There are some rules in the works that may make it harder to get a loan to buy a home. But wait, you say, it’s already VERY hard – most lenders already demand everything but your first-born. Let’s take a look at one new rule that may make purchasing a home even more difficult in the near future.

Ability to Pay Rule/Qualified Mortgages. This rule forces lenders to make a good-faith decision as to whether lenders will be able to pay back a loan that it is offering.  This is being aided by creation of “qualified mortgages (QM)” – those that conform to the standards of Fannie Mae and Freddie Mac, even if they are not being purchased by Fannie or Freddie.

The rule enables the lenders to feel secure in issuing a loan, and affords borrowers protection against deceptive practices. Lenders also escape liability if the borrower does default – shielding them from lawsuits for originating loans they knew borrowers would not be able to repay.

Not all mortgages are QM mortgages. California is a high cost state, with many jumbo loans, so the goal is to make sure that there is no bias against borrowers in such states, which could restrict underwritten mortgages in these states. The California Association of Realtors will be working closely to make sure this does not happen.

I am all for preventing abuse by lenders, as the consumers will benefit immensely. But are these new rules a price worth paying if it will  make getting loans harder? The fact is that getting a loan could become a more difficult process, which in turn makes it more challenging to sell homes, which leads to the bad news for housing…just when we are on the uphill climb to a stronger market.

The new rules went into effect January 10. If you would like more detailed information on how these rules may affect your ability to get financing, please call your loan officer. If you need a reference to a great person, just shoot me an email.

Bank of America issued a notice recently to agents about the possibility of selling off loans in the middle of a short sale, which could drastically affect your short sale (and even cancel it last minute). It is very important that both homeowners and their agents understand what is happening, before listing a property for short sale.

As is customary, many lenders sell loans, even those that are delinquent – this is nothing new. But the fact that B of A sent out a notice about it is concerning, because of the timing that is mentioned for possible sales. The notice states that while in the midst of a short sale, borrowers’ loans may be sold to other servicers. If that happens, there is no guarantee that the pending short sale will close. Here are the steps by which this may happen (as spelled out in the notice):

•  Bank of America will send the homeowner a letter 15 days before the servicing transfer date.

•  Bank of America may call the agent to advise of the impacts to the short sale.

•  The new servicer will send a letter or statement advising the homeowner where to send payments.

The scary part is that B of A is giving itself an out – why would a lender approve a short sale, only to then sell the loan while the property is in escrow? This makes not sense whatsoever. B of A states, “Real estate professionals should advise homeowners that, similar to foreclosure, a servicing transfer is a risk that may occur at any time during the short sale process. This is why it is important to move as quickly as possible to facilitate the short sale.” Wow – if I have to tell this to potential short sellers, why would they want to risk a short sale? Why would a buyer want to risk making an offer, with the very real prospect of losing money and not closing? And why would I, as an agent, want to risk spending marketing dollars and time in selling the property? NO ONE WINS!

It seems to me here that B of A is trying to cover it’s behind, but this warning and the described act is contradictory to short sale approvals.

The solution here is this: if you have a B of A loan and are considering a short sale, you need to have your agent or negotiator discuss this with B of A before listing your home. I would ask to get something in writing that B of A will not sell the loan after the short sale has been approved and during the escrow period, up until the deadline that is provided in the approval letter. This applies whether you have a first or second loan with the bank. If B of A is not willing to do this, you can either take a risk or look into other options.

This move is a step in the wrong direction by B of A, and thus they remain on the top of my “lenders who are not cooperative” list. What a shame that this bank – Bank of AMERICA, for goodness sake, is not willing to truly help American homeowners. Maybe they ought to think about a name change.

Bank of America announced this week it’s plan to eliminate debt accrued on second lien mortgages for some lucky borrowers – approximately 150,000 lienholders across the country. This is big news for those who are underwater and would like to be able to stay in their homes. The lender says the goal behind the program is to help homeowners stay in their homes and build equity.

If you have a second mortgage that is serviced by B of A, you may soon receive a letter in the mail telling you your second lien can be extinguished. But don’t get too excited – the 150,000 letters are being sent out only to pre-qualified borrowers, and you cannot elect to be in the program. Apparently if you receive a letter your debt will be released within 30 days if you do not opt out of the program.

