FItRealtor blog

April 17, 2012 by Edwin Baloloy

Are Banks really “holding on” to foreclosures?

I was having lunch with my wife yesterday and once again heard the common subject of the Real Estate market and the impact of foreclosures from a table seated directly next to us. The guys appeared to be young professionals and well educated. Yes, it’s not good to judge a book by it’s cover, but this restaurant wasn’t the kind where “just anybody” eats at.

The most vocal guy in their group yelled, “they’re artificially manipulating the market! My friend has been outbid while looking for a home 5 times now.” He further added later, “the banks know that if they release all these properties, they will take a huge loss.” His viewpoint is a very common one for someone observing the Real Estate market from a distance through newspapers, TV, the internet, and first-hand from a friend who’s actively looking for a home to buy.

So, let’s examine this: Are banks really “holding on” to foreclosures?

As an agent who deals 80% of the time with distressed properties on both sides of the transaction, I had to chuckle when eavesdropping on the table next to us. You see, if you thoroughly understand the distinction between “notes” and “servicing” you’ll know that it would take a highly organized stance by the top players in the servicing industry and biggest holders of the notes. The thought of a conference call with these main players saying, “Guys…we need to hold off on foreclosing because we need to control the Real Estate market’s supply” gets more entertaining every time I imagine it.

Months of supply NEOC to 699k — Inventory keeps going down?

Let’s examine the key players here and their conflicting interests:

1. The Servicer or “the banks” – most people think that the company sending you your mortgage statement actually has their own money at stake. In most cases, there is an investor that owns “the note” and has a servicing agreement where they’re paid fees for collecting payments. Their interests are best served when they continue servicing the note — regardless if the borrower is making payments or not.

2. The Investor of the Note – the investor is the person who has their cash tied up. In return for their cash, they receive a “promissory note” and receive installments on it until the loan is paid off. Before you picture a guy in a suit holding a briefcase, you have to know that most notes are held by large institutions and held as “mortgage backed securities” or part of another investment portfolio where there are multiple investors. You can have a significant portion of your 401(k) or IRA in these and not be aware of it. Their interests lie in having the best returns on the cash. This is also why most loan modifications are denied: they don’t make business sense. When the borrower stops paying on their mortgage, it’s usually best to foreclose as quickly as possible and put the money into another investment.

3. Mortgage Insurance – many of these notes are insured to appear attractive to other investors when being sold. A mortgage insurance company protects the investor against losses and often have an impact on a servicer’s decision to modify, foreclosure, or allow a short sale. Just like any insurance company, they must maintain a fine balance between issuing new policies and minimizing costs paid toward coverage.

4. The borrower – their interests vary from homeowners wanting to stay in their home at a lower payment, the homeowner who simply wants to take advantage of the system, the homeowner who wants to “walk” and simply allow foreclosure, and the homeowner who wants to settle the debt through a short sale.

If the banks aren’t deliberately “holding on” to properties, what’s the explanation why they appear to not foreclose? There are several factors:

1. Mutual postponement of foreclosure – the bank can agree to postpone foreclosure filings while the homeowner applies for a loan modification or short sale. It’s very typical the bank will allow up to a year for a homeowner to skip payments without losing the home. While this may be the case today, the pressure is increasing from the investors who want their money quicker.

2. Class action suits or other high level decisions by servicer – loans belong to a “pool” of notes. Whether it’s tied to the robo-signing mess or other alleged fraud by the servicer, a court decision can postpone foreclosure for a borrower who didn’t even ask for it.

3. Increasing rights and incentive for homeowners to miss mortgage payments – anytime I listen to Obama speak, listen to the radio, browse the internet, or watch TV, there’s seems to be an underlying message to not be responsible for your debts. A homeowner who plays the victim whether they have true hardship or simply want to take advantage of the system has a number of options available to them to stall foreclosure. I’ve seen ads from law companies with the headline, “live in your home for years — mortgage free.”

