Q: I went under contract to buy a house six months ago. This is a short sale, and I understand that multiple lenders are involved. But I have been more than patient. What can I do?

I can’t seem to get anyone to listen to me. Don’t the banks want this to work out?

A: I’m sure that someone besides you wants this sale to work out — the seller! The problem is that each lender has to agree to the short sale, and lenders are drowning in non-performing home loans these days.

For a short sale to proceed, a lender will require quite a bit of documentation from the seller to determine whether the short sale is legitimate and whether the seller has the ability to make up any deficiency. A lender will also want to determine whether it would get more money if the seller simply defaulted on the purchase and the lender foreclosed on the property and sold it off.

These are some of things banks consider before allowing a short sale. The problem is that they just don’t have the staff to handle the load of short sales and other requests from distressed borrowers. Each request must be evaluated to determine how big a hit the investors will take on the loan in a short sale. The lender also tries to figure out who else is losing money on the deal, such as other lenders.

For people looking to buy distressed property, it is a lot faster and easier to buy a foreclosure than a short sale because the bank has already taken back the property and wiped out the liens. In a foreclosure, the lender sues the owner for the amount owed on the loan and then can proceed to take title to the home to satisfy the debt.

Once the lender has ownership of the home, it doesn’t need to make any determination about the borrower or the borrower’s finances; its only interest is to get the most money possible from the sale. Lenders are typically extremely motivated to sell foreclosed property. The faster the bank sells the home, the less they will lose on the sale.

Unfortunately, short sales can quite commonly take six months or longer to work out. If I were you, I’d think about canceling the contract and looking for a foreclosure to buy instead.

Q: I have lived in my home more than 32 years. I signed a contract to build a new home on my lot for $400,000. It will be ready next September. I’ll move out into a rental during construction.

Do I qualify for the new $6,500 home buyer tax credit? Please let me know. I expect to close on the construction loan by December 5, 2009.

A: If you’re tearing down your existing home and building a new home on your own lot, you will not qualify for the first-time home buyer tax credit.

If you’ve purchased a lot and are building a home on that lot that won’t be completed until September 2010, you are still out of luck. You must close and move into your newly constructed home by June 30, 2010 to qualify for the trade-up tax credit.

Purchasing a lot and closing on a construction loan aren’t enough to qualify you for the tax credit. Your home won’t be habitable until after the tax credit has expired. You’d not only have to move into the home by that time but you might also have to have an occupancy permit issued by the appropriate local authorities as evidence that the home was complete on a certain date.

For more details or go to the IRS Web site, irs.gov, and search for “first-time home buyer tax credit update.”

Q: I am really angry about what’s going on with my loan modification — or I should say, my loan non-modification. I have been going back and forth with my big box lender, and first they say I can get a loan modification — and then that I can’t.

I know you’ve been encouraging people to tell their loan modification hell stories. Mine is too long to go into in an e-mail. But I want to do something to get my lender to pay attention to me. What do you recommend?

A: I’m sorry to hear that you’ve had so much trouble getting a loan modification from your lender. Perhaps it will help to know that there are hundreds of thousands of folks having the same confusing and frustrating experience as you are.

I consulted with some sources at the Treasury Department, and one of them recommended that borrowers stuck in loan modification hell should write a concise letter that clearly details what has happened to you.

Organize your thoughts into a timeline of events. And be sure to include any information you have that identifies which employee you spoke with (the employee’s identification number, office or location would be helpful), the date of the contact and even the time of the call. If you’ve received a letter or e-mails, include a copy of them with your letter.

You’ll want to address your letter to the president or chief executive officer of the bank. If you don’t know who that is, go to the Yahoo.com finance page. Under the “investing” tag, use the search box to type in the name of your lender. A bunch of company names will pop up. Choose the company you’re interested it. On the company page, choose the “profile” tab on the left navigation bar. That will take you to a page with the company headquarters and the names (and salaries) of key employees, including the CEO.
Once you have the CEOs name and address, write a letter that roughly follows this format:

Dear (name of bank president or CEO):

I am writing to tell you how confused and unhappy I am because (fill in reason why). Here is what happened:

On (fill in date), (fill in what happened, with whom you spoke with, contact information for that person and any other information.)