There is no data on which specific parts of the country may benefit the most, although one article mentioned the inland empire may see quite a few of these releases, as there were many second mortgages in that area and a substantial number of those loans that were issued by Countrywide (which was acquired by Bank of America). There is also no word on how credit may be effected, but if the bank is agreeing to release the debt in full there is a chance there may not be a credit ding…that remains to be seen.

While this is not a solution to preventing foreclosure, it could be a very powerful tool in it’s prevention, and those who are included in the program could really be receiving a life preserver. It is a new start and the chance to stay in a home that otherwise may not have been possible for much longer.

If you are the lucky recipient of one of these letters from B of A, please let me know. I would love to read the letter and understand the terms. You can email it to me at Rachel@LaMarRealEstate.org.

We have heard news of deed for lease programs rumbling for some time, but Bank of America announced this week that it will begin making them a reality. What this means is that struggling homeowners will be able to turn their deeds over the the bank, and then sign a lease to stay in their homes as renters. There is a lot of controversy over these programs, but lenders are attempting to find ways to avoid more foreclosures and feel this may be one way to do so.

Here’s how the plan would work: the bank would approach troubled homeowners before a foreclosure to see if they would be interested in staying in the home as tenants. The bank would then short sell the home to investors, who would handle the leases. The owners would have less of a credit impact because they would have a short sale instead of a foreclosure, but they would also be able to build up their credit because they would be instant tenants.

Those who are against these programs argue that homeowners, who cannot afford their mortgages any longer, are being rewarded by not  having to go through foreclosure and then being able to stay in their homes as renters. [In typical short sales most lenders forbid homeowners to rent back the homes after a short sale because they do not want the homeowner to benefit in any way from the sale.] They are afraid it will encourage many others to do the same.

Those in favor of these programs say that it will prevent so many foreclosures and will help to build the market back up – with less foreclosed properties and vacant properties, values will stop falling. Plus, the lack of vacant homes will strengthen those neighborhoods hard hit by foreclosure.

No matter what side you are on, this is one program that may actually help build the market back up over time, if enough homes can make the cut. It will be interesting to watch and see what happens.

Just when you think you’ve heard it all, something happens that makes you realize you should never close your mind to how far out of left field the ball might fly (a little baseball analogy for those sports fans to appreciate). It seems that is definitely the case with banks, and wait until you hear what the latest hurdle is…unfortunately I know from personal experience that this in fact is happening.

Last week my investor client, who was getting a loan to purchase a property, was told we were ready to draw docs on a Bank of America funded loan. We had been given the thumbs up from the lender, the appointment was set for the buyers to sign at the escrow office that afternoon, and we were just awaiting docs to arrive at escrow. Then my clients’ mortgage professional received the phone call from the lender: there are no funds currently available to fund this loan. He was told they would be available in approximately 5 business days.

Now, had this transaction been a traditional sale this may not have made any difference. But being a short sale, with a deadline established by the short sale lender by which we needed to close (or risk the home going to foreclosure), we didn’t have 5 business days. My buyers had to close with cash at the last minute. Luckily, they were able to do so, but my buyers were not happy about this.

Is this crazy or what? Those of you who know me know that I have been singing Bank of America’s praises for the past few months – I have blogged about how they really seem to be helping close short sales faster. But this – this is a big step backwards for the lender. Last minute bombs like this could decimate the ability and desire to buy property.

The inside scoop. Here is how it happened. B of A decided to shut down lending channels to mortgage servicers who sold their products, deciding that only B of A would be able to sell B of A loans. How many loans were effected is unknown to me, but I bet there have been some serious situations lately that could lead to lawsuits.

Realistically, this could lead to a slew of litigation. It could put buyers in breach of their real estate contracts if they are not able to close on time. They risk losing their initial deposits, and the monies they paid for home inspections, appraisals and other expenses. In the case of short sales, as mentioned above, if the short sale lender did not extend the deadline last minute due to such an issue, the home would go to foreclosure. Bad for sellers, bad for buyers, bad for the market.

For an in depth understanding of what happened I suggest you read this blog from my colleague Michael Mekler. This has been a fine example of another blow to the housing market, brought to you courtesy of our nation’s lenders. Hopefully they will reverse their decisions and we can get back to the business of selling real estate via cooperation and a common goal to heal the market and help people purchase real estate.

