In Time for Buying Season, Rates Reach Yearly Lows

The 30-year fixed-rate mortgage, a popular choice among buyers, sank even lower this week, matching its yearly low of 4.71 percent from January, reports Freddie Mac in its weekly mortgage market survey. Last year at this time, the 30-year fixed-rate mortgage averaged 5 percent.

Meanwhile, the 15-year fixed-rate hit a new yearly low of 3.89 percent this week. Last week, the 15-year fixed-rate mortgage averaged 3.97 percent. The 15-year rate averaged 4.36 percent last year at this time. It reached its lowest level on record in November when it averaged 3.57 percent.

The one-year adjustable-rate mortgage averaged 3.14 percent, down from last week’s 3.15 percent. Last year at this time, it averaged 4.07 percent.

“Weaker economic data reports reduced Treasury bond yields and allowed mortgage rates to drift lower for the third consecutive week,” says Frank Nothaft, Freddie Mac’s chief economist.

Source: “30-Year Fixed-Rate Mortgage Matches Yearly Low of 4.71 Percent,” Freddie Mac (May 5, 2011)

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Short Sales: 7 Legal Pitfalls

In addition to educating yourself on the ins and outs of these complex deals, you also need a good picture of the legal risks that exist for you.

 1. Misrepresenting tax consequences.

Although it’s true that the federal government passed a law in 2007 directing the IRS not to count mortgage debt forgiven by a lender as income, the provision is limited. It applies only to purchase money; it doesn’t apply to debt on a cash-out refinancing, and it doesn’t apply to second homes. There’s also a dollar limitation, albeit a generous one ($1 million for married couples filing separately, twice that for joint filers). “A lot of associates are telling people there are no tax consequences,” says Lance Churchill, a short sales specialist and trainer who operates in Boise, Idaho, and San Diego. “But it’s a limited law and you just need to be accurate about it.”

2. Misrepresenting how secondary debt is treated.

Practitioners might mistakenly tell sellers that all the house debt is forgiven once the primary lender approves a short sale. But that might not be the case, Churchill says. Holders of second deeds of trust don’t typically forgive the debt. More commonly, they accept a partial payment, like $2,000; and rather than write off the balance, they sell the balance to a collection agency for another few thousand dollars. In many states, these second loans are recourse, so sellers can be caught by surprise when the collection agency contacts them a year later seeking payment of the debt.

3. Acting on inappropriate lender requests for seller contributions.

It’s not uncommon for lenders to go after money that the sellers have in the bank or in a retirement account before they approve a short sale request. They’ll sometimes seek to put the onus on the real estate practitioner to get sellers to sign over a note for the amount they have in the bank as a condition of sale. But in states where mortgage debt is nonrecourse, lenders have no right to the money, and associates that suggest otherwise to the sellers might be later sued for negligence.

4. Breaching fiduciary duty.

Investors are increasingly executing what’s known as a “double close and flip,” a type of short-sale transaction that can leave practitioners exposed to irate sellers who say they got a raw deal. Here’s what typically happens: Investors insist on handling short-sale negotiations with the lender, freeing up their real estate practitioner to concentrate on finding a buyer. During the negotiations, the investors—often without the practitioner’s knowledge—talk the sellers into turning over the deed. Once the practitioner finds a buyer, the investors do a double closing, buying it themselves at a deep discount and then flipping it to the buyer at the listed price, making money on the spread. “The seller might feel he got less than he would have had the associate done his job and not handed over negotiations to the investor,” says Churchill.

5. Providing poor oversight of a loss mitigation company.

Companies that specialize in managing short sales promise to focus on the complicated details of the short sale, freeing up practitioners’ time to find buyers. But if you take a hands-off approach, you can be charged with negligence if a deal falls apart. “A lot of these companies are fly-by-night or have one person who’s overworked,” Churchill says. “Practitioners are coming back a month later to find no one’s even opened the file.”