(Repeat until you have finished the time line.)

My question is: (fill in the questions you want to ask).

What I want you to do: (if you want the company to look into your situation, approve your loan modification, or do something else, write it here.)

I’ve attached supporting documentation, including:

I’ve copied the Treasury Department, the OCC and the FDIC on this letter.

I look forward to hearing from you or your team quickly.

Sincerely,

(Your Name)

You should then overnight the letter, or send it return receipt requested so you know that your letter was received by the company. Be sure to send a copy to the Treasury, the Office of the Comptroller of the Currency (OCC) and the Federal Deposit Insurance Corp. (FDIC) so there is a record of your complaint.

According to the latest figures, some 650,000 loans have been put into temporary loan modifications under the Making Home Affordable program. Big banks say they are putting thousands of others into their own loan modifications.

Some people will slip through the cracks, or wind up on the phone with someone who isn’t trained well or isn’t knowledgeable enough to help you.

I hope that by elevating your concerns to the executive suite, your loan modification will get the attention it deserves.

Good luck. Let me know what happens.

With housing values still falling in much of nation, the rate of mortgage abandonment has reached nearly 25%. To make matters worse, delinquencies continuing to climb at alarming levels, and given the current pace, Housing Predictor is projecting that there will be more than 17 million foreclosures over the next five years. While foreclosures pose the greatest economic threat, and exert a devastating psychological toll, legislators are dragging their feet on mandating mortgage modifications and banks are tightening their stranglehold on credit. See the following article from Housing Predictor for more on this.

The record volume of foreclosures is growing as first forecast by Housing Predictor in 2006. The epidemic has become the nation’s single most important economic problem as millions of homeowners lose their homes and the crisis makes a widespread damaging impact on the U.S. economy.

The majority of homes now being foreclosed are fixed and adjustable rate conventional mortgages. Massive mortgage losses, however, are being written off slowly by bankers with recently adopted accounting changes. The federal government is incentivizing bankers financially to do short sales and cash for key programs for borrowers, who do not qualify for mortgage modifications.

An increasing number of homeowners, estimated at as many as 1 in 4 current foreclosures, are walking away from properties as a result of falling values. Two separate surveys by Housing Predictor found that nearly 1 in 3 mortgage holders said they would walk away from mortgages if housing prices continue to fall.

In its most recent survey the Mortgage Bankers Association found that 1 in 7 mortgages are now at least one month behind. Due to the rise in homeowner walk-a-ways, lack of forced bank modifications, growing unemployment figures and negative public sentiment Housing Predictor forecasts foreclosures will now top 17-million homes through 2014. More than 4.5-million homes have been foreclosed so far in the unprecedented crisis.

Housing Predictor forecast 10-million foreclosures as recently as June, but the economy and lack of powerful government involvement are worsening the crisis.

A bill in Congress could force bankers to modify mortgages, but the proposal has been bogged down in committee and public outcries have not grown to make the bill a Congressional priority. If passed, the bill could have a major impact on the volume of foreclosures in future years, but since Congress gets its most efficient work done when it operates in emergency mode the economy would have to take a major turn for the worse before lawmakers would see the need to act in an urgent fashion.

The foreclosure crisis is impacting every facet of the U.S. economy. Bankers are hesitant to make loans and holding on to their deposits more closely fearing further weakness. During the height of the real estate boom home values were rising as fast as 3 to 5% a month in some areas of the country. The booming market produced a nearly euphoric hysteria as homeowners talked like they were making more money on a daily basis even if they did not sell their property. Millions took out extended lines of credit and refinanced, essentially borrowing against their homes like piggy-banks.

Now that the asset bubble has deflated, homeowners with a deflating asset are depressed about over-burdened financial obligations. The psychological impact is known as the “wealth effect,” and now that the outlook is not promising millions are looking for a way out.

