Emotional toll of a short sale

No one really talks about it, but what about the emotional toll of a short sale?




Short sales are all the rage in the real estate industry. And when I mean rage, I mean bad rage. Realtors and property owners alike would agree that the short sale process is cold, unorganized, slow, tedious, and downright depressing.



Here are some basic statistics about the housing market today. They fluctuate based on who you ask, but in general they are true:



• 25%-30% of all mortgaged homes are worth less than the balance of their mortgage(s)



• More than 1 in 10 mortgagors are behind on the mortgage



• Some say over 5 million foreclosed homes could hit the market throughout 2011



These are some sobering statistics, but it leads us to our point. A homeowner, you, or someone you know, that is in default and pursuing a short sale is not alone. Sure it feels like they are alone. Many people don’t feel able to freely discuss financial difficulties because of the fear of being ridiculed, ostracized, worrying the kids, and a whole plethora of personal reasons. The fact is it’s hard to deal with these issues and many people feel similarly.



The plain truth is a short sale owner will be leaving their home and that in itself is filled with unknowns, fear, and emotional angst. No one likes not knowing where you are going to live. How much it will cost? Where it will be? Will the kids like the new school or neighborhood? Moving is particularly hard for families when kids have roots and have grown comfortable. For those of you that moved as kids most certainly understand.



Many people relocate and kids can be taught that moving can be a good thing, exciting, a new adventure. And the same is true for the homeowner. You are going on a journey and you’ll be leaving where you’ve been. You’ll meet new people, see new areas, and enjoy new local restaurants. And most importantly you’ll be with your family, together, and ready for the new challenges that life consistently presents.



You see a house is just a bunch of wood, cement, tile carpet and other stuff.



A home does not make a family;

A family makes a home.



Financial strains can be the cause of arguments between husband and wives, or worse with children. The stress can and will most likely make emotions run high and patience run thin. It’s important during the stressful short sale process to take a step back when things get loud or stressful and focus in on what the problem really is. Would you normally be fighting or arguing about this? Are your daily issues being exacerbated by the financial situation? Stop and take a deep breath. It is remarkable how just stopping and relaxing for a moment can clear some of the stress and allow you to focus on the important items.



It is important to avoid procrastination. Let’s suppose you are notified an offer of your property has been accepted. Now you need to plan and execute. But first you have to get out of your own way. Some are better than others, but many of us procrastinate and it’s important to not let your emotions take control. You should always have been looking for a rental property. Most likely you will not be able to buy a home for awhile. And that is OK.



Take this freedom to enjoy being a renter and letting the property owner handle being a real estate owner. There advantages to being both a renter and owner. Focus on the good of renting. Lower costs, less maintenance, no landscaping, no HOA fees, more or less room depending…There are many advantages – just look and you’ll see. More importantly, you’ll feel better.



Remember, you are not alone. A home does not make a family, a family makes a home. Obtain the services of a Real Estate Broker/Realtor. Consult your tax expert and whenever possible consult an attorney with expertise in short sales and their legal ramifications. Your Realtor/Broker should be able to offer significant advice and direction if you are contemplating a short sale transaction.

Top Five Things to do when preparing for a short sale real estate transaction?

Preparation is the key to a smooth and successful short sale transaction. As with many things in life, proper planning is always the preferred method when approaching a financial transaction. And that is just what a short sale transaction is, a financial transaction involving multiple parties all with different goals or objectives.

So to make sure you are fully prepared to even start the short sale process here are the essential items any real estate broker will need to begin the analysis.

#1. Two years of personal financial documents. I’m talking everything you would need to apply for a mortgage loan. Essentially that is just what you are doing. The lender that has to approve your short sale needs to know if you really can’t afford the current mortgage. They will always look to see if there is a easier way to save their investment before a short sale, mainly loan modification.

#2. Previous loan documentation. Gather everything you have on the previous loan(s) you’ve had on the property from the time you purchased it until now. This will give the broker a clearer understanding of you current loan terms and future adjustments. An old appraisal can also aid in the short sale process as the current lender is able to see previous values as compared to NPV or net present value.