6. Lacking the required license to undertake loss mitigation.

It often makes sense for practitioners to take a two-pronged approach with clients facing a difficult time paying their mortgage—first trying to help them accomplish a loan modification (for a fee), and then finding a buyer if a modification doesn’t work. But watch out. Depending on your state, you could need a specific license, sometimes called a credit repair license, to earn a fee for helping owners modify mortgage terms. Without having the right credentials, taking a fee for loan modification assistance could be a criminal offense.

7. Facilitating transactions not listed on the HUD-1 form.

It’s not uncommon for investors to offer incentives to sellers to move a deal forward, but lenders typically frown upon sellers who walk away with money when they’re supposedly taking a loss. Investors sometimes work around this limitation by offering to buy something from the sellers at an attractive price, such as a couch for $5,000. Associates who communicate these offers to sellers can get tied into charges of lender fraud because the deals may be deceptive.

Source: By Robert Freedman (April 2009)

Fannie Adds Incentive to Avoid Foreclosure

Beginning in July, Fannie Mae will allow financially troubled home owners to complete a “deed in lieu of foreclosure” or a short sale and be eligible to apply for a new Fannie-backed mortgage in two years.

Currently, borrowers who have completed a deed-in-lieu must wait four years to apply for a loan that Fannie will purchase. Home buyers who go through foreclosure must wait five years.

All these waiting periods can be reduced further, if the potential buyer can show extenuating circumstances. “We are beginning to think about post-recession, how you address borrowers who became unemployed through no fault of their own … and now deserve the right to re-enter the housing-finance system,” said Federal Housing Association Commissioner David Stevens.

Source: The Wall Street Journal, Nick Timiraos (04/26/2010)

Bank of America wants to suspend mortgage payments for jobless

Bank of America wants to give struggling mortgage customers collecting unemployment benefits up to nine months with no mortgage payment.

That’s right. Zero payment.

Customers would have to agree that, if they haven’t found a job within the nine months, they will sign over their house to the bank. The Charlotte bank would give them at least $2,000 to help with moving expenses.

The proposal needs regulatory approval, and the bank doesn’t know when, or if, that will happen.

Some experts say the plan could become an industry model and is the most substantial, creative approach yet to addressing the fallout from stubbornly high unemployment, which is driving mortgage delinquencies and foreclosures.

More relief

The plan also could provide families with faster relief, allow them to save money and provide a timetable for making decisions. The bank could avoid millions in collection and foreclosure expenses.

“It’s an innovative way for Bank of America to demonstrate it’s working with its customers,” said Mark Williams, a former Federal Reserve bank examiner. “Regulators should view this as a positive step as well.”

The $75 billion federal mortgage-aid program, announced in February 2009, has struggled to fulfill President Obama’s estimate of helping millions. Through March, only 230,000 families had received final mortgage modifications under the Home Affordable Modification Program, called HAMP.

The program holds few options for the jobless, even as the U.S. unemployment rate hovers around 10 percent. The Charlotte area’s rate is near 13 percent. And more than 6.3 million people nationwide have been out of work longer than six months.

“It’s something I would have done,” said Bill Sagy, a Bank of America mortgage customer laid off last June from his management consultant position. “That would definitely have worked.”

Instead, he spent months working with the bank for reduced payments that he thought would become a long-term modification. But that didn’t happen, making him one of a growing group of homeowners who spent scarce resources that didn’t ultimately save their homes.

Sagy’s Huntersville, N.C., home, which he bought for $253,000 in 2006, has shed value and is unlikely to sell for what he owes. Without a modification, he’s behind on payments and says the bank wants to foreclose.

“It’s so frustrating,” said Sagy, who with his wife is considering relocating.

Mark Pearce, a leader in national foreclosure-prevention efforts, called the plan a step forward.

“This seems like a new idea that offers a lot of positives for both the homeowners and the bank,” said Pearce, an North Carolina deputy banking commissioner. “There’s a nice balance, giving people more breathing space but with a date certain for moving to the next step if things don’t work out.”