The crisis will take years to run its course and its taking bankers longer and longer to foreclosure because of moratoriums, new state laws forcing modification mediation in some instances and a back-log of defaults, which are overwhelming bankers.

Lenders have also been holding-off on some foreclosures awaiting additional government assistance or direction. On average each and every foreclosure costs the economy $225,000, which was the average mortgage made during the boom.

More than three years have now passed since Housing Predictor issued its first foreclosure epidemic forecast.

NEW YORK — A new wave of foreclosures stands to hurt people who may have never taken out a mortgage: renters. In cities such as New York, Chicago and Los Angeles, where many investors are carrying upside-down mortgages on large rental buildings, some tenants are watching their homes fall apart along with the financing.

Janeia Sandiford, a 24-year-old GED student in New York, has two young children and a deteriorating apartment. When a leak over Sandiford’s bathroom and kitchen caused the ceiling to flake off and then cave in, nobody came to fix it for a year, she said. She lacked heat most of last winter, and she has duct-taped her loose-fitting windows in place to cut down on drafts.

“I’m really worried about the kids,” she said.

The real estate investment company Ocelot Capital Group bought the building where Sandiford lives and about two dozen others in the Bronx in 2006 and 2007. As the new owners struggled to keep up with payments, 10 of the buildings appeared on the city’s list of most dilapidated rental properties in 2007 and 2008. Last winter, as Ocelot defaulted on its loans amid the deepening financial crisis, the buildings plummeted further into decline. Together, they racked up thousands of Code C violations –the most serious kind — from housing inspectors.

Fannie Mae, which had bought much of the debt from the original lender, entered foreclosure proceedings for Sandiford’s building early this spring. A state court appointed receivers.

In the meantime, the building on Manida Street has been beset by problems, according to tenants and their advocates, whose accounts were confirmed by the crumbling walls and damaged plumbing apparent on a tour of the property and its neighbor, also owned by Ocelot. Vandals stole the lock on the front door, giving squatters access to vacant apartments to sell drugs. Plumbing in the building was disrupted after the squatters broke through the walls and stole pipes to sell as scrap metal.

Nationwide pattern

Similar conditions could crop up across the country this winter as foreclosures climb for large rental-unit buildings. In the first three quarters of 2009, 475 foreclosure proceedings were begun against multifamily rental or cooperative homes in the District, according to NeighborhoodInfo DC, a partnership between the Urban Institute and the D.C. Local Initiatives Support Corp. That figure already eclipses the 458 foreclosures for all of 2008.
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In Chicago’s Cook County, 328 multifamily rental buildings were in foreclosure by the second quarter of this year, compared with 185 last year, according to a yet-unreleased study by the Institute for Housing Studies at DePaul University.

In Los Angeles, foreclosures for buildings with five or more units totaled 78 — encompassing 1,344 units — in the first three quarters of 2009, compared with 49 buildings and 432 units over the same period last year, and 13 buildings and 239 units in the same period of 2007, according to the city’s housing department.

In New York, housing analysts estimate that the number of apartment units in buildings at risk of default because of upside-down loans — in which the property is worth less than is owed on the loan — could range from 50,000 to 100,000.

And through the first nine months of this year, across the country, Fannie Mae had 74 foreclosed multifamily properties on the books, compared with 25 through the first nine months of last year.
The pattern is also showing up in smaller cities. Apartment buildings and complexes are entering foreclosure in Lexington, N.C., and Des Moines, Iowa. In East Palo Alto, Calif., an investor bought about 1,800 units, or about half the rental properties in town, failed to pay the loan, and one weekend “tore up all their computers, shut down their offices and left,” said Mayor Ruben Abrica.

A recent study by Richard Parkus, the head of research in commercial mortgage-backed securities at Deutsche Bank, found that loan performance on multifamily buildings is deteriorating at a dramatic pace. Some 65 to 75 percent of multifamily buildings could face problems refinancing at their current rates, he said in an interview. These problems could “sit and fester” for a while, he said, or result in a burst of loan failures.

“We’re at the front end of that wave,” said Raphael Bostic, assistant secretary for policy development and research at the U.S. Department of Housing and Urban Development. “Are we concerned? Absolutely.”