#3. Get the property on the market. There is no short sale without a buyer, and now more than ever, buyers are a selective breed. Gone are those days of standing in line the night before to buy a new property the next day. Buyers are scarce. For many reasons it’s harder to get financing. So buyers can be picky. The earlier your broker can get marketing your property the better.

#4 Negotiate for a release of all future liability. One of the keys to any successful short sale is making sure the seller does not owe anything more after the short sale is closed. When at all possible make sure to consult your CPA, Real Estate attorney, and Real Estate broker when considering a short sale.

#5. Stay patient and resolved. If this short sale is for your primary residence, this is much more emotional than if this is an investment property. So it’s important to maintain an analytical approach whenever possible. There will be people coming into your home and it makes the prospects of moving out that much more heart wrenching. So know that you are not alone and although this will be a blemish on your credit, in time, it will become less and less of a concern for creditors seeking to lend to you later.

The waiter delivering cold food

I just got an email from a client. It's tough to be a salesmen for a mortgage company these days and the latest example is from a client who is asking for a transaction to be approved a certain way. In the old days, I think this deal would be declined anyway (the issue is whether the client plans on occupying a home).

Do I believe the client? Yes, but those are my PERSONAL feelings, not my professional feelings. As a salesperson, we have to take what we are given by operations and spin or use it the best we can. I can see operations point on this transaction, but when do we have to say, an underwriters feelings or the mass opinion on a conference call does not contain personal feelings. Operations personnel make decisions based on facts, but do their personal animosities and personal agendas creep into decisions? You'd have to say yes, sometimes they probably do. For what one persons goals may sounds totally unrealistic and ridiculous to another. And if your underwriter doesn't think what YOU are doing jives with what THEY would do, the potential for conflict arises.

I've long heard inthe news about financial institutions making decision based on race, creed, national origin etc. But I have NEVER personally seen it. I'm a salesperson, I believe and sell what the client tells me. Have I ever looked at the government monitoring and said, wow this guy is black, we better not give him too much money, not even close. I don't care if the client is purple. There is a loan to fund and I want to get paid. So then if any discrimination is being perpetrated, it's being done by the people who generally hold themselves out to be the righteous protectors of credit standards. But they are just people too.

But when operations effectively calls a borrower a liar, what course do you take. There is no other course but the truth. When there is no data or facts to discpute the borrower and no reason exists not to trust the borrower, shouldn't we then believe them?

It's a sad indictment on our profession, but these are precarious times and loans are being funded and repurchased and bought back and repacked again...and then someone finds something wrong and the loan is a buyback? It's almost dizzying. Why would anyone even grant credit- well money of course, but there isn't even enough of that these days. At least not in my pockets.

Sometimes, more often than before, it makes me wonder why on earth I have choosen this profession.

Your rate is floating?!?!??!? Now what do you do?

Rates have really risen quickly catching many of us, including me, left holding a wet bag of floating loan applications. When the loan officer told you to hurry up and get those items to him so he could lock your loan now sounds not so much like a sales pitch, but a true call for urgency on your part.

But don't freak out. Rates are expected to fall back a bit soon. But we may have left the lowest of mortgage rates in the history books. However, no one really knows, including yours dearly.

Here is my recommedation if your loan is floating.

If your loan is for a purchase, you are most likely going to need to lock something -so take the new higher no points rate, and know that historically speaking its a really good rate. If you qualify for a higher rate or adjustable mortgage take it and run.

If you are tight on your debt to income ratio get used to a term called discount points. You'll need to pay some of these to buy your rate down, in other words, get it lower to qualify.

If you are a refinance loan. Hang back, you most likely haven't ordered an appraisal yet and hopefully didn't pay a nonrefundable application fee - so you can wait. Check in daily with your loan consultant and check to see what your rate is for that day. Have a number in mind and when it hits, take it.

Don't be greedy. Yeah I said it. You know who you are. If your rate gets back to 4.5% don't try to hold out for that extra .125% in rate. Take the benefit and feel good. No one times the bottom of a market.

OK, that's all kids.