Buying and selling anything in this economy can be a bit tricky, and that goes for real estate as well. Many buyers, who think they’ll be able to negotiate a phenomenal deal, are often discouraged when they actually get out there in the market and try to do so. Likewise, sellers who price their homes at market value may find it hard to hook an offer, oftentimes having to reduce their price well below comparable value to get it sold. Sellers who do not have to sell are opting not to, which makes for less inventory. Why is it so hard to buy and sell real estate right now?

1. Lender hurdles. Getting qualified for a loan these days is very difficult. Even those who have steady jobs, make sufficient money and have a nice savings on the books are facing troubles. The lenders, who I believe are the main cause for much of the stagnation in the market and the overwhelming number of foreclosures (see previous blogs if you want more detail on this), simply have a death grip on their funds. Anything that is seen as risky, any tiny little thing, gives them cause to deny a mortgage application. This applies both to traditional sales and distressed properties.

If you are a buyer you need to make sure you are working with a mortgage professional who has access to different products, and can help you to figure out which one is best for you.

2.  Foreclosures/Lender owned properties. Foreclosures have been weakening the market for years, and there is no end in site. The lenders simply have too many properties on their books, the majority of which have not even been released to the open market. Once they are, prices will suffer. This tends to make sellers withhold selling their homes (the ones who can), in order to wait for a “better” time to do so. Buyers, who should be able to reap the benefits from the lower prices, still have to go through the loan qualification process. Many buyers are now also afraid because of recent lawsuits claiming bank-owners did not in fact possess title to the homes. If purchased at auction buyers usually do not have the opportunity to have home inspections or even get inside the property; if the property is sold as an REO (lender-owned, post-foreclosure) the buyer can view the property but is provided no disclosures related to it’s history.

3.  Short Sales. Short sales should be a no-brainer, as I have blogged about many times. There are willing buyers out there who want to buy homes in neighborhoods they otherwise would not be able to afford, but for a short sale and the lower prices. Sellers of short sales obviously want to and need to sell to avoid the scarlet letter “F” on their credit. Similarly, banks save lots of money selling their properties short rather than going to foreclosure. Despite the end goal being common, short sales as we know can take a long time. The main reason for this is because of the banks, who dilly dally around and take forever to approve them, work off bad BPOs, and often have inexperienced and downright nasty people in their loss mitigation departments.

4.  Title issues. Another problem plaguing the real estate industry is title issues, especially in homes that have been foreclosed upon. There have been several lawsuits against lenders who have been found to have wrongfully foreclosed on homes – after the home had been sold and new owners had moved in. These types of suits seem to be growing, and there is no telling what will happen to the new owners. If found that the banks did not have the authority to sell (because they did not physically possess title), the sale is rendered void. We will have to wait and see what effect this will have on purchasers, but surely it will may scare some buyers away from these lender-owned properties. For sellers, it is imperative to understand any title hurdles at the time your home is listed

5.  Appraisal and BPO issues.  It seems appraisal issues come into play these days more than in times past. This is especially true in areas where there have been a lot of foreclosures or short sales, which bring down comparables. If an appraiser has to look outside a neighborhood s/he may use comps from another neighborhood or complex that really does not compare to the subject home. If the appraiser is from out of the area s/he may not understand the particular nuances of a neighborhood, and that can also affect valuation.

Bad BPOs (Broker Price Opinions – these are ordered by the banks and are typically completed by certified real estate agents, not appraisers) also wreak havoc on short sales. Some properties are hard to appraise/establish value, if they are one of a kind or there are no valid comps in the vicinity, or where the condition of the comps do not compare to the home being appraised. California has hinted at drafting a law about how foreclosure and short sale homes can be used as comps for a traditional sale home. There are problems either way when a home is hard to appraise. Suffice it to say there is a lot of deal-killing going on because of bad appraisals and BPOs. [NOTE: This is not meant to be a degradation of appraisers - most are highly skilled professionals.]

Buying and selling property can be difficult in these troubled times, but the silver lining is that there ARE great deals out there for buyers, and it is possible for sellers to sell their homes as well. One simply needs to know how to best accomplish her/his goals. To do that, you need to start with a great agent.

Recently the Obama administration announced changes to the Home Affordable Refinance Program (HARP) that are aimed at helping homeowners refinance mortgages, even when there is no equity in their homes. Their goal is to help the millions of homeowners and prevent more foreclosures, but what is involved and will it really work?

Some of the changes to HARP include the following:

1.  Fee reduction. Many of the fees associated with refinancing will be reduced.

2. Current loan to value cap on fixed rate home loans will disappear. This was the reason many homeowners could not take advantage of HARP initially, since the value of their homes had decreased significantly.

