Home Foreclosures: The Next Stage

Wells Fargo Home Mortgage, the nation’s largest mortgage originator, has extended its foreclosure moratorium on loans it owns to March 13 as it works to help implement the Obama administration’s foreclosure-prevention plan.

“To give at-risk customers time to explore the new solutions in the administration’s plan with us for loans Wells Fargo owns, we will not proceed with home foreclosure sales until at least March 13,” says Mike Heid, co-president of Wells Fargo Home Mortgage.

For loans that Wells services for other investors, the company says it won’t proceed with home foreclosures until a date allowed by those investors. Investors holding a “substantial portion of these loans” already have said they will honor a foreclosure moratorium until March 6, Wells Fargo said.( Wells does not own alot of their loans but rather services them for investors.)

Wells Fargo Home Mortgage is owned by San Francisco-based Wells Fargo & Co. (NYSE:WFC), which recently acquired Charlotte-based Wachovia Corp.

Proposed Amendments to The First Time Homebuyers Credit

This appears to be the amendments to the First Time Homebuyers Credit.

The time period in which to buy a home under the program has been extended to December 1st 2009 from the original July 1st 2009.

The credit continues to be 10 percent of the purchase price of the home. However the maximum available credit allowed has been increased to $8,000 for a single taxpayer or a married couple filing a joint return. The credit for married couples who file separate returns has been increased to $4,000 per person (for a maximum of of $8,000) This is an increase from $7,500 and $3,750 respectively.

The biggest amendment to the previous law is the 'recapture' or payback of the tax credit. Previously, taxpayers were obligated to pay back $500.00 per year for approximately 15 years (the exception was death of the homeowner). But if you purchase or have purchased a home after December 31st 2008 and before December 01 2009, the tax credit will no longer have to be paid back to the government. There are exceptions;

The previous legislation had language that stated if you sold your home, transferred your home to a family member or no longer used the home as your principal residence, you were obligated to repay the loan back to the government.

What the law now appears to say that if you have owned the home for three years (and you have met the previous criteria) you are no longer obligated to repay the credit. However if circumstances change within the first 36 months that you own the home, you would be required to repay the tax credit. Death is the only 'out'.

Unless I am wrong, the amendments will take effect immediately upon the presidents signature. Until then, the previous law (without these amendments) stands. This is not new legislation, it is an amendment to the previous act.

For a complete understanding of the current and proposed law, I urge you to contact an trained tax professional or attorney. I am not an attorney and am not offering legal advice.

Citibank, JP Morgan Chase Give Homeowners A Break

Citigroup Inc. and J.P. Morgan Chase & Co. on Friday announced that they would temporarily suspend foreclosures, as Washington's debate continued about how to save the U.S. economy and moribund housing market.

In a letter to House Financial Services Committee Chairman Barney Frank, D-Mass, JPMorgan Chase Chief Executive Jamie Dimon said that he would set up a three-week moratorium on foreclosures. Citibank, in its own statement, said that it would suspend foreclosures until the Treasury plan is finalized.

The announcements by Citigroup and J.P. Morgan come as President Obama prepares to announce more details about his plan to stem home foreclosures in an address on Wednesday in Phoenix, Arizona, according to White House press secretary Robert Gibbs. The Arizona housing industry has been pounded by the slow economy and the state is now seeing some of the highest foreclosures rates in the country.

The Treasury plans to use $50 billion of the remaining $350 billion in bank-bailout funds for some form of foreclosure-mitigation program, but it has yet to produce details on the subject. The goal of the program, which is part of a $1.5 trillion financial rescue program, is to help troubled homeowners avoid defaulting on their loans.

The Obama administration is working on a program that would subsidize mortgage payments for troubled homeowners subject to an affordability test, according to reports. This approach would be different from other assistance programs, because borrowers would go through a standard eligibility test and could be approved before their mortgage becomes delinquent.

Citigroup and J.P. Morgan are responding to a request from Frank, who pressed bankers on Wednesday to voluntarily set up a moratorium on foreclosures until the Treasury Department has put in place a plan to alter mortgages.

In addition to Frank, the Office of Thrift Supervision asked the federal and many state-chartered thrift institutions it regulates to stop foreclosures on owner-occupied homes until the new plan is finalized in the next few weeks.