Ouch 10 yr hits 3.51% @ 92.64 For those of you regular folks..that's bad

We experienced our first 4 rate change day today. Rate are over 300 bps higher than a month or two ago. Refinances are slowing and the pace of decline in values is picking.

What's the bright side you say? Well prices will continue to fall and those with resources and good credit can pick up property with what appears to be a new low in values since the implosion of the Real Estate bubble.

$9 Trillion in home equity lost since 2006

It's a huge number. We all lost about $1.7 trillion in home equity this year alone. This could be good or bad depending on how you look at it. Massive drops in values create investment opportunities. Properties can now be acquired and debt service with average market rents. So you can buy an asset that will eventually increase in value again and the investment will pay for itself while appreciation takes place.

Now if you are a homeowner one way to limit your exposure to your currently underwater or zero equity properties is to buy at today's prices. If you are fortunate enough to be able to afford the qualification buy another home as a rental and use that valuation to offset some of your loses on your current properties. When home values increase you will have achieved appreciation on two properties at an overall low.er cost basis.

Go Rental, Go Investment!, 2011 will be a great year to acquire real estate.

Rate Check Check Check Microphone Check

Wow, what a rate roller coaster these days. Rate are mostly stable this week although higher that the previous 30 days on average. The general concesus it rates will chop around these levels for the near term with a tendncy to rise over the first two quarters next year...which is RIGHT around the corner.

Prudent lending advice is to apply with your lender or broker of choice and float the rate while processing and underwriting take place. All the while you should be working with your lending professional to lock on a dip.

Of course, you can just lock today too...I mena 4.5% at no points for 30 year fixed base rates is still pretty darn good.

Just when you thought it couldn't get tougher to get your loan approved....

Today I read the news that we will get new rules from FANNIE related to underwriting guidelines. Rob Chrisman wrote, "The new DO/DU version will enforce underwriting changes that will allow buyers to use gifts and grants from nonprofit groups for their minimum 5% down payment. Currently, borrowers had to contribute a minimum 5% down payment from their own funds, but additional down payment money could be from a gift (though never from a home seller). The exception was for borrowers who put 20% down: all that money could come as a gift. But with overlays, many lenders now require a down payment of 10% or more, the new rules mean that borrowers will still have to come up with extra funds - either their own or gifts. But with Version 8.2 comes tougher DTI ratios: the maximum ratio for those seeking a conventional mortgage will drop to 45 percent from 55 percent under the new guidelines. Buyers who have missed a payment will have 5% of the total balance added to their ratios. And borrowers who have gone through foreclosure will be excluded from obtaining a Fannie-backed loan for seven years, up from four."

Wow, sure is going to see who will be able to buy these foreclosures. My bet the rich will get richer.

Good stuff!

QE2 Explained....

Rates..Always good to take stock of where we've been and where we are today.

I always track rates. I live for rates.  Daily morning rates, mid-day price improvement, late market deterioration. It's as close as I will get to being a wall street trader ala my favorite hotel thrasher Charlie Sheen, which is just fine with this California boy.

When someone asks me what the rates are and I tell them. I will many times get back, "That's too high,  and so and so is offering -0.009% with no fees at all. In fact, the lender said I would get a vacation to Hawaii, and a new car!!" Obviously the later is a shot at levity. But the point being is that many people say many things, and sometimes they are actually speaking the truth or at least comparing apples to apples. Sadly I'd say the majority of mortgage quotes given on websites are half truths at best and many times just plain wrong.

Go to bankrate.com and see the average lowest possible rates - then call the person you know or trust, whether they are a broker, lender, DRE, DOC, CRLMA, NMLS, NORML (the later again a shot at levity), and complete the loan process with them.

Until you complete the application process, and I mean ALL the loan application fields filled out, all income doc, all assets information. Yes, I want all the pages of the bank statements. No, I don't care you get massages at Madam Wong's in the city. Tell your mortgage professional what you want. If we can get it, we'll give it to you. Then and ONLY then, will you know what your loan terms will end up looking like.

But look at this chart - and marvel at your timing...Money is as close to free than it's ever been; whether you believe that is a good thing or not rates are dirt cheap.