3.  Reduced underwriting guidelines. Some of the changes almost hint at a stated income situation, with a verbal income verification…but we will have to wait and see the specifics when they are announced.

4.   Appraisal changes. The new plan will have a valuation system for appraisals, called “automated valuation,” which will do away with the need for new appraisals, and hopefully avoid appraisal issues that have plagued refinancing in the past.

There are a few caveats, most importantly that the homeowner has to be current on their mortgage. The home also must be a primary residence, and borrowers will be able to shop rates with other lenders, not just the lender who currently holds their loan. More details will be revealed next month. Some of these changes sound promising, and I do believe that more homeowners will get to take advantage of the lower rates without these restrictions, but the big question is:

Will the new HARP really help the housing market?

I have to say no to this. While this is a nice plan to help some more people get into lower mortgages, the fact is that it does not shine the light on the bigger problem in real estate – homeowners who have fallen behind on their mortgages. The new HARP offers no help to these people, and their homes will likely turn into a big future foreclosure wave. The negative equity in these homes is so great that neighborhoods will continue to be effected by their foreclosures, with comparables continuing to drop.

The other big problem I see with the new program is that it has to be implemented by the banks. Although some banks, like Bank of America, claim to embrace the new program, chances are we will still face many hurdles from the banks with implementation. Banks are  simply too scared to refinance many mortgages, and the re-default rate is high, making them risky.

While I think the new HARP plan can help some homeowners, I think it is just the beginning. I stand by my opinion that housing must be fixed if we ever want to see the economy improve. We need MUCH more than what HARP can do. We need to help the millions of people who are unable to pay their mortgages, prevent the wave of foreclosures down the road, and find ways to deal with the heavy inventory currently owned by the lenders that is not yet on the market. To do this, we need the cooperation of the major lenders in formulating plans to help these people.

What do you think?

There has been plenty of recent housing news that could effect the value of your home, so here are some of the latest updates:

Bill to allow visas to foreign home buyers. Congress is considering a bill that would allow foreign homebuyers to purchase residential property in the U.S., in an effort to stimulate the housing market. Buyers would need to spend at least $500,000 to obtain the visas, and would be allowed to split the money and purchase more than one home, as long as one property was at least $250,000. The buyers resident visa would be in place for as long as the buyer owned the home, and the buyers will have to live in their U.S. home for at least six months out of the year.

Mortgage rates may be lowered. The Federal Reserve is considering lowering the mortgage rates again, as the current low rates do not seem to be stimulating housing and the economy. They plan to purchase more mortgage backed securities, with the goal that banks will be able to help homeowners with refinancing and stimulate purchasing, without causing inflation. Since most of the problems with refinancing involve problems with fees or restrictions, will this really help? This could create more mortgage rate risk for the Fed, and realistically how many people will it help? It certainly won’t do anything for the millions of underwater homeowners. It seems to me this is digging a deeper grave, but I am not a mortgage expert so I will leave this to those who are, but my gut feeling says this is not the best solution.

Next generation of homeowners have little confidence in housing. A new study released by Federal Reserve Bank of Boston has found that the younger generation is less willing to purchase homes. Older respondents seemed to be more confident about homeownership after large declines, while younger participants felt opposite. Older respondents saw the drop in the market as cyclical, with the expectation of recovery, whereas their younger peers view the current situation as more permanent. Could this have an effect on housing in the long term?

Study says bank owned property sales may not peak until 2013. The latest study claims that we will see a lot more foreclosures, and therefore many more bank owned homes, until 2013. Bank of America Merrill Lynch analysts claim that although we will not see price drops as steep as those of 2008, we could see a 10% increase in these REO (bank-owned) properties from 2012 to 2013.  For more details of the study click here.

State court voids home sale…could this happen across the country? A Massachusetts state court recently ruled that a home recently sold post-foreclosure was improperly sold, as the lender did not hold the title. The sale was found to be void. So what happens to the new owners? Certainly there will be a big lawsuit against the title companies. But if this becomes the standard who is going to want to purchase a post-foreclosure home? Home buyers rely on title companies to convey clear title…so isn’t this punishing the purchasers and not just the bank? After all, if the title company certifies title is clear and escrow closes, how would a homeowner have any reason to know that there was  a problem with the title? I’m not even going to speculate as to how badly this would fare for housing and the economy in general.

