Wells Fargo has announced that its investors, including government-sponsored entities (GSE’s), have requested that they halt extensions on short sale transactions.

Short sales that close by the date on the approval letter are safe from further action it appears. However, if a buyer cannot close on time, the possibility of getting an extension is greatly reduced.

Wells Fargo says that it may grant extensions for in-house loans, including loans acquired from the Wachovia merger, and in cases where the investor allows it. Even so, there will be only one extension granted.  This new policy allows one foreclosure postponement, provided these conditions are met:

• a short sale has been approved by Wells Fargo, by junior lienholders and by mortgage insurers;
• the buyer has proof of funds or approved financing;
• and the short sale can close within 30 days of the scheduled foreclosure sale.

Fannie Mae recently told its servicers to stop unnecessarily delaying foreclosures. They intend to hold servicers responsible for unexplained delays to foreclosures, and that they may assess fines and on-site reviews.

It is unclear how this affects transactions that are hung up indefinitely in the short sale approval process. Often foreclosure auctions need to be delayed at least once while the short sale approval is processed, and while the property is in escrow after approval.

Typically short sale approval letters are extended when there are troubles with the buyer, either because the buyer’s financial situation has changed, the loan requirements have changed, or the buyer just became impatient with the short sale process. This allows either 1.) the current buyer to correct the situation and close the transaction, or 2.) another buyer to step in with the same price and terms as the original buyer.

Although some banks do recognize that they’ll typically get more from a short sale than they would for a foreclosure, the length of time for a short sale transaction to close has become a concern. In areas where market values are still rapidly declining, Fannie Mae has indicated that they would rather foreclose and dispose of the property sooner, rather than waiting for a short sale transaction to close.

What does this mean to short sale buyers and sellers? It seems that more diligence is needed in making sure that the buyer is fully qualified for the loan, has adequate funds for closing, and is aware of all extra costs involved with the home (HOA dues, Mello Roos assessments, etc). The listing agent should also keep constant communication with the buyer’s agent, to assure them that the short sale approval process is still moving along as it should.

Santa Clarita Realtor Linda Slocum is a Certified Distressed Property Expert (CDPE) and Certified Residential Specialist (CRS) specializing in Santa Clarita residential real estate, foreclosures and short sales. You can reach her at 661.670.0349 or at Linda@SantaClaritaRealEstateBlog.com. To search for Santa Clarita homes, use our neighborhood search tools or visit HoneyStartPacking.com.

New foreclosure filings, including Notice of Default (NOD) and Notice of Trustee Sale, declined significantly in December 2009 as compared to the prior month.

While Notices of Default dropped a significant 17.5% during December 2009, they actually dropped 32.5% on a daily average basis. This is due to the fact that December had 22 days on which documents were recorded, vs. 18 days in November.

According to ForeclosureRadar, we have not seen a similar December drop in recent years, so this is not simply a regular seasonal decline. The graph below shows the Notice of Default and Notice of Trustee Sale trends from July 2008 through December 2009.

Sales to third parties, or investors on the courthouse steps, are also declining, with December sales 28.89% less than in November. Experts say that this is due to a significant decrease in foreclosure discounting by lenders, rather than a lack of interest by the investors. Again, remember that the number of working days in December was less than November, so these percentages are actually higher when calculated on a daily average basis.

On the downside, it seems the promises of the Obama administration are failing, as pre-foreclosures continue to rise instead of being eliminated by workout programs like the Making Home Affordable Program. No shocker here, as most of the Federal programs to date have fallen way short of their stated goals in helping homeowners in distress.

The foreclosure inventories show mixed results, with estimated preforeclosure inventories remaining relatively stable at a 0.4% increase over November, bank owned (REO’s) showing a modest decline of 2.64%, and homes scheduled for auction showing a modest increase of 3.41%.

Los Angeles County remains the highest area in the state for foreclosures, but then it’s one of the most populated counties as well. Notices of Default (NOD’s) declined sigificantly, with new NOD’s filed at the rate of 5,495 in December 2009 as compared to 8,622 in December 2008. Notices of Trustee’s Sale went in the opposite direction, with 6,071 in December 2009 and 5,155 in December 2008. Other California counties with significant foreclosure activity include San Bernardino, San Diego, Riverside and Orange.

