Tuesday, March 25, 2008

John McCain Speaks on the Nationwide Foreclosure Problem

Future President John McCain said in his Mar 25th speech from Santa Ana, Ca that it is not the governments responsibility to bail out irresponsible borrowers and lenders. Here is a quick rundown of some of the highlights from his speech:

"Between 2001 and 2006 housing prices rose by 15% every year. The normal market forces of buying and selling homes was overwhelmed by market speculation. Our system of market checks and balances didn't correct this until the bubble burst."

"Rising home prices made many home lenders complacent giving them a false sense of security and lowered their lending standards.... Lenders ended up violating the fundamental rules of lending by loaning money people couldn't pay back.
"There are 80 million home owners in America that are facing the reality that the bubble has burst. Of these 80 million homeowners only 55 million have a mortgage at all... 51 million are doing what they need to make their payments... Only 4 million homeowners are causing these problems that are effecting us all...."

"Capital markets work best when there is both accountability and transparency. In our current crisis, both were lacking. This has caused a crisis of confidence in markets. Market players are increasingly unnerved by the level of risk, liability, and lost in the financial market. ... Credit is drying up, and liquidity is severely limited. Many business are unable to get their usual loans."

"The problem with subprime loans has no convulsed the entire financial system."

"Jon McCain pledged that he is not going to "Play politics with the housing crisis, I will evaluate everything in terms if it might be harmful or helpful to deal with our crisis we face now.... It's not the duty of government to bail out and reward those who act responsibly"

He said that government assistance should only be for primary residences, and any assistance should only be temporary. Government assistance should only be to insure that problems like these never happen again.

Policy should move towards ensuring that homeowners provide a responsible down payment of equity at the initial purpose of a home. He opposes reducing down payment requirements for FHA mortgages, and thinks that they should actually be raised.

Friday, March 21, 2008

Increased Foreclosures are causing Mortgage Insurance providers to cut back

Mortgage Insurance was designed to back up risky home loans where the borrower couldn't put up a 20% down payment. Now with home prices naturally declining in many markets, many Mortgage Insurance providers won't give mortgage insurance on Investment Properties, Second Homes, and Primary residences seeking 100% financing.

Here is a list of markets AIG defines as "declining" where Mortgae Insurance standards have increased. AIG Declining Market Report

If the Private Mortgage Insurance companies won't insure these areas, it looks like they are confident prices will continue to decline and foreclosures will continue to remain high in these areas.

Thursday, March 20, 2008

Short Sales - Good for you or the bank?

"Short Sales" seems to be the latest buzz word in the Foreclosure World.

People are always looking for Short Sales as if they are some kind of automatic deal; As if a short sale is a quick fix to foreclosure real estate wealth. The fact is, short sales are very complicated, they aren't always deals, and they very often don't even happen.

What is a Short Sale?

A Short Sale is a real estate transaction where the lender accepts less than full payment when the property is sold. The lender gets "shorted" on the total amount due. It's definitely not a good deal for lenders as they lose money on short sale transactions. The new buyer of the property may be getting a deal because they are most likely getting the house for less than the previous buyer payed for it. In declining markets like Arizona, Florida and California, Short Sales are often necessary just to sell a property at market value. These short sale purchases aren't really deals at all.

How do you buy Short Sales?

Many short sales are listed. The borrowers in default realize that they need to sell their house to prevent foreclosure and further damage to their credit. These properties can be found on MLS Sites. For more ambitious buyers looking for short sales, these properties can be purchased by contacting the distressed borrower directly. Most people in default who know they owe more than the house is work don't think they have an option. They believe that the only thing they can do is let the property foreclose. Distressed properties that aren't listed can be found on sites like the Bargain Network Homes.

Once short sales are found, the price has to be negotiated by both the owner and the lien holders. Written real estate purchase contracts must still be signed by the seller and submitted to the lender. These offers now have to be approved by the bank. In order for banks to accept short sale requests, they want evidence that the borrower has a legitimate hardship that prevents them from making payments. They will ask for a financial hardship letter, bank statements, tax returns, etc. They need to qualify people for Short Sales. Many banks won't accept short sales unless the borrower has already missed several payments and has received a "notice of default." Most ordinary borrowers that are over their heads don't match this criteria. Many borrowers have multiple loans tied to the property. For a primary lien holder to negotiate a short sale, the junior liens must first agree to "short" their loans. If these negotiations can't be made, the deal falls through.

Why do banks allow short sales?

Banks allow short sales because losing some money, but collecting the bulk of the loan balance is less damaging that allowing the property to go do the foreclosure auction. In this regard, purchasing a house in short sale status is an advantage for the bank.

Buying homes in short sale status can be very beneficial, but it also can be very challenging. It is not something to attempt unless you are serious about real estate investing, and is not something you want to do without the help of real estate professionals.

Monday, March 10, 2008

HomeSaver Advance Program for Delinquent Mortgages

A new foreclosure prevention solution was announced where Fannie Mae borrowers can get a small personal loan to try and bring their defaulted mortgage current. This loan is a at a low 5% interest rate, and is set at a 15 year fixed term. The borrower doesn't have to make any payments for the first six months, and the loan is paid directly to the defaulted lender.This program provides up to $15,000 to cover the past due balances for up to six months of delinquent payments plus HOA fees, missed taxes, and short escrow balances. This loan could be very valuable to help prevent foreclosure for borrowers who had temporary short term financial difficulties. For most default borrowers, it would just add an additional payment, to debts they already can't afford.

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Friday, March 7, 2008

Home Equity at Lowest Rate in Years: Foreclosures High

Americans have the lowest average equity since the Federal Reserve started keeping track in 1945. The average American now has more debt against their homes than the amount they actually owe. This is an indication that the financial well being of most Americans is not good, as real estate ownership is the #1 source of wealth. It also demonstrates our increased reliance on debt for our "needs" of life. Americans have consistently borrowed against the equity in their homes to purchase luxuries. With home appreciating decreasing, this is greatly reducing wealth, and potential retirement income for many individuals. At the same time the record number of foreclosures doesn't help this stat either as most Foreclosure filers have little or no equity.

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