Top Ten Mistakes Realtors Make in Today's Mortgage Market

Top Ten Mistakes Realtors Make in Today’s Market



Today more than ever Realtors play an even more critical role in determining financing options for their clients. Even though many Realtors are not familiar with the intricacies of today’s lending environment. Sure, they know it’s tougher, but do they know how to help? Here is a top ten list that Realtors can use to aid in the mortgage process for your clients.

#10 – Don’t even look at one property prior to receiving a pre-approval from a competent lender or mortgage broker. There once was a time when pre-approvals were silly because EVERYONE got approved. But now you need to review every piece of borrower income and asset documentation with a fine tooth comb to make sure there are no landmines within those documents and others that could potentially kill your transaction.

#9 – Condo’s are tough. Before you show a client a condo, make sure it is an FHA approved condo or has the ability to be financed for FHA. If your client is not an FHA buyer, then you should certainly make sure the condo project is lendable. Is there any litigation currently pending? Is there enough reserves? Is there a special monthly assessment that could affect borrower qualification and debt to income ratios?

#8 – Ask the borrower to immediately start gathering their financial documents. As noted in #10, borrowers need to complete this process prior to looking for a home. As a Realtor you should make sure you aren’t wasting time showing buyers properties that cannot afford.

#7 – Participate in the pre-approval process. Sure many of you just want to see the baby and you don’t want to hear about the labor pains. But seriously, the more involved you are in the financing side, the easier it will be for you on the real estate side. Plus you relay to your clients your expertise in finance as well as real estate.

#6 – Determine the long term goals for your client with this property. The sooner they start thinking about investments, exit plans, or how long they plan to hold and sell, or turn a primary residence into a rental property, the easier our job will be to find a suitable mortgage that fits the borrowers plans.

#5 – Get a pre-approval letter that can be easily modified. If your lender has prequalified a buyer to $500,000 but you are making an offer at 450,000. You certainly don’t want to tell the listing side you have more room. Get a WORD document and change the purchase price lower. This is a great tool when you are working up an offer at midnight and your loan officer has decided to finally get some rest.

#4 – Understanding closing times is critical for Realtors when determining how to present an offer. If you are making an offer for an REO property and the REO property manager wants a 15 day escrow and you have an FHA buyer then you need to know that won’t happen. Financed buyers are up against cash buyers all day, and for some sellers, a cash deal at a lower offer price is more desirable.

#3 – Work with your lender. Calling your lender and screaming at them to, “Close this deal now!!” This does nothing to help close the deal. The Loan Officer much like you has to close loans to get paid just like you. So next time, when you approach the lender, ask first is there anything I can do to help, and then if you get no response, yell and scream.

#1 – Work with Michael A. Foote, CMB. With over twenty years of finance experience you need a professional is today’s fast paced and ever changing market.

We've been here before...

There was a great article today from Rob Chrisman that referenced a small article about the HOLC. A very old acronym from the Great Depression. HOLC the old/new mortgage bail out model . The article makes interesting comparisons to today's mortgage market and the tools that were used to save home during the the Great Depression. You will find the comparison encouraging.

FHA News Release from Caliber Funding

Important FHA MIP Changes


Effective 10/4/10 – Applies to all FHA Loans with a Case Number date on or after 10/4/2010

Upfront MIP will go down to 1% for all FHA loans with Case Number date on or after 10/4. This will impact the amount

disclosed in Block 3 of the GFE.

Monthly MI will go up significantly for all loans with Case Number date on or after 10/4. This amount is

disclosed in all places where the monthly amount owed appears on the GFE (several places). The premium

will depend on the Amortization Term and LTV:

LTV Annual Premium for Loans > 15 Years

= or < 95 percent 0.85

> 95 percent 0.90

LTV Annual Premium for Loans > 15 Years

= or <90 percent -None-

> 90 percent 0.25

Under-disclosure of the monthly amount owed on the GFE may result in a RESPA tolerance violation. There

is no cure for the tolerance violation.

FNMA Loan Quality Initiative

Policy Effective 10/4/10

Caliber Funding has established policies and procedures in compliance with Fannie Mae SEL-2010-01

Selling Guide for the Loan Quality Initiative (LQI).