Fannie Mae’s new First Look program gives non-investor homebuyers a 15-day edge over investors for newly listed foreclosure properties. This is great news for homebuyers who have had troubles getting their offers accepted when competing against all-cash investor-buyers.

Under the new First Look program, only offers from owner occupants and buyers using public funds (or government enties) will be considered during the first 15 days a property is on the market. After that initial 15 day period expires, then the investor-buyers can come in and make offers as well.

In some areas, this program is being used in combination with Neighborhood Stabilization Programs (NSP) to provide down payment assistance to qualified homebuyers. NSP funds are also being used in partnership with other nonprofits to fix up foreclosed homes and then offer them for sale to low to moderate income buyers in conjunction with other assistance programs.

In the Santa Clarita area we don’t see a lot of Fannie Mae foreclosures, but this does give first time homebuyers a better chance at avoiding the all-too-common bidding wars where low down payment or FHA buyers typically lose out to investors.

Santa Clarita Realtor Linda Slocum is a Certified Distressed Property Expert (CDPE) and Certified Residential Specialist (CRS) specializing in Santa Clarita residential real estate, foreclosures and short sales. You can reach her at 661.670.0349 or at Linda@SantaClaritaRealEstateBlog.com. To search for Santa Clarita homes, use our neighborhood search tools or visit HoneyStartPacking.com.

Fannie Mae has announced a new Deed for Lease Program (D4L) where distressed homeowners who cannot qualify for other loan workout solutions will be able to trade their deed for a market-rate lease. While this seems just peachy on the surface, in many areas this may mean HIGHER payments for many borrowers, where lease rates are higher than what their modified mortgage would be.

In order to qualify for the program, homeowners must be able to show that they can make the lease payments by documenting that the monthly rental is no more than 31 percent of their gross income. Huh… seems if they could do that, then they probably wouldn’t be in trouble with their mortgages in the first place, especially in high-rent areas like the Santa Clarita Valley!

The property itself must also qualify for the D4L program, with the following limitations:

• If there are expensive repairs to be done, the property may not qualify for the program.
• If the HOA or zoning in an area prohibits rentals, then Fannie Mae will not be able to rent the home back to the current homeowner. Seems if there is already a tenant in the property in violation of the HOA or zoning rules, then the tenant would automatically be evicted.
• Fannie Mae may opt to forego the rental option if the market rent is not enough to cover ongoing maintenance and management costs.

For the homeowner or current tenant to qualify for the D4L program:

• Homeowner or tenant must be able to document that the proposed rent is no more than 31 percent of their gross income.
• Property inspections must show that the homeowner or tenant are maintaining the home in good condition. [Many distressed homeowners allow homes to fall into disrepair, allowing children to do things like using Magic Markers on the walls.]
• The occupants signing the lease must agree to a credit review and all occupants over the age of 18 must have an acceptable background check, including receiving clearance from the Office of Foreign Assets Control (OFAC)
• There must be no signs of criminal activity in the house. [I'm assuming this means drugs?]
• The home must be used as the homeowner’s or tenant’s primary residence.

It appears that this program is more geared towards keeping tenants in investment properties than it is to keep homeowners in their homes, since tenants are often displaced without much notice when the bank forecloses on a rental property. The new Fannie Mae leases will be for 12 months, with possible extensions on a month-to-month basis after that.

Fannie Mae’s VP Jay Ryan says of the Deed for Lease program, “This new program helps eliminate some of the uncertainty of foreclosure, keeps families and tenants in their homes during a transitional period, and helps to stabilize neighborhoods and communities.”

The initial concept of this program was released in January 2009, and at that time it appeared that the properties would be foreclosed upon and that the maintenance of the rental properties would fall on the Realtors® assigned by the bank to handle those REOs. The new wording appears to indicate that Fannie Mae would be responsible for hiring management companies to handle the T&T’s (tenants and toilets) instead.

So who benefits from this new program? Likely the existing tenants will to some extent, at least if they are already paying rent at near-market rates and they’re keeping the properties in good condition. Seems the biggest winners in the D4L program will be the management companies selected to maintain this new crop of rental properties.

Both short sales and foreclosures have negative impacts on borrower’s credit reports, but a foreclosure is much more difficult to recover from. After a foreclosure, it will also take considerably longer to restore your credit rating once your financial difficulties are resolved than it would with a short sale.

