Homeowners Bill of Rights
IN JULY, California enacted the major pieces of legislation, which were introduced by Attorney General Kamala Harris. These provision, which will take effect January 1, 2013, will incorporate many of the provisions of the National Mortgage Settlement into California law and specifically will: 1) eliminate “dual tracking” of foreclosures during loan modification negotiations (it’s unclear if this will extend to short sales); 2) give borrowers a right to stop foreclosures that violate these laws; and 3) provide for civil penalties and attorney fees against violating servicers. While some worry that these laws will make credit harder to get in California, they will compel lenders and servicers to provide borrowers with fair and honest treatment in the loan modification process. They will not force any lender to make any loan modification.
New loan modification options
We can anticipate lenders getting more creative in their resolution of problem loans. Ocwen has now offered it’s “Shared Appreciation Modification” which will write the principal debt on a property down to fair market value with payments reduced to as low as 2% interest. The unpaid balance will be forgiven over 3 years if the borrower stays current. In exchange, the lender will receive 25% of future appreciation to be paid upon sale or refinance. So far I have not heard anyone getting this offer, we shall see and if it works most other major lenders might hopefully follow.
Department of Real Estate crackdowns
Through the end of June 2012, The California DRE, which licenses and regulates real estate brokers and salespersons, has caused the suspension or termination of over 1,000 licenses, a 100% increase over just 5 years ago. Be careful with dishonesty — trust not words but actions and references.
Here are the good and bad news in the housing market as upside-down buyers struggle to keep their homes. Here are the highlights:
Bad news: John DeMarco, Director of the Federal Housing Finance Agency, has continued to refuse to allow Fannie Mae and Freddie Mac to allow principal reduction on upside-down loans. These two agencies own or back 60% of all mortgages. DeMarco fears that offering principal reduction would cause many more borrowers to stop paying and make the problem worse. He says he is saving taxpayer money. What is certain to happen is many more foreclosures.
Good news: Stockton Representative, Jerry McNerney, has introduced a bill to speed up the short sale process by requiring junior lien holders (2nds, HELOCS, etc.) to make a decision on a short sale within 45 days. The bill, titled Fast Help For Homeowners (FHFH) Act, received strong support from the National Association of Realtors (NAR). “Second mortgage lien holders frequently hold up and cancel the short sale transaction while trying to collect the largest possible payout in exchange for releasing the homeowner’s lien, even though the secondary lien holder often gets nothing if the home ends up going into foreclosure,” said NAR President Moe Veissi, in a statement. “While efforts have been made to improve primary lien holders’ response times, issues still abound with second and subsequent lien holders, and this legislation is a step in the right direction.” If the lender does not make a decision within that 45-day time frame, the short sale will be deemed approved on the 46th day. California Association of Realtors, which is urging fast passage, conducted a recent survey that found that nearly half of all properties sold as short sales in California had subordinate liens.
Good news: Home prices are rising in most cites around the country. Historically low For Sale inventory is creating frenzy with double digit multiple offers coming within days on newly listed properties. Large numbers are offering all cash, fast closing, and above-listing price to get the deals. This push up of prices is now causing many other owners to jump into the market to take advantage of the high demand and appreciation. Those adventurous flippers who grabbed properties at foreclosure auctions may win big.
Still bad news: 23.7 percent of all properties are underwater, that’s 11.4 million. Currently, 5.6 million are 30 days or more overdue or in foreclosure. Although foreclosures have been down (in part due to the robo-signer litigation), foreclosure starts are now climbing fast following the National Mortgage Settlement. Most analysts are expecting the increased foreclosure activity to spur more REO sale, foreclosure sales, and short sales all of which will increase the For Sale inventory. As the supply of available homes increases, prices will move downward. Significantly, the Hope for Homeowners Hotline reports a dramatic increase in calls for help. More than 75% of these are from borrowers who are still current on their loans. So we could be in for a rocky road through late 2013.
Conclusion: The forces out of our control affecting the real estate market are many and vague. No one can know with absolute certainty what will come next. However, there significant resources available that are constantly watching for trends and market influencers. I will continue to keep you informed on the latest news and developments affecting the real estate industry and property owners and investors.
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Thanks for your inquiries and support. Please call Ken Go of 1st Innovative Finance Group for your mortgage and real estate questions or needs. Call (562)697-7028 or write to [email protected].