1. Effective October 1, 2010 Caliber requires documentation in the submission package that all parties

to the loan transaction are to be verified against the LDP/GSA list for all files, including but not limited

to, Government and Conventional products.

2. As a reminder, all FHA files require the FHA Case Number Assignment and CAIVRS report.

Un-disclosed Liabilities and Re-underwriting Requirements

Caliber Funding requires that all loans, regardless of channel, be underwritten using a tri-merge credit

report from an accredited agency.

In order to assure that a borrower has not incurred any new debts between the date of their application

and the loan closing, Caliber Funding will obtain a “Gap” report from 1st American / Credco on every

transaction within 5 days of closing.

The responsible underwriter on the transaction must review and clear the gap report. In reviewing the

report attention should be paid to any debts, inquiries or balance increases which have occurred since

the original credit was pulled and the file was initially approved.

Social Security Number Validation

Caliber Funding requires that the Social Security Number associated with each borrower in the

transaction be validated outside of the documentation provided by the borrower / broker.

Excluded Party Lists

Caliber Funding requires that all parties to the transaction, regardless of product, including but not

limited to the borrower(s), broker, originator, processor, appraiser, and realtor(s) be checked against the

standard HUD Limited Denial of Participation (LDP) and GSA lists.

Borrower Occupancy Verification

Caliber Funding recognizes and shares concerns in the industry regarding occupancy misrepresentation

and has implemented several steps in underwriting to help insure the borrower’s occupancy is as stated

on the loan application.

Caliber

Today and Tomorrows FHA Borrower: New changes to FHA lending guidelines and their effects on borrower qualification.

Well the summer is almost over and as we head into another fun filled school year in my home, FHA has some new rules for me to follow at the office. The job to qualify people for a home loan has never been tougher. As many recent mortgage borrowers can attest, the application process can be daunting, haunting, and overall intrusive to no end. Many borrowers feel the headache is not worth the reward.

Now we have word from HUD that FHA rules and guidelines will be changing yet again. Most notably and directly related to borrower qualification are the new MI requirements. These requirements were signed into law by President Obama on August 12, 2010 and gave the HUD secretary more authority and flexibility to change and modify the FHA program as needed to ensure continued liquidity in the mortgage market place.

Effective for originations in the beginning of October 2010, Upfront Mortgage Insurance goes from 2.25% to 1.0% for loans greater than 15 years in duration and over 95% loan to value. This is basically all low money down FHA purchase 30 year fixed loans. But wait, that’s good news. You thought this article would be glum didn’t you. Yes, that is good news, but HUD also changed the monthly mortgage insurance from the current .55% to 1.55% for the same type of transaction.

But what does this really mean to the average FHA borrower? Let’s take a simple hypothetical purchase transaction. The borrower is buying a home for $275,000 and is going to put down the 3.5% and will finance his upfront mortgage insurance premium. Here is how this deal looks today versus post October 2010 changes.

                                                Old                          New

Borrowers pmt. @ 4.500%     $1374.90                 $1358.06

MMI Monthly MI Pmt            $121.63                   $346.00

Totals                                      $1496.53                 $1704.26

FHA has essentially raised the borrowers Principal, Interest and Mortgage Insurance Payments by $60 a month. This is an increase of 12+%.

While this increase seems timely considering the government’s spending of late and talk of expiring tax credits and new taxes too. This increase will get FHA much needed capital, more quickly, by requiring borrowers to pay more monthly versus financing a large amount of the overall insurance over the life of the loan.

With rates still hovering slightly above the all-time lows, this modest increase should not impact the purchase market a great deal. There maybe a few borrowers who are squeezed out of financing a higher priced home, but maybe that is the strange side-effect, some borrowers will not be able to buy as expensive of a home as they would like. And that is OK.

FHA Changes

FHA is changing it's terms, yet again. FHA will increase it's MMI or monthly mortgage insurance premium to as high as .90% from the current .55% and it's UFMIP or upfront mortgage insurance premium to 1% from the current 2.25% for purchase transactions. The result, plenty of technology updates and confused Loan Officers. The question is how will the streamline refinances be affected by this?