Foreclosures, Including Deed-In-Lieu Foreclosures

Expect a loss of between 200-280 points on your FICO scores. A pre-foreclosure FICO of 675 could drop to as low as 395, essentially eliminating you from future credit approvals. It may be as long as three years before you can qualify for another home loan.

Short Sales

Expect some credit score damage, but nowhere near as much as with a foreclosure. FICO score reductions will be around 75-125 points and your credit report will show it as a ‘pre-foreclosure in redemption’ which is far less negative than a foreclosure. You will most probably be able to secure a new home loan in about a year and a half.

If you are considering a short sale, be sure to discuss your options with both your lender and a qualified Realtor. Choosing a Realtor who is a Certified Distressed Property Expert (CDPE) to handle your short sale will help to streamline the process for you. The short sale process can be quite convoluted, and selecting the right Realtor to represent you can be critical in both getting your short sale approved and in reducing your stress levels during the short sale process.

Santa Clarita Realtor Linda Slocum is a Certified Distressed Property Expert (CDPE) and Certified Residential Specialist (CRS) specializing in Santa Clarita residential real estate and short sales. You can reach her at 661.670.0349 or at Linda@SantaClaritaRealEstateBlog.com. To search for Santa Clarita homes, use our neighborhood search tools or visit HoneyStartPacking.com.

Fannie Mae has announced that it will start helping out residential investors by offering temporary payment relief, or forbearance, while the servicer and the borrower work together to find the appropriate permanent foreclosure prevention solution.

The new Payment Reduction Plan (PRP) will replace the current HomeSaver Forbearance (HSF), which will be retired on October 31. This will allow investors and owners of second homes to obtain assistance, where before they were generally excluded from any assistance programs. Borrowers must first verify that they’re not eligible for the Home Affordable Modification Program (HAMP) before applying for the new PRP program.

The biggest difference between the two programs, the Home Affordable Modification Program (HAMP) and the Payment Reduction Plan (PRP) is the size of the maximum payment reduction. Under HSF, the homeowner’s payments could be reduced by 50 percent and with PRP the maximum reduction is only 30 percent.

Why the new program? While many are not willing to bear the pain of the investor’s ‘poor decision’ to buy a rental home in the first place, the fact is that many renters are ending up with nowhere to live when the homes they are occupying end up being sold at foreclosure auctions. This has raised a lot of concern in the foreclosure market, with previous suggestions including allowing tenants to stay in homes after foreclosure while they are being marketed for sale as bank-owned, or REO, properties.

It’s Happy Dance time again! Gone are the days when buyers of bank-owned (or REO) properties are forced to deal with the seller’s (bank’s) choice of escrow and title services.

The newly-signed Buyer’s Choice Act (AB 957) prohibits a seller who acquired property at a foreclosure sale from requiring a buyer to purchase title and escrow services from a company chosen by the seller as a condition to receiving offers or selling the property. The bank/seller can still suggest title escrow and title companies for the buyer to use, but they can no longer mandate which escrow and title companies are used. 

These new rules do not apply to all investors purchasing foreclosures at auction and then reselling them. Per the new rules: a seller is defined as a mortgagee or beneficiary under a deed of trust who acquired title to the property at a foreclosure sale, including a trustee, agent, officer or other employee of any mortgagee or beneficiary. Or, in other words, the new rules are limited to homes that are taken back by the bank or other lender who originally had an interest in the property, or REO’s. If Joe Investor buys a home at auction on the courthouse steps, he is not affected by this new rule unless he had a previous interest in this property as a mortgagee (lender).

This is a HUGE change, since previously buyers were forced to suffer with out of area (and often out of county) escrow companies who took 2+ weeks just to get the intial escrow order processed and escrow opened.  Some of these companies had created virtual sweat shops where each office only handled a single task, so the file was passed around… and around… and around before finally reaching a desk where someone actually had some control over the file. This meant delays in closings, errors on escrow docs and other frustrations that could have easily been avoided. Buyers who wanted to close earlier than originally planned were often prohibited from doing so, since the bank’s escrow companies were operating on schedules based on the originally scheduled close date and couldn’t seem to manage to alter their paper flow to allow for any changes to this.