Yes, my explanation is complicated. However, most will not face reality because it places blame back on to us as individuals. Unlike the movies, it doesn’t identify one “bad guy.”

February 1, 2012 by Edwin Baloloy

What are my options for moving? Leaseback / rent back? Move twice? Sell contingent?

If you’re a fortunate homeowner who has equity in this market, you might be considering whether you should upgrade now or wait until prices get better so you can sell your house for more.

[youtube http://www.youtube.com/watch?v=c0hBMi58zCA?rel=0&w=480&h=360]

First, we need to determine which transaction you are most concerned about: Selling or buying? Are you concerned that your house will not sell? Or are you concerned that you won’t find a home that suits your needs?

You have to keep in mind that if you’re selling in order to buy, you’re trading equity. In most cases, the gap between the sale of your home and your purchase will move up and down with the market.

When selling in order to buy low:

Your property taxes will be lower
Monthly payments will be lower
More selection (purchasing in a buyer’s market)

When selling high and buying high:

buying in a “seller’s market” – possibly at peak
higher property taxes
less selection – more “move-up” buyers to compete with
Higher closing costs

With these factors in mind, most would agree that buying low and selling low is a homeowner’s best option.

Here are the (3) most common options that homewoners have for moving:

Move Twice
Leaseback / Rentback
Sell Contingent

Moving Twice

When you move twice, you sell your house without any contingencies and move into temporary housing (apartment, rental, stay with relatives, etc) while looking for a replacement property without the stress of a deadline. Since there aren’t any restrictions with the sale of your home, all buyers are eligible, giving you the best chance of selling at the highest price. When it’s time to purchase, you will be buying “non contingent,” making you eligible to purchase any listing: equity sales, bank owned, or short sale. This would give you the best chance of purchasing as low as possible. You get the best of both worlds.

Leaseback / Rent back

When you sell with rent back, it saves you the hassle of finding temporary housing at the expense of possibly limiting the sale of your home. With this option, you sell and buy “non contingent”, and your buyer leases the property back to you for a period of time (typicall 1 month). This option limits your buyer pool because some buyers may not like the terms of a leaseback and/or would like to move into their home as soon as possible.

Sell Contingent

When selling and/or buying contingent, you enter a contract that is dependent on you finding and buying a replacement property. With this option, the sale of your home cannot be completed until you find a replacement property and you remove your contingency. In essence, the buyer of your home cannot complete their purchase until you give them permission. This may have an impact on your sale price and creates other complexities: When will the buyer conduct their inspection and appraisal? Will you refund any costs to the buyer if you cancel the contract? Furthermore, if you decide to buy “contingent upon sale” of your home, it will eliminate most listing types that you can offer on. Bank Owned homes will not accept a contingent offer.

Tax deferred exchanges (1031) will be covered in an upcoming blog. For an estimate on your home’s value and how this can apply to your situation, call Edwin at 714-501-2732.

January 31, 2012 by Edwin Baloloy

Loan Modification Help: Before you miss a mortgage payment, consider the HARP program

Should I miss a mortgage payment?

When at the beginning stages of trying to lower your mortgage payment and you don’t qualify for a traditional refinance, you might be asking yourself this question. If you’re tempted to skip a mortgage payment, consider the HARP program first.

What would happen if I miss a payment?

1) Credit Score

Missing mortgage payments will be reported on your credit report after the first “30 day late”, and will continue to be reported as you miss more payments. As this continues, it may result in a drastic credit score drop of over 100 points.

2) Automobile Purchase or Lease

Missing mortgage payments can also affect whether or not you are able to fulfill your plans. If you lease a car ever 2 – 3 years, your credit score may not let you do so.

3) Large Purchases

If you plan on making a large purchase that requires financing, you may not be able to. This might include items such as furniture, vacations, even business transactions can be affected.

4) Credit Card limits

If you are one who relies on credit cards and their limits, missing your mortgage payments will definitely hurt. Having a large drop in your credit score may result in the credit card companies drastically dropping your spending limit, even canceling your card.

