves that indicate you may abuse your credit can actually depress your score. Best practice is to have several credit accounts (student and car loans count!) that you actively and responsibly use on a monthly basis.

Tip: FICO gives a top score to accounts with balances that are 30 percent of the credit limit, so if you can keep your credit card or loan account balances at or around that mark, even better.

Myth #3: Checking your own credit score in advance prevents surprises when you apply for a mortgage.

Fact: Your mortgage originator (broker or banker) must pull their own version of your report from their own provider, and it might have a very different score, rating scale or even different line items than the free or paid report you pulled online. This is why it’s imperative to start working with a mortgage professional as early as possible – a year in advance is not overkill – so you can detect any errors or issues and get their recommended fix in the works with plenty of lead time.

Myth #4: If you’ve had a foreclosure or short sale, your credit report will be damaged for 7 years.

Fact: Derogatory credit items, like late mortgage payments, foreclosures and short sales, appear on your credit report for 7 years, but your credit score can be rehabilitated enough to buy a home or obtain other credit in less time, depending on your circumstances. Your post-short sale or foreclosure waiting period depends on a number of things, including what type of loan you’ll be seeking to buy your next home with, how much cash you’ll have to put down and whether there were any extenuating circumstances involved in losing your home in the first place; some loans allow for an immediate purchase, others require a waiting period of 2, 4 5 or even 7 years after the loss of a home.

Of course, your FICO score is also a key criteria in a post-home loss “buy,” but interestingly enough, the length of time it takes to get your FICO score back up depends on how high it was beforehand. Earlier this year, the New York Times reported that it would take a consumer with a 680 FICO score three years after a foreclosure to bring their score back to that level, while it might take someone with a 780 FICO score (near-perfect) seven years for full score recovery.

And keep in mind that as your foreclosure or short sale ages, its impact on your score will decrease, too.

Myth #5: Short sales have much less impact on your credit score than foreclosures.

Fact: Hear ye, hear ye – short sales and foreclosures have the same impact on your credit score, according to the FICO folks themselves. (The only exceptions are for short sales or deeds-in-lieu of foreclosure where the property was not upside down, which are few and far between, if they’re not just a real estate urban legend!)

However, the number of missed payments you had before your home was lost to foreclosure or short sale might weigh on how gravely injured your FICO score is in the process. At the going rate at which banks are foreclosing on homes – clocking roughly 2 years of missed payments before a home is repossessed – your FICO score could take an even greater hit than if you were able to divest of it via a short sale in 1 year’s time.

Buying a home a safer bet than buying gold (INFOGRAPHIC)
Survey: 401(k) ranks near homeownership as favored long-term investment
By Inman News, Thursday, September 22, 2011.

Inman News™

Editor’s note: The results of a biannual survey, released this week by real estate search and marketing portal Trulia, found that 80 percent of homeowners plan to buy another home, and that most survey participants view homeownership, and placing money in a 401(k) or other retirement account, as the best long-term investments. Market research firm Harris Interactive conducted the survey, which drew responses from 1,392 homeowners and 758 renters, from Aug. 30, 2011, to Sept. 1, 2011.

Source: Trulia American Dream survey.

Last week, Facebook unveiled a new “Subscribe” button to give users the same sort of one-sided following experience they get on Twitter and Google+. This is a new feature that’s not automatically placed on everyone’s page, which is why agents should take a few moments to understand what it is and how to get it.

The “Subscribe” button is very useful for real estate agents who are using Facebook to interact with clients, potential clients and business partners because it enables you to gain subscribers (aka followers) without having to become friends with them. A lot of people on Facebook don’t necessarily want to be friends with someone they may be doing business with, but would love to see their updates and feeds.

If you’re using Facebook as a profile page and not a business page in which followers simply “like” your page to receive updates, then definitely take a few minutes to install this button. It’s free, and potentially opens up more opportunities to network. It’s actually a nice bridge between having a Facebook profile page and a business page – something that comes up often with agents because you are your business in a sense.

To get your Facebook “Subscribe” button, go to https://www.facebook.com/about/subscribe and click on the “Allow Subscribers” button in the top right corner of the page. That’s it!

As Facebook describes it, “Allowing subscribers is a simple way to broaden your conversation on Facebook, while reserving personal updates for people you know well.”

If you’re using Facebook as your personal and business epicenter, there are a million reasons why you’d want to keep a lot of (if not all) your personal updates from your clients and colleagues. Give it a try and see what happens!

Today I met with one of my favorite loan officers, Diane Lagau, from Mason McDuffie Mortgages.  She sat down and went over a brand new program with me.  I was so excited I just had to share it on my blog.  This new program allows first time home buyers a chance to buy a home with 1% down.    Remember, you are considered a first time homebuyer if you have not owned property for three years.  I feel very encouraged by this new program.  If you were caught in the first wave of foreclosures back in 2006 you may now qualify to buy at today’s low prices and interest rates.  This is an opportunity to actually get in and have a chance to build some equity over the next few years.  I have some homes that would qualify for this new program.  You may be able to get in to one of these houses for as little as  $2990.00.  I hope you will give me the opportunity to share this new program with you and I truly hope to help you with a new beginning in your life.