Snakes Have to Eat, Too

One morning a couple months ago I heard a flapping commotion outside our den door. I looked out to the porch and saw a dove bravely beating a king snake with his wings.

It was morning, so the male dove was on duty on his nest while his wife rested. The snake was after the dove's chicks, and the snake won.

Now I don't want any of you carnivores shrieking "Eeew!"

A Better Way to Do Short Sales

A short sale occurs when the seller owes more on his mortgage than can be recovered by the sale of the house. Banks have made the short sale process so painful, that most buyers won't even make an offer on a house that is listed as a short sale. Buyers know they will wait several months before the seller's bank will look at their offer, and then the lender will refuse to make repairs and may counter at a higher sale price. At the last minute, the real estate agent's commissions can be reduced, and the agents have no recourse. So of course agents are not eager to get involved with these high risk/low reward transactions.

Since August 1, the U.S. Treasury has made Home Affordable Foreclosure Alternatives (HAFA) short sales available to borrowers whose loans are owned by Fannie Mae and Freddie Mac. Borrowers with FHA and VA loans are still not eligible.

Here are the enlightened advantages of the HAFA short sale:
1) The seller has at least 120 days to market the house, during which time foreclosure is postponed.
2) The seller's lender sets a sale price that they will accept, preferably before the house is on the market.
3) If a buyer submits an offer that meets the the terms of the seller's lender, the lender must accept the offer within 10 business days.
4) Seller is released from all liability on all loans. No deficiency judgements, and no surprise repayment notes appear in the closing documents.
5) U.S. Treasury pays up to $6,000 to subordinate lien holders. This is a big deal, because typically the holder of the second mortgage is offered $3,000 by the first lien holder, and the second lien holder can refuse to accept this settlement, so the short sale can not occur.
6) Seller receives $3,000 cash from the U.S. Treasury at closing for moving expenses.

How can the U.S. Treasury get lenders to agree to streamline the short sale process? They give cooperating lenders $1,500. So the downside of all this is that the taxpayers are again on the hook for the mortgage industry meltdown.

I just took a class on the HAFA short sale process, and I would be glad to discuss this option with you if it seems like something that would be helpful to you.

Why Do Banks Prefer Foreclosure to Short Sale or Home Loan Modification?

I have long wondered why banks reject perfectly reasonable offers on houses that need a short sale. The banks take months to respond to an offer on a house, they refuse to do repairs required to make the sale happen, and they cut the agents' commissions at the last minute. They really seem to prefer to foreclose on the house, rather than work out a home loan modification with the underwater home owner, or accept a short sale offer at market value. When the house goes to foreclosure, it typically sells for far less that it would have by a short sale. What gives? How can the banks stay in business by willfully choosing to foreclose, and thereby receiving much less than they need to?

The guys at Think Big Work Small think they have it figured out. The FDIC seized the assets (bundled mortgages) of some inept mortgage lenders, and then sold the assets to other lenders at a deep discount. Then when the new lenders foreclose, FDIC compensates the new lenders for their losses, but not for their actual losses, but for the loss the lender would have incurred if the new lender lost the difference between the original mortgage amount and the foreclosure price. Of course, the new lender is not really losing that amount, because they bought the mortgages for less than was owed!

If this scenario is true, the FDIC is using tax-payer dollars (or I should say, increasing our deficient and borrowing against future tax-payer dollars) to enrich the lucky, well-connected banks that bought the assets of defunct banks. All these unnecessary foreclosures drive down the values of the neighboring properties, making it impossible for neighbors to refinance or to sell at a fair price. As long as the FDIC pays banks to foreclose rather than do a short sell or a loan modification, market value of all houses will be unjustly dragged down by the value of the foreclosed houses.

Are you horrified yet?

Go Solar with No Installation Cost

The amazingly fabulous Center for Biological Diversity (CBD) has found a unique and affordable new way for you to lease solar panels for your home, and at the same time raise $500 for the CBD. If you get the panels installed, please let me know how it worked out for you. Here's the plan:

Sungevity, a home-solar installer serving California, Arizona and Colorado, puts up solar panels on your house for free when you sign up to lease them.
You pay Sungevity on a monthly basis for your home-solar lease, usually the same or less than what your pre-solar electric bill used to be.

Sungevity pays the CBD a $500 referral fee for sending you their way.
Sungevity pays you an additional $500 cash bonus for joining the solar lease program, plus $1,000 credit toward your future lease payments.
In the end, you could end up having home-solar power for nothing more than you were paying in electricity bills before, plus $500 cash back and the chance to earn a generous donation for the Center for Biological Diversity. Not to mention the fact that the atmosphere will be spared roughly 8.24 metric tons of CO2 a year (roughly what you'll conserve by using solar on your home). It's a win-win-win situation.