Consider HARP – Home Affordable Refinance Program
[youtube http://www.youtube.com/watch?v=y7u36OGmgRo?rel=0&w=420&h=315]

REQUIREMENTS:

1) Loan has to be owned by Fannie Mae or Freddie Mac

Keep in mind Fannie Mae and Freddie Mac are not servicers, but rather, investors. Your servicers are the companies that send you the statement at the end of the month. For example, Citi Mortgage, Wells Fargo or Chase
In order to be eligible for the HARP program, Freddie Mac or Fannie Mae has to have owned it since May 31^st 2009
You can check if you have a Fannie or Freddie loan by clicking the logos on www.FreeModificationHelp.com . Make sure you fill-in your information EXACTLY the way it appears on your mortgage statement.

2) Make sure the loan is 30 years or less in term.

If the term exceeds 30 years, the Loan-to-Value must be less than 105%, or in other words, what you owe on the house can only be 105% of its value based on an appraisal.

3) In the last year, you cannot have missed more than one payment and have been on time for the last 6 months with your payment. There are also income and credit restrictions along with investor overlays.

Based on recent experience with this program and feedback from homeowners, I believe most homeowners will not qualify for this program. However, it’s a low risk option you want to explore before “taking the plunge” and missing payments.

October 6, 2011 by Edwin Baloloy

Is Your Home Being Swarmed By Termites?

“Hey — look at all these moths on the window,” I yelled to my wife as I thought we had an infestation of moth-looking bugs all over the carpet, window, and some flying near the recessed lights.

After taking some photos and posting them on Facebook, my Facebook buddy Brett Rockwell of Rockwell Pest Solutions confirmed they were Drywood Termite Swarmers. The skinny body, red head, and wings make them identifiable from the often-mistaken ants or moths. The termites reacted to a typically warm September day in Orange County: 85 degrees with the sun beating down on my west-facing wall. The heat caused the termites to “swarm” as a survival instinct to expand their colony.

According to Bob Cooper of Brothers Termite, most homeowners don’t know that their homes have termites until the termites swarm or they see damage.

The disgusting sight of wings and pellets left all over our window sills became a pattern over and over until we had enough. We took the plunge and ordered an inspection of the house. The report showed that we had a damaged fascia board (the trim underneath the roof) and a great deal of activity in our attic. We will be the 5th home in Founders Park to undergo fumigation in the past 3 months.

Although the recent rain in early October has ceased the swarming, we know that we’ll be tempted with the ol’ “out of sight, out of mind” trap. We still will have termites and we want them gone NOW. Who knows how much further damage we’ll have to repair if we end up waiting 2-3 more years?

What’s the difference between Local Treatment and Fumigation?

As a Real Estate agent, I see close to 100% of buyers requiring termite clearance when they purchase a non-distressed home. Termite clearance will usually require the home to be tented and fumigated. This is the preferred method termite companies will recommend because it will kill termites in inaccessible areas in addition to the rest of the home. It typically runs about $1,200 for a 2-story, 2,300 square foot home. When there’s active infestation, there’s usually damage to wood members of the home. There’s also normal wear on window frames, door frames and eaves. The repair or replacement of these items will add additional cost.

At times, a homeowner may opt for “local treatment,” which consists of spraying the area where infestation is suspected. Most termite companies will not be willing to assume liability or have a guarantee beyond 1 year for local treatment because it will not kill termites in the inaccessible areas. The homeowners who opt for local treatment will only be paying a fraction of fumigation, but you have to ask yourself if you will actually be paying more in the long run. Additionally, most homebuyers will not accept a termite clearance from local treatment.

If you see termite activity in your home, it would be a no-brainer to order a free termite inspection. Although many of the companies out there offer a free inspection, you should do your research online or obtain a referral. For my Real Estate clients, I’ve used several companies and nobody seems to be better than Bob Cooper of Brother’s Termite. He is the one doing the fumigation on my own home. Be sure to tell him Edwin Baloloy referred you and you’ll get a free inspection. He can be reached at 562-927-5542.