Frank, in a meeting with reporters on Wednesday, said he expects that more than 90% of banks will halt foreclosures until the program is up and running. He declined to provide details of what kind of plan he would like to see take place, but he said some principal write-down for troubled borrowers would be a key part of it.

A Treasury staffer said Tuesday that the program could resemble a proposal introduced by Federal Deposit Insurance Chairwoman Sheila Bair that would use funds from the bailout package in a program to help avoid foreclosures. It is a loss-sharing program between mortgage servicers or investors and the FDIC and deals with loans that fail six months or longer after being modified. Courtesy Marketwatch.com

The Long And Short Of Short Sales

Short Sale; The sale of a home where the sale or list price price of the home is less than what is owed on the mortgage.

If you have bought a home in the last five years with no money down or if you have maxed out your home equity lines of credit, chances are you are 'upside down' on your mortgage. Being 'upside down' means you owe more to the bank than what the home is worth in todays depressed marketplace.

What does this mean for a homeowner in this predicament? Well, it you need to sell your home, chances are you are going to have to do a 'short sale' transaction. But how do you make up the difference between what you owe and what your property is worth, (plus closing costs and agent commissions).

Ideally, you bring a big fat check from your savings to the closing table to pay off the balance of the mortgage which is not satisfied by the sale of the property.

Realistically you go to your lender and request that they 'forgive' the balance of the loan. But a lender will only consider this option under dire financial circumstances when the only other avenue would be foreclosure.

Are short sales easy? No, they are not. Edina Realty estimates that only 1 out of 3 short sales actually close with the the rest either sliding into foreclosure or the homeowners pull their home off the market and wait for better days.

The good news about short sales is the IRS will not tax you on the 'capital gains' which occur when the bank forgives the balance of the loan. In the past if the bank forgave $20,000, the IRS treated the money as income and taxed you accordingly.

The bad news is a short sale can ding your credit, which potentially can make it difficult to buy a home in the future, obtain credit cards, rent an apartment or even buy automobile insurance.

In short, if you are upside down on your mortgage, it's best to wait out the storm until the housing market stabilizes and homes begin to (hopefully) increase in value. Ask your lender if it's possible to change the terms of your mortgage (lower interest rate, longer mortgage). This may help to lower your payments and keep you afloat until the market makes a correction.

Oh Yeah? Well Who Needs Ya Anyways!

Minneapolis finally met a national survey that it doesn’t like it.

Despite topping myriad “best-city-for _____” lists, Minneapolis lands near the bottom of a list of cities ranked by popularity as a place to live.

Only 16 percent of respondents to a survey by the Pew Research Center’s Social & Demographic Trends project said they’d like to live in the City of Lakes or its surrounding metro area. Only Kansas City, Cincinnati, Cleveland and Detroit ranked lower in the study.

Denver topped the list of 30 cities, with 43 percent of respondents saying they’d like to live there. San Diego, Seattle, Orlando, and Tampa, Fla., rounded out the top five.

Pew found that 46 percent of those surveyed would rather live somewhere else other than Minneapolis. Apparently our frigid temperatures played a part in our city being shunned. Most respondents surveyed preferred a warmer climate over our frigid temperatures.

Pew’s report is based on a telephone survey of a nationally representative sample of 2,260 adults, conducted Oct. 3-19. Source Minneapolis Saint Paul Business Journal.

Is Anybody Home?

A record 19 million U.S. homes stood empty at the end of 2008 and homeownership fell to an eight-year low as banks seized homes faster than they could sell them.

The number of vacant homes climbed 6.7 percent in the fourth quarter from the same period a year ago, the U.S. Census Bureau said in a report today. The share of empty homes that are for sale rose to 2.9 percent, the most in data that goes back to 1956. The homeownership rate fell to 67.5 percent, matching the rate in the first quarter of 2001.

The worst U.S. housing slump since the Great Depression is deepening as foreclosures drain value from neighboring homes and make it more likely owners will walk away from properties worth less than their mortgages. About a third of owners whose home values drop 20 percent or more below their loan principal will “hand the keys back to the bank,” said Norm Miller, director of real estate programs for the School of Business Administration at the University of San Diego.