So what’s to stop a bank from requiring that the buyer use the bank’s choice of services anyways? The new rules state that a seller who violates the new law is liable to the buyer for three times all charges made for the title insurance or escrow service. In addition, a seller who violates the law is also considered to have violated their licensing law. That’s not to say that they won’t incentivize the buyer to use their services anyways, since by virtue of sheer volume the banks have negotiated discounted rates with escrow and title companies that they could theoretically pass on to the buyers in order to retain control. But… since this ruling was just signed on October 12, it’s too soon to tell on this.

The Buyer’s Choice Act (AB 957) was signed and immediately effective on October 12, 2009 and expires on January 1, 2015 unless extended by the Legislature.

Santa Clarita Realtor Linda Slocum is a Certified Distressed Property Expert (CDPE) and Certified Residential Specialist (CRS) specializing in Santa Clarita residential real estate and short sales. You can reach her at 661.670.0349 or at Linda@SantaClaritaRealEstateBlog.com. To search for Santa Clarita homes, use our neighborhood search tools or visit HoneyStartPacking.com.

FDIC’s new Foreclosure Prevention Toolkit really doesn’t have any new info, but it does put it all in one convenient location for easy access.

Included in the Toolkit are the following:

• Brochure: Is Foreclosure Knocking at Your Door? Information about loan modification programs.
• Brochure: Beware of Foreclosure Rescue Scams. Let’s face it, this market has created a lot of scams, and it helps to be aware of them before sending a chunk of your money down a big sinkhole.
• FDIC Consumer News Spring Edition. Updates on foreclosure scams and more.
• FDIC Homeowner Training: Your Own Home module. How to seek help to avoid foreclosure and steer clear of scams.

Santa Clarita Realtor Linda Slocum is a Certified Distressed Property Expert (CDPE) and Certified Residential Specialist (CRS) specializing in Santa Clarita residential real estate and short sales. You can reach her at 661.670.0349 or at Linda@SantaClaritaRealEstateBlog.com. To search for Santa Clarita homes, use our neighborhood search tools or visit HoneyStartPacking.com.

Wells Fargo executive Cheronda Guyton has just been busted for using a recently-foreclosed Malibu mansion as her personal Party Central this summer.

The home, valued at about $12 million, was handed back to the bank with an agreement that it would be held off the market for an agreed-upon period of time. So, with that in mind and a guarantee that the house would be vacant for a while, Cheronda apparently moved right in.

Ms. Guyton was in charge of foreclosed properties for Wells Fargo, and has apparently been terminated from Wells Fargo as a result of this incident. Wells Fargo’s official statement indicates that Ms. Guyton was acting alone in this, so no other employees were terminated.

Sorry, guys, seems this up-and-coming Bachelorette will be off the market for a while!

With more and more Santa Clarita homeowners experiencing financial difficulties due to changing job situations and other factors beyond their control, loan modifications may be the best way for many people to reduce their monthly payments so they can stay in their homes.

What is a loan modification?

A loan modification is a temporary fix to assist with changing financial situations, not a long-term fix, nor a gift from the bank to reduce your mortgage balance to the current market value. Generally you’ll need to show some sort of recent financial hardship in order to qualify for a loan mod, such as a reduction in income (job loss, a new job at lower pay, lower commissions or bonuses, or lower self-employed income), a change in family status (new baby or divorce), medical hardship, mandatory relocation, or similar situations that would affect your family’s income.

What steps does it take to get a loan modification?

• Patience! Loan mods don’t happen overnight. It could be weeks, or it could be a couple of months, before the bank will tell you what they’re willing to offer for the new terms of your loan. Plan on spending a lot of time on the phone with the bank initially, as you get them to open your loan mod request and answer any questions that they may have. Hold times can be lengthy, so take a chill pill and hang out for a while until you can talk with a live person.
• Current Financial Information. Be prepared to go over all of your financial information with the bank’s representative, including your current income, balances in bank accounts, monthly expenses (in detail) and your projected income if you’re currently unemployed or self-employed.
• Hardship Letter. The bank may not request this in writing, but they will want to know what changed (other than the value of your home) that makes it so you can’t meet your current mortgage obligations. Be prepared to provide details in case they ask. The most common hardships are job losses or reduction in employment income and medical situations.
• Documentation. Be prepared to provide copies of your recent bank statements, tax returns, pay stubs and W-2′s. Include all pages of your tax returns and bank statements, not just the first pages. Also provide a copy of a current utility bill to show that you’re still living in the home instead of renting it out to someone else. Don’t leave any bank accounts out hoping that they won’t find them. You don’t want to be nabbed for fraud later!
• Follow-up. Check in with your bank once a week or so once you’ve submitted your request for a loan modification. This lets them know that you’re being proactive in getting this situation resolved, and it also gives them the opportunity to clear any open items that may be in pending status in your file. Do remember to verify that they have not scheduled a foreclosure auction date while you have them on the phone – this should be put on hold during the loan modification process, but sometimes this can slip through the cracks.
• Negotiation. If you don’t like the loan modification terms that you’re presented with initially, ask them to make changes!