To take advantage of this offer, please follow the steps below:

Go to the Sungevity home page to request an iQuote: www.sungevity.com
After you submit your request, you'll be taken to a page that asks you where you heard about Sungevity. Enter the following referral code: CBD.
Within 48 hours, Sungevity will send you an iQuote with your estimated monthly lease payment and savings. You then decide whether to enter a lease agreement.
If you are excited about this promotion and about raising funds for the Center's work, please spread the word among your friends and colleagues who live in Arizona.
This offer is good through the end of 2010.

If you have any questions about this program, please contact Brian Somers at Sungevity (bsomers@sungevity.com).

FHA Changes Coming

FHA, the federal agency that insures loans for millions of homeowners who have limited down payment, needs a cash infusion. FHA's reserves have been below the required level for several months, and they must figure out how to increase their reserves so they can continuing insuring loans. In July, 36% of the home buyers in Tucson who financed their purchase used FHA loans.

On October 4, 2010, FHA will be changing the Mortgage Insurance Premiums that they charge to borrowers using FHA financing. The Up-Front Mortgage Insurance Premium (UFMIP), which is added to the buyer's loan amount, will decrease from from 2.25% to 1.0%. On a $100,000 purchase, at the current 4.5% (!) interest rate, this will reduce the monthly payment by $6.11. So far so good.

The problem for home buyers is that the Monthly Mortgage Insurance Premium (MMIP) will increase from 0.55% to 0.80% or 0.90% annually. The exact amount hasn't been determined yet. If the MMIP goes to 0.9% annually, the net effect of the UFMIP and MMIP changes will be this: using FHA financing at current interest rates on a $100,000 house will cost $21.77 per month more.

July Residential Sales Statistics

The Tucson Multiple Listing Service has released Residential Sale Statistics for July

While the average and median sale prices held steady from June to July, the number of sold units dropped 32% in that one month. Most buyers had to complete their home purchases by June 30 to qualify for the $8,000 tax credit. In July, we saw not only the usual lack of interest in summer home buying, but also the abrupt loss of one huge government subsidy for home buying.

FHA accounted for 36% of the financed sales. Changes are coming in September that will make it harder for buyers to use FHA financing.

Amazingly, 27% of the sales were cash. Many of the foreclosed houses are too damaged or neglected to qualify for financing. Investors are buying these sorry wrecks at incredibly low prices, renovating them, and reselling a few months later for twice as much. While the investor purchases drag down the values of neighboring houses, the resale of renovated houses to homeowners pulls the values up, and helps stabilize neighborhoods.

Seller-Funded Down Payment Assistance Program

The home buyer tax credit program is history, and no one is really sure if the $12.6 billion investment was worth it. I myself have not seen any decline in home buying, probably because of the incredibly low 4.5% fixed mortgage rates combined with house values that in some cases are half what they were three years ago.

These guys at ThinkBigWorkSmall make a good point. Just a few years ago, we had programs that allowed sellers to contribute to the buyer's down payment. The down payment had to be laundered through a non-profit that skimmed some of the money for handling the paper work, but a lot of houses were sold to people who had no savings.

HUD decided that because the default rate on these loans was considerably higher than average, they had to put a stop to seller-funded down payment assistance programs. They concluded that when people don't have much "skin in the game", meaning their own savings invested in a houses, they are more likely to walk away from the house when they get into financial trouble.

But is this the reason for high rate of defaults on these loans? Maybe partially, but HUD needs to remember that many of these loans were made to people with no income and bad credit. Additionally, the unemployment rate has soared, and the glut of foreclosures had depresed property values, making houses impossible to sell or refinance. The defaults should surprise no one.

Almost immediately after the seller-funded down payment programs were eliminated, HUD came up with a new idea: $6,500 to $8,000 tax credits for home buyers. The problem with this is that instead of the home buyer having their skin in the game, now they have the tax payers' skin in the game. $12.6 billion of it. This doesn't seem like an improvement to me.

HR 600 is a bill that will restore seller-funded down payment assistance programs. These programs could help keep the housing recovery chugging along, and they don't cost tax payers a dime.

For the most part, lenders are no longer making loans to people who have no business buying a house. In fact, lenders have swung so far in the other direction, that I am now having trouble getting loans closed for people with perfect credit, savings and secure jobs. If the down payment assistance program could be used to help people who are actually qualified to buy houses, we would all benefit.