Federal Housing Rescue Plan Launches

The Obama Administration’s program to rescue distressed home owners got off the ground this week. The program was announced on Feb. 18, but it took several weeks to put the bureaucracy in place.

Six of the nation’s largest banks signed up to participate, the Treasury Department announced Wednesday. They are JPMorgan Chase, Wells Fargo, Citigroup, GMAC Mortgage, Saxon Mortgage Services, and Select Portfolio Servicing.

Treasury says it is allocating $50 billion to the program. The Department of Housing and Urban Development will provide the rest.

The plan calls for loan servicers to reduce interest rates so a family’s monthly mortgage obligation is no more than 38 percent of its pre-tax income. Loan servicers also can reduce loan balances. After the loans are modified, the government then provides enough money to reduce payments to 31 percent of income.
Participating servicers get $1,000 a year for each modification and another $1,000 a year for three years if the borrower remains current. Servicers get an extra $500 if they do the modifications before the borrower falls behind in his payments—and the borrower gets $1,500. Also, homeowners get $1,000 a year for five years if they remain current on their payments. The money must be used to reduce their principal balances.

Source: CNN, Tami Luhby (04/16/2009)

Tread Carefully When Making a Low-Ball Offer

These days, it’s easier to make a low-ball offer than it used to be, but still it’s important to be smart. Here are some things that a real estate practitioner and would-be buyer should consider when contemplating such an offer:

● Use foreclosures as comps carefully. Look realistically at the prices foreclosures in the neighborhood brought. Foreclosures aren’t good comps if the homes were stripped of appliances, pipes, HVAC, etc.
● Examine details of short sales critically. How many liens were there against low-selling short sales? If there were no secondary liens, the lender had considerable flexibility.
● Establish realistic time frames. Even in the best of circumstances, foreclosure takes a long time. Will the seller play the waiting game? How long have houses whose owners have equity stayed on the market? Is the buyer in a hurry?

If your buyer makes a low-ball offer, the bank probably won’t be in any rush to take it. They’ll likely just keep soliciting offers without coming back with a counter. Ultimately, the property is likely to sell for a higher price and, chances are, you and your buyer won’t know it until the deal is done.

Source: ThinkGlinck, Ilyce R. Glink (03/30/2009)

Government Struggles to Keep Interest Rates Low

Mortgage rates are rising, despite the government’s efforts to hold them down.

 

The government can’t control all the factors that affect mortgage rates. Mortgage interest has climbed because more borrowers refinanced when rates fell and boosted the supply of mortgage bonds.

 

Experts also attribute rising rates to expanded borrowing by the government to pay for stimulus packages, worries about Fannie Mae and Freddie Mac, and concerns about whether the central bank will continue to purchase mortgage bonds after June.The suggestion that the government solve the problem by creating an entity that offers 30-year mortgages at preset rates of 4 percent or 4.5 percent has drawn criticism.

 

“Not a lot of buyers are likely to want to buy a 3.5 percent mortgage-backed security, so the government may end up being a significant holder of these loans,” said Nicholas Strand, a mortgage strategist with Barclays Capital.  “And that number could run up to trillions of dollars.”

 

Source: The Wall Street Journal, Prabha Nataraian (02/03/2009)

Illegal Immigrants Are Good Lending Risks

 

Illegal immigrants can make good home buyers, according to a new study.

Undocumented immigrants — those who aren’t legal permanent residents — who have an individual taxpayer identification number (ITIN), good credit, and proof of tax filing can qualify for a fixed-rate “ITIN mortgage.”

Less than 1 percent of ITIN loans have gone into foreclosure, according to the Hispanic National Mortgage Association. That compares with 1.2 percent for prime mortgages and nearly 11 percent for subprime mortgages given to borrowers with poor credit history, according to the Mortgage Bankers Association.

The Internal Revenue Service has issued more than 12.5 million taxpayer ID numbers since 1996 to foreigners who weren’t eligible for a Social Security number, including visa holders legally in the United States, spouses of U.S. citizens, and undocumented workers.

Community banks and credit unions began accepting the nine-digit numbers from mortgage applicants in 2000, most of them illegal immigrants with modest incomes. Most large banks are still reluctant to accept these numbers. By law, banks must verify customers’ identity, but they don’t have to check immigration status.

Source: Charlotte Observer, Deborah Hirsch

 

Lenders Stall Short Sales, Practitioners Say

Real estate practitioners across the country believe mortgage lenders are worsening the housing downturn by taking months to make decisions on short sales and sticking to high internal target prices.

As a result, home buyers are abandoning short sale properties, forcing them to be sold in foreclosure sales that typically result in lenders accepting lower prices than they could have achieved in a short sale.

“The only question banks should ask is can they make more in a short sale than in foreclosure,” according to Lighthouse Point, Fla.-based real estate practitioner Ron Rosen, who cites a “broken” system. “The answer is that in nine out of 10 cases they will lose more money in a foreclosure. But banks seem to be asking a different question.”

Some practitioners contend that lenders lack the appropriate systems and staff to handle short sale requests, while lenders insist the short sale process is complicated by the need for approvals from investors and mortgage insurers.

Still, practitioners note that a more efficient short sale process would boost prices and reduce inventory.

Source: Reuters, Nick Carey (04/22/08)