“When you’re underwater and prices continue to fall, you tend to walk,” Miller said in an interview. “It’s a downward spiral that’s tough to stop because it feeds on itself. Foreclosures encourage other foreclosures and falling prices discourage buying.”

The U.S. had 130.8 million housing units in the fourth quarter, including 2.23 million empty homes that were for sale, the Census report said. The vacancy rate was 3.5 percent in urban areas and 2.6 percent in suburbs, the report said.

In addition, the report counted 4.1 million vacant homes for rent and 4.8 million seasonal properties.

“Wealth loss and housing in combination with loss in the equity market will have ripple effects,” said George Mokrzan, senior economist at Huntington National Bank in Columbus, Ohio. “The silver lining is that while home prices are coming down, incomes have stayed about the same, and in a lot of markets we’ll hit equilibrium this year. That’s a good sign for the long term.”

Most foreclosures are contained in the report’s “other” category, which includes homes tied up in legal proceedings as well as properties that are empty because the owner is renovating and living somewhere else, according to the Census Web site. There were 7.8 million homes in that category in the fourth quarter, up from 7.3 million a year earlier, the report said.

There were 2.22 million new foreclosures in 2008, an average of 6,090 a day, according to Washington-based Hope Now Alliance. Those resulted in 917,000 property sales, according to the group that represents 27 mortgage lenders and servicers.

U.S. banks owned $11.5 billion of homes they seized from delinquent borrowers at the end of the third quarter, according to the Federal Deposit Insurance Corp. in Washington. That’s up from $5.4 billion a year ago.

The U.S. housing market lost $3.3 trillion in value last year and almost one in six owners with mortgages owed more than their homes were worth as the economy went into recession, Zillow.com said in a report today.

The median estimated home price declined 11.6 percent in 2008 to $192,119 and homeowners lost $1.4 trillion in value in the fourth quarter alone, the Seattle-based real estate data service said.

Courtesy Bloomberg.com

ARMS Are Down, Legs Remain Steady

A Freddie Mac survey released Friday found that starting rates for conforming 1-year Adjustable Rate Mortgages (ARM) averaged 1.76 percentage points above the rates of other loans, the largest rate premium observed since Freddie Mac began collecting ARM data in 1984,” said Frank Nothaft, Freddie Mac vice president and chief economist. “Further, rates on 30-year fixed-rate mortgages had fallen to 50-year lows and were near or below initial rates on ARM products. As a consequence, by December 2008 the ARM share of loan applications had fallen to 3 percent, the lowest recorded in our survey. With low consumer interest in ARMs, fewer lenders were offering ARM products.

It's worth noting that the Adjustable Rate Mortgage has become the bane of many homeowners who saw their rates adjust at the three or five year periods of the loan and were unable to make the increased payments. Whether lenders are offering fewer ARM mortgages because borrowers have shunned them or because lenders lost an arm and a leg on them is a debatable if moot point. Source Freddie Mac news release.

Fannie And Freddie Become Landlords

Under a plan announced Friday, lenders Fannie Mae and Freddie Mac announced they are extending their suspensions of evictions of homeowners or renters due to foreclosure to February 28th 2009. Previously both Freddie and Fannie had suspended foreclosures that affected 20,0000 homeowners and 6300 owners and renters.

Fannie and Freddie are also planning to expand rental options after default and announced a new 'rent to own mortgage program' for persons currently renting homes that are facing foreclosure.Eligible renters will be offered month to month leases, the companies said.

Additionally, Freedie Mac will continue to seek loan modifications to allow borrowers to retain ownership.

Banker Credit Suisse in December estimated that 8.1 million, or 16 percent of all mortgages, would be in foreclosure over the next four years without more lender or government interventions.

President Obama Soon To Reveal Details For Lower Home Interest Rates

President Barack Obama, speaking on his weekly radio address on Saturday, promised to lower mortgage costs and get credit flowing as he readies a new road map for spending billions from the second installment of the financial rescue plan.

The White House is deciding how to structure the remaining half of the $700 billion that Congress approved last year to save financial institutions and lenders. An announcement was possible as early as this coming week on an approach that would use a range of tools to unfreeze credit, helping families and businesses.

During the final three months of 2008, the economy recorded its worst downhill slide in a quarter-century, stumbling backward at a 3.8% pace, the government reported Friday. It could get worse.