Reducing worries

In addition to reducing worries, the program could, for example, mean families are able to keep current with a car payment and avoid repossession. Losing a car makes it harder to find or keep a job. Borrowers also might be better able to afford expenses such as child care, freeing them to attend job fairs and interviews.

Steve Obendorf, who works in the credit-counseling unit of Family Services, a Gastonia, N.C., nonprofit, likes the idea of giving people “a breather.” But the bank also needs to make sure people understand they’re agreeing to sign over their homes if they can’t get a job. Otherwise, he speculates, there could be a wave of homeowners begging for a reprieve.

Obendorf, who works with people facing foreclosure, said unemployment is the key reason people seek free counseling services. He recommends saving as much as possible during any grace period to build a cushion.

Guy Cecala, publisher of Inside Mortgage Finance, said the bank “deserves high marks” for the effort but questions how many the program could help. The self-employed, for example, don’t qualify for unemployment benefits. Homeowners with a lot of equity aren’t likely to sign up because they would not want to risk losing their home

The bank has 1.44 million customers who are 60 days or more past due, nearly 14 percent of the 10.4 million mortgages it services. But it hasn’t broken out how many of those might be helped by the proposed plan. Many details, such as eligibility and the application process, also haven’t been finalized because the bank can’t go ahead without regulators’ approval.

Also unclear is whether zero would really mean no payment at all.

That’s the goal for Jack Schakett, who is leading negotiations for the bank. That would mean the bank pays bills such as property taxes and insurance during the nine-month break. That’s what happens now when a customer is delinquent.

Bank of America, like most servicers, has faced criticism for inept handling of the modification process. Several lawsuits allege the bank hasn’t delivered on mortgage modifications. More broadly, the industry is under pressure from lawmakers and the public, angered by financial firms’ role in the national meltdown.

Source: McClatchy Newspapers, by Stella M. Hopkins (04/25/2010)

New Foreclosure Prevention Plan Announced

President Obama is announcing an expansion of foreclosure-prevent tactics, including a plan to reduce principal balances and special aid for unemployed borrowers.

The bulk of the responsibility for carrying out the new program will be assigned to the Federal Housing Administration, which will insure lenders against part of the losses.

The plan asks banks to write down loan balances to less than the value of the home. If there is both a first and second mortgage, the combined total would have to be no more than 115 percent of the home’s value.

The Treasury would pay part of unemployed homeowners’ loans for three months while they job hunt.

Source: The Wall Street Journal, Nick Timiraos and James R. Hagerty (03/25/2010)

Foreclosed Borrowers May Get Loans Again

Will people who currently face foreclosure or short sales or who walk away from their underwater properties ever be able to get financing to buy another home down the road?

Banks haven’t been very forthcoming on this issue. However, knowledgeable observers of the situation say that while it may take some time, the situation will right itself for most people.

Because bankrupt borrowers have eliminated their debts, they should “constitute attractive fodder for mortgage lenders,” says University of Michigan law professor John Pottow, whose specialty is bankruptcy.

As home prices and the mortgage market stabilize, lenders will be motivated to lend to people who previously had financial troubles if they look like they can pay the next time around, says Alan Riegler, a consultant with CCG Catalyst, which advises banks.

“The lender who figures out how to do more of this case-by-case stuff cost-effectively is going to end up ahead of the pack,” Riegler says.

Source: Inman News, Matt Carter (03/05/2010)

Head of FDIC Supports Loan Write-Downs

The possibility of solving the underwater mortgage problem by writing down principal has been deemed politically impossible by the Obama administration, but some government officials see write-downs as the best long-term solution.

One of the most outspoken supporters of write-downs is Federal Deposit Insurance Chair Sheila Bair. This week, she called underwater mortgages a continuing problem and said the FDIC is “actively looking” at ways to encourage principal write-downs in the deals it does to facilitate acquisitions of failed banks.

Overall, Bair was positive about housing finance. “After three long and difficult years for housing and mortgage finance, I think we’re seeing some progress in stabilizing our housing markets,” she said.

Source: Reuters News, Karey Wutkowski (03/04/2010)