A ’sugarplum notion’

Analysts say international speculators and private-equity firms took on mortgage payments larger than their income from rents in such buildings. Some may have hoped they could eject rent-regulated tenants in favor of higher-paying ones.

“It was a sugarplum notion,” said David Jones, president and chief executive of the Community Service Society, an advocacy group for low-income New Yorkers, who calls this “predatory equity.”

Other buyers may have simply been over-exuberant in a market that seemed as though it could boom forever.

“There was this pervasive view: ‘We’re all going to the moon, it’s going to be a big party from here on out, somehow this could last,’ ” Parkus said. “Nobody should have lent on these strategies. They’re ridiculous.”

Other factors have intervened as well. A decline in property values has made it difficult for owners to refinance. High unemployment has pushed up vacancies, cutting into landlords’ income.

Yet analysts agree that the potential crisis is different from the one that devastated single-family homeowners.

“It wasn’t as outright reckless or abusive or fraudulent as single-family lending,” said Jack Markowski, president of the Community Investment Corp. in Chicago and the city’s former housing commissioner.

The impact on tenants is uneven. New York City officials say the owners of the vast majority of buildings in foreclosure there are likely to maintain decent standards of living. Yet, of the 200 properties on the city housing agency’s 2008 list of buildings with the worst maintenance problems, at least 77 had been in foreclosure, according to data from PropertyShark.com.
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In buildings where a landlord is struggling to make loan payments, maintenance is often the first thing to go. Garbage can pile up, lists of overdue repairs get longer, and vermin multiply.
“I went on vacation to California for a week and a half and put out 20 mousetraps and caught 20 mice,” said Gloria Robinson, 51, the head of the tenants association at a Bronx building where tenants say maintenance has declined as the landlord manages an upside-down mortgage.

Dire case in the Bronx

Sandiford’s building in the Bronx is one of the most dire cases.

“This is a dump,” said Sandiford’s neighbor Alfredo Martinez, 35, a truck driver. He has stretched a garden hose from his kitchen to bring water to flush the toilet; plastered his disintegrating walls, adding metal screens to stop mice from chewing through; repaired the ceiling twice after a leak caused it to cave in; and installed a steel grate over a window after a burglar stole money, jewelry and video games.

One of the court-appointed receivers for Ocelot properties last month asked a state court to order Fannie Mae to pay him $20,000, saying the company had promised funds to fix life-threatening problems but failed to deliver.

“My responsibilities are clear: collect rents, maintain the property and when it’s dangerous, address it,” said Marc A. Landis, the receiver, a real estate lawyer experienced in foreclosures. “When I don’t have enough money to do that, the lender is supposed to step up to the plate.”

Brian Faith, a spokesman for Fannie Mae, wrote in an e-mail that the company is “concerned about welfare of the tenants,” noting that it has spent $1.7 million to make repairs and provide oil, utilities and insurance, among other items.

Other lenders maintain that tenants need not suffer, even if their buildings face foreclosure.

“This is a business,” said Jamie Woodwell, vice president of commercial real estate research for the Mortgage Bankers Association, a trade group. “The lender has every incentive to make sure . . . the property continues to operate, so that its value continues to be maintained.”

Mississippi leads nation, with 14.4% behind on payments; Alabama ranks ninth, with 11.06%
Sunday, November 22, 2009

Staff Report

Mississippi led the country, and Alabama had the ninth-highest rate for residential loan delinquencies in the third quarter of 2009, according to the Mortgage Bankers Association.

The delinquency rate for residential mortgage loans was 14.4 percent in Mississippi and 11.06 percent in Alabama at quarter’s end, according to the Washington, D.C.-based trade association. The national rate was 9.64 percent in the third quarter.
But Alabama was only 38th in the U.S. in foreclosure starts, in percentage terms.

Delinquencies are up because more people have lost jobs as the recession lingers, said Ken Cramton, branch manager of America’s Mortgage Resource in Fairhope, but “foreclosures haven’t started yet.”