Freddie Raises Fees - Realtors Quietly Weep

Freddie Mac posted on its Web site late Friday higher fees that will raise costs for some home mortgage borrowers.

The move by the government-backed mortgage investor follows similar fee increases by its main rival, Fannie Mae, in December. A series of such increases over the past 15 months has drawn protests from the National Association of Realtors and the National Association of Home Builders. The trade groups say Fannie and Freddie are adding costs that deter home buying or refinancing at a time when the housing market badly needs a boost.

Freddie's announcement cited growing risks of mortgage defaults as home prices continue to drop. It noted that prices are down more than 30% from a year ago in some areas and said "all industry indicators" point to further declines in 2009.

Freddie's higher fees affect mortgages that finance condominiums; loans that allow borrowers to pay only interest in the initial years and defer principal repayments; refinance loans that allow the borrower to cash out some of their home equity, and loans with certain combinations of low credit scores and down payments.

Fannie and Freddie don't deal directly with consumers but have a big influence on the rates and fees they pay. For mortgages up to a limit of $625,500 in the most expensive areas of the country, the two companies acquire or guarantee loans that have been originated by lenders. For a growing number of loans, Fannie and Freddie reduce the price they will pay (through "delivery fees" or "loan level price adjustments") to compensate for what they see as higher risk characteristics. These surcharges typically are passed on to consumers in the form of higher loan fees or interest rates.

For instance, Freddie announced a fee of 0.75% of the loan amount on certain mortgages for condos on which the loan amounts to more than 75% of the estimated home value.Source Wall Street Journal

Minnesota Attorney General Cracks Down On Predatory Foreclosure Servicers

Minnesota Attorney General Lori Swanson today filed lawsuits against two so-called mortgage “foreclosure consultants” alleging that they targeted homeowners facing foreclosure with illegal up-front fees and empty promises to save their homes. The lawsuits are against IMC Financial Services, LLC (“IMC”) and American Financial Corp. d/b/a National Foreclosure Counseling Services (“NFC”), both with offices in Florida. The lawsuits allege that both companies unlawfully charged up-front fees as high as $1,850 and failed to deliver promised services to save the homes from foreclosure. Today’s lawsuits bring to twelve the number of bogus foreclosure consultants sued by the Attorney General in the last year.

Foreclosure consultants typically represent that they will save a homeowner’s home from foreclosure by negotiating or modifying the terms of the homeowner’s existing mortgage. A 2004 Minnesota law bars “foreclosure consultants” from charging any compensation until after the foreclosure consultant has “fully performed each and every service the foreclosure consultant contracted to perform or represented he or she would perform.”
(Atypically, these companies will do little or no work for their fee. And because of privacy concerns, lenders are leary about discussing finances with third parties. The best way to prevent foreclosure is for the homeowner to contact the lenders directly and if necessary consult an attorney licensed in the state of Minnesota for additional assistance.) (editorial comment).

The Attorney General also expressed concern about a new breed of company that operates like a foreclosure consultant in promising to negotiate or modify the terms of the homeowner’s existing mortgage, but instead targets homeowners who may be struggling financially but are not yet in default or foreclosure. Swanson and state legislators proposed legislation designed to close loopholes in existing state law regulating foreclosure consultants and to prohibit so-called mortgage modification companies from soliciting up-front fees and then failing to deliver the promised services. Source: Press release from Minnesota Attorney Generals office.

Nowhere To Go But Up...Hopefully

An index of home prices in 20 major metropolitan areas fell at a record annual pace in November, to levels not seen since 2004, according to a report released Tuesday.

The S&P Case-Shiller Home Price Index, a sampling of 20 cities from across the nation, fell a record 18.2% over the 12 months ended Nov. 30. That brought the index to its lowest point since February 2004. From its peak in mid-2006, the index has plunged a whopping 25.1%.

Eleven of the 20 cities showed record declines, and the 12-month price drop for 14 of the cities was a double-digit percentage.

"The freefall in residential real estate continued through November 2008," said David M. Blitzer, chairman of the Index Committee at Standard & Poor's, in a prepared statement. He said the 20-city index has fallen for every month since August 2006, a total of 28 consecutive months.