How much does it cost to get a loan modification?

NOTHING. Zilch. Nada. Zip. You can call the bank and do this on your own. Or you can pay someone $1,000 per hour to sit on hold with the bank for you. Your choice.

If your bank is being uncooperative, first ask to speak to a supervisor to make sure you’re not dealing with an employee with attitude problems. If you have no income now and can’t show that you’ll have income in the foreseeable future, then a loan modification may not be possible, and you may need to consider a short sale instead. Do remember to be pleasant with the bank reps, they’re doing the best they can to help you out, and getting pissy with them won’t get you anywhere.

Be aware that Realtors can be of some help in getting you through the loan modification process, but generally they are not loan mod experts, nor are they allowed to collect up-front fees for this type of service. If you’re calling the Realtor who helped you buy your home, chances are they’ll be willing to help you with the first steps of the loan modification process as a courtesy. If you’re just calling someone out of the blue without any prior relationship, don’t expect them to spend hours on the phone with you free of charge. They have bills to pay just like you do, and there are only so many working hours in each day.

If decide to hire an attorney who asks for an up front fee, be sure to do your research before you get out your check book. An attorney cannot guarantee to get you better terms than you could get by yourself, regardless of what their ads may say, although some homeowners have reported good results from having attorneys assist with their loan modifications. If a Realtor asks for an up front before they’ll look at your situation, run the other way, as Realtor’s are prohibited from this sort of action.

What if you’re not willing to accept the terms of the loan modification?

Negotiate! See if the bank will change their terms. If not, then it may be time to consider a short sale instead.

Does the mortgage need to be in default before asking for a loan modification?

No, you don’t need to be late on your mortgage payments to request a loan modification. Some banks will argue that if you don’t have at least one missed payment, then you’re clearly not in trouble yet, so do be prepared to show that your ability to continue to make on-time payments will be impaired in the near future.

What about filing bankruptcy?

Many banks strictly prohibit both loan modifications and short sales if a homeowner has an active bankruptcy filing. Some will allow the bankruptcy if the home is excluded, but most will flat-out refuse to negotiate a short sale or loan modification while a bankruptcy is in progress. Some of this comes down to timing, with many bankruptcy attorneys suggesting that the bankruptcy filing be delayed until after the house situation has been resolved, either through a loan modification or a short sale. Consult a qualified bankruptcy attorney for further advice on this.

What if a short sale turns out to be the best option?

If you decide to do a short sale, be sure to hire a Realtor who knows their way around this convoluted process, preferably one who has their CDPE designation (Certified Distressed Property Expert) and some experience with short sales. Don’t worry about commissions and escrow fees on a short sale, they’re paid by the bank anyways. Hire the best Realtor you can find so you’ll have a higher chance of getting the short sale approved and closed. This is not the time to be using family or friends to sell your home, unless they have the proper qualifications and experience with short sales.

Expect to pay nothing out of pocket to do a short sale, and expect nothing in your pocket as the result of a short sale. Don’t expect (or accept) charges for “short sale service fees” that you’ll pay out of your own funds. Yes, short sales do take more time and effort to process than regular sales do, but taking advantage of the situation by charging significant service fees for short sale transactions brings up the question of ethics. Click on these links for more information on prohibited service fees, foreclosure rescue scams and short sales. 

Santa Clarita Realtor Linda Slocum is a Certified Distressed Property Expert (CDPE) specializing in the Santa Clarita Valley. You can reach her at 661.670.0349 or at Linda@SantaClaritaRealEstateBlog.com. This article is for information purposes only, and should not to be considered to be legal advice.