“People are behind in the payments, but overall, most of them will catch up,” he said. “Everything is linked to unemployment and how long it remains high.”

Alabama’s unemployment rate rose 10.9 percent in October.

Foreclosure filings were reported on 332,292 properties in the United States during October – or one in every 385 U.S. homes, according to RealtyTrac, an online marketplace for foreclosures. That was a 3 percent decrease from the previous month, but a nearly 19 percent increase from October 2008. These filings include default notices, scheduled foreclosure auctions and bank repossessions.

Alabama had 2,447 foreclosure filings in October, according to RealtyTrac.com.

Mississippi had 539 October filings, according to RealtyTrac.com. But the Mortgage Bankers Association said Mississippi was tied for 14th nationally in percentage of foreclosure starts.

Some lenders are arranging forbearance agreements with clients to avoid foreclosures and give them time to catch up on their payments, according to Cramton. “That’s a good thing and what lenders should do.” A foreclosure costs a lender an average of $50,000, according to the national lending experts.

“Business is not setting the world on fire, but it’s steady,” Cramton said. “With rates at the 4cm HALF level, which is absolutely outstanding, if we had a good economy, we would probably be overrun with mortgage applications.”

The average rate for a 30-year fixed mortgage fell to 4.83 percent this past week, according to Freddie Mac. Last year at this time, 30-year mortgages averaged 6.04 percent. The 15-year fixed-rate mortgage rate dropped to 4.32 per cent this past week.

The Federal National Mortgage Association — better known by its nickname Fannie Mae — recently announced a new tool intended to keep people facing foreclosure in their homes. Fannie Mae calls this program Deed-for-Lease, and it is sufficiently proud of the program that it claims a trademark on the name.

The new program, at least in concept, is simple. If your home is in (or headed for) foreclosure and you don’t qualify for a rescue in the form of a refinance or a loan modification under other federally-subsidized programs, you can deed your home to your lender and then lease it back. This will save the lender the cost of a foreclosure — maybe $2,000 to $4,000 — and, according to Fannie Mae’s public relations department, help stabilize home prices and minimize neighborhood deterioration caused by vandalism of and theft from vacant homes. The leaseback can be for up to a year, with possible renewal options after that. Rent will be at a market rate.

Whether Deed-for-Lease will have much of an impact remains to be seen. To qualify, a borrower will first have to jump through numerous hoops associated with the deed-as-alternative-to-foreclosure part of the program. (See Fannie Mae Servicing Guide, Part VII, Section 506.) If the borrower makes it past that, and is in fact interested in a leaseback, a Fannie Mae representative then will contact the borrower, visit the property, and evaluate both. If, after this evaluation, the lights are still green, a lease will be signed and the loan servicer will complete the process of obtaining a deed to the property.

For the lights to go green, numerous conditions must be met, to wit:

• The loan must be a first-
mortgage loan. If there is a second mortgage on the property, the second mortgage lender will have to release its lien.

• The borrower must either occupy the property as a primary residence (no Beaver Creek ski condos here) or have leased the property to someone else who occupies the property as a primary residence.

• The market rent the borrower will pay can’t exceed 31 percent of the borrower’s verifiable income. In addition to paying rent, the borrower must be able to — and willing to — cover the cost of regular maintenance during the term of the lease. (This strongly suggests that borrowers who are in foreclosure because they no longer have an income will not qualify for the program.)

• The borrower must have made at least three payments on the loan in question, and can’t have more than 12 payments past due.

• The leaseback must not cause a violation of zoning or homeowner association rules. The property must be in reasonably good condition. The number of occupants at the property must be appropriate for its size.
Special rules apply if there are pets.

• There can be no signs of illegal activity at the property and all occupants older than 18 must undergo a satisfactory background check. This includes clearance from the Office of Foreign Assets Control. (Apparently Fannie Mae, which has not had good press in recent years, does not wish to be accused of harboring terrorists.)

If you think the Deed-for-Lease program might be of benefit to you, contact your loan servicer. Information about Deed-for–Lease can be found at Fannie Mae’s Web site, www.fanniemae.com; search for “deed for lease.”