The decline was very broad, with prices down at least 1% in every region of the nation during the October-November period. Eight regions recorded record monthly declines, according to Blitzer.

As has become the norm, Southwest cities were the hardest hit, with Las Vegas prices dropping 3.9%, the nation's worst decline. Phoenix, at 3.4% was second. The Arizona metropolis recorded the worst 12-month decline, at 32.9%, followed by Las Vegas, at 31.6%.

New York and Cleveland prices fell by only 1% for the month, the smallest November drops. The best 12-month performer was Dallas, where prices slipped by 3.3%. Other 12-month, single-digit percentage drops were recorded by Denver, at 4.3%, Cleveland, at 5.2%, and Charlotte N.C., at 5.3%.

Locally, home values have dropped 16.3 percent compared to a national 20 city average of 18.2 percent.

But there was some positive news in Monday's report from the National Association of Realtors, which showed a bump up in the number of existing homes sold during December.

"We're clearly seeing some of the impact of falling prices," said Larson. "But the problem is that many of those sales are made at the cheapest prices [often of bank repossessed properties], making it hard for normal homeowners to sell."

He does not foresee any swift improvement in housing markets - not as long as industries of all kinds keep announcing new layoffs, as several companies did Monday when more than 70,000 Americans learned they would lose their jobs.

"Home prices will likely decline, albeit at a slower pace, for the rest of 2009," said Larson. Courtesy Case-Shiller and CNN.

Foreclosures Up An Astounding 81 Percent From 2007

The number of homes in the foreclosure pipeline jumped 81% in 2008 compared with 2007, despite massive efforts by lenders and governments to stem the tide, according to a report released Thursday by RealtyTrac.

A total of 2.3 million homes had at least one legal notice of foreclosure filed during 2008, one of out every 54 homes in America, the report said. The filings can include default notices, auction sale notices and bank repossessions.

In December, 303,410 properties received a foreclosure filing of some kind, up 17% from November and up 41% from December 2007.

"Clearly the foreclosure prevention programs implemented to-date have not had any real success in slowing down this foreclosure tsunami," said James Saccacio, chief executive officer of RealtyTrac. Many lenders and loan servicers have been working to modify loans to prevent or delay foreclosures.

Fannie Mae and Freddie Mac imposed a moratorium on new foreclosures, and several states, including California, passed new rules designed to slow down foreclosures. Democrats in Congress are pushing for $50 billion to be spent on foreclosure relief out of the second part of the $700 billion from the Troubled Asset Relief Program.

Locally, one out of three homes listed on an average day are marketed as foreclosed homes.

November Was A Disaster For Home Sales...December May Be Worse

Pending U.S. home sales fell to the lowest level on record in November, as the plummeting stock market and faltering economy caused buyers to delay their purchases, the National Association of Realtors (NAR) said Tuesday.

U.S. existing home sales plunged to a rate of 4.49 million in November, down 8.6 percent from October. When the final tally for 2008 is complete, it is likely to be the worst year for home sales in at least in a decade. Plus, with job losses mounting, there appears to be no quick turnaround this year.

Typically there is a one- to two-month lag between a contract and a done deal. So November's decline foreshadows bleak results for December's existing home sales numbers, set to be release Jan. 26.

Sales contracts fell around the country, but were weakest in the Northeast and Midwest.

Pending sales now sit at the lowest in its eight-years -- beating the previous record low in March 2008.

Lobbyists for the real estate industry are using the deteriorating housing market data to call on President-elect Barack Obama to devote attention to sinking home prices and sales -- the genesis of the recession.

The U.S. has been coping with the worst housing recession in decades, and many in the real estate, banking and mortgage industries are poring through each month's data for signs of a bottom, with no luck so far.

Indeed, the contracting economy makes the timing of any recovery a moving target. Home sales are growing in foreclosure-plagued areas like Las Vegas and Los Angeles, but are still sinking in most of the country. The Realtors group estimates that 45 percent of existing home sales are now foreclosures and other distressed properties.

Lawrence Yun, NAR chief economist, forecasts a modest increase in home sales for 2009. He projects sales will be up 6.6 percent, after plunging by around 13 percent in both 2007 and 2008. Prices are forecasts to remain relatively level with a median of $198,100 this year, up from $197,000 last year. Courtesy Business Week.