HUD homes for only $100 down: In the spirit of stimulating housing purchases, HUD has decided to offer buyers the chance to purchase a HUD REO (lender owned home) for  only $100 down…yes, you read that right, one hundred dollars. Of course there are restrictions: the home must be a HUD home (a home that is the result of a foreclosure on a FHA home loan), the sale must be for list price, FHA guidelines apply (you have to qualify for a loan), and the state of your purchase must be one that is listed. To find out more search the internet for HUD’s $100 downpayment program orvisit their site.

You have heard the famous line, “it’s all who you know.” That has proven to be true in many cases – getting a reservation at a swanky new restaurant, upgrading to a better hotel room, getting a great job or a promotion over others who may be more qualified….but who would ever have thought that getting a home sold through the short sale process could be added to this list?

Recently I had a short sale offer approved by a major lender, after months of arguing with them on the issue of price. You see, the lender had a bad BPO (Broker Price Opinion, which is much like an appraisal yet is created by a real estate agent who is certified to do so). I sent them comparables and even analyzed them, but the lender refused to believe what was in black and white. Since lenders have no obligation to share the BPO with the listing agent I was not made privvy to it, but unless there were some magic comparables of which I was not aware, they did not exist.

After months of arguing and of lender demands that the contract price be raised tens of thousands of dollars over comparable value price, the lender denied the short sale. It must be mentioned here that two months before, the lender had accepted a previous offer that was much lower. How could this property have increased thousands of dollars in such a short time, when prices have dropped?

The buyer of my short sale listing happened to have a contact at the bank who holds the loans on the property, and she called in a favor. The executive was surprised at his bank’s demands, and agreed that the second BPO had to be incorrect. With a few calls he was able to help us out – something the bank negotiator was unable and unwilling to do.

As happy as I am that my sellers and the buyer are now able to complete this sale, I am also furious. There are countless sellers out there who are not afforded the opportunity to short sale  their homes, and the qualified buyers who cannot purchase them, because of bad information and unqualified bank representatives. It took a connection with a higher-up to get this home into escrow. There is something very wrong with this picture.

Situations like this are plaguing the housing market. Lenders need to not just believe what a BPO states, as the agents who prepare them are not appraisers. If the listing agent sends over valid comparable data the lender needs to have a qualified individual verify the discrepancies, not just turn down the sale and refuse to have a dialogue to rectify the differences. It should not be about who one knows…these lenders need to stop this insanity.

There have been quite a few crazy ideas proposed by the Feds to help the housing market, but in the recent panic to finally DO something, the latest proposal takes the cake: make lenders landlords.

As the number of lender-owned properties continues to rise, and as lenders remain hesitant to release them to be sold (mostly for fear of what it will do to the housing market and, more selfishly, because declines in prices will not net them as much as they might get in an improved market), the fact is that we are seeing less of these properties on the market. Lenders who own hundreds or thousands of homes need to find solutions, and quickly.

One proposal is that lenders of unoccupied homes that are held by the government should rent out these properties. This idea has received both criticism and accolades.

Proponents: Those who applaud the idea say that doing so will help neighborhoods by preventing vacant homes, unkempt landscape and neglect, and vandalism. It will put people in homes, which will benefit neighbors and prevent prices from declining by withholding these properties from the sales market.

Opponents: These people claim that lenders should stay out of the rental market. First of all, they do not have the manpower to dedicate to customer service (of course they should hire property management companies, but might choose not to do so to save money). Furthermore, they claim that putting renters in these properties will not have any positive effect on the neighborhoods, as the renters may not have the same respect for the neighborhood as owners.

Twist: owners to renters: There is one possible exception that may make sense: renting the foreclosed homes back to the foreclosed homeowners. This is a good way to prevent throwing millions of people out of their homes, and will likely keep these homes in better shape, compared to letting them sit vacant or finding renters. Maybe there could be a possibility of re-purchase down the road if the homeowners can show they meet qualifications (although I doubt lenders will go for this one). This is an idea I will support.

I believe that renting out these properties is only postponing the inevitable (noting the exception for owners-to-renters). The better solution is to sell these properties off now, get rid of all the excess distressed inventory and let us move on. As I have said many times, we cannot move forward and get back on track to a “normal” housing market when there is a plethora of inventory that needs to be taken off the books. It is not until we eliminate the overwhelming inventory of distressed properties that we can see the light at the end of the recovery tunnel.