Short sales are sometimes a wise adjustment to your business plan

by Deniece Watkins, Realtor
650-483-2055
www.DSoldOurHome.com

The patience, guidance, and knowledge of paperwork in a short sale are tenfold to other real estate transactions. When doing a short sale hire a Realtor with experience and have them help you step by step through the tedious process.

Because of the decline in prices in many areas, sellers are trying to sell their homes now, albeit at a loss, to reduce the loss they may take in the future. When they are selling their home for less than what they owe the bank, it is called a short sale. This situation requires a bank to review an offer and determine whether it is better for the bank to accept the offer which is less than the outstanding loan, or not accept the offer and force the seller into foreclosure. The bank would then own the property and could rent, sell, or otherwise encumber it as the bank wishes. The bank’s decision is purely financial, and they have the control.

When you are in the business of money it is because you are good at money. That’s a positive way to consider a bank’s position. It doesn’t mean that you won’t have to adjust your business model periodically. It means that you will recognize when you must adjust your business model, and do it. So banks have done just that. No longer is money lent out liberally by banks. They lent all of the money they could lend liberally, and are now adjusting their business model.

So how do we deal with banks the most efficiently, you ask? The home seller must also adjust their business model when the market changes. If you bought your home because of appreciation factors that looked pretty consistent in your area, it would be likely that you depended on that appreciation as part of your financial plan. If you knew your net worth was increasing in your home, you probably felt like you could spend more elsewhere. You could eat more dinners out, see more movies, take more trips, etc. So in times when the appreciation was not so robust, wisely you would adjust your business plan and maybe take walks, ride bikes, go surfing, cook at home, and not go on extravagant vacations.

If you ended up in a market where the values unpredictably plummeted beyond what your day to day business plan adjustments could counter, you would consider a larger business plan adjustment, such as selling your home. If prices went down so far that you now owed more than your home is worth, selling your home would require permission from the bank.

Choosing to sell your home rather than foreclose should allow you to maintain a credit record that does not have a derogatory mark as impactful as a foreclosure. Typically, foreclosures stay on your credit record for seven years and greatly impede your ability to qualify for other types of credit, as well as another home loan. A short sale on your record should not be as detrimental.

There are a multitude of hoops that must be jumped through with certain precision to perform a successful short sale on your home. A Realtor can be the intermediary between you and the bank and make the process much less emotional and more streamlined. When you finish your short sale, having adjusted your business plan as necessary, you will walk away with your head up high because you took the necessary steps at the correct time to keep your “business” afloat.

Today's Loan Qualifying Criteria - April 2008

by Deniece Watkins, Realtor
650-483-2055

Used to be that when someone wanted to buy a home, they spoke with lender, found out what they could buy, got a pre-approval letter, and then made an offer as a qualified buyer. Today that has changed. This doesn’t mean that they can’t qualify at all. It’s is just that the criteria has changed.

Thirty year veterans of lending are now saying, "It changes every single day and several times a day." How does a client go about making an offer that they can be sure they can afford? Write a financing contingency into everything and don’t make it a short one. Sellers understand that lending criteria has changed and they are willing to work with buyers to help them buy the home.

While lenders have these strict rules, you can prepare yourself to qualify with the following:
1) 20% down payment
2) Six months to one year reserves, not in stocks
3) Great credit scores
4) Provable gross income, typically 33% of which will be for a loan

An example for a $750,000 purchase price would mean:

1) 150,000 down payment
2) $25,484 to $50,968 was left in a bank (6 – 12 months reserves)
3) Credit scores above 730
4) $4,247 for monthly payments
5) Gross monthly income would be $12,741 or more

As mortgage backed loans begin to be traded more on Wall Street, we should be able to see lenders easing their requirements for pre-approval.

Bush Administration Expands Mortgage Help - April 9, 2008

BUSH ADMINISTRATION TO EXPAND MORTGAGE HELP FOR STRUGGLING FAMILIES
Expanded FHASecure able to help half a million homeowners stay in their homes by cutting mortgage payments

WASHINGTON – The Bush Administration today announced additional mortgage assistance for subprime borrowers who are at risk of foreclosure. The plan, which is designed to help address the adverse economic conditions affecting many communities across America, will help break the cycle of house price depreciation that is being caused by an increasing number of foreclosures and the overall contraction in the credit market. Under the new plan, HUD's Federal Housing Administration (FHA) would have the added flexibility to insure more mortgages, including those for borrowers who were late on a few payments and/or received a voluntary mortgage principal write-down from their lender.

This FHASecure expansion will help more homeowners who are struggling to keep up with mortgage payments on their high-cost subprime loans. With this expansion of FHASecure, the Administration expects about 500,000 families to refinance into prime-rate FHA-insured mortgages in total by the end of this year.

"Our plan will help hundreds of thousands of desperate families who have no place else to turn for safer, lower cost ways to keep their homes," said Federal Housing Commissioner-Assistant Secretary for Housing Brian D. Montgomery at a hearing of the House Financial Services Committee. "We want to be able to help families who are in the right house, but the wrong mortgage."

In August 2007, FHA modified its refinancing program to help creditworthy homeowners who missed payments after their teaser rates reset. Now, FHASecure is expanding its eligibility standards. Homeowners who believe they meet this additional eligibility criteria must fall into one of the following categories:

1. Borrowers with adjustable rate mortgages who were late on two consecutive monthly mortgage payments or at two different times over the previous twelve months. FHA will require a 97 percent loan-to-value (LTV) ratio for these borrowers to refinance, the same LTV as FHA's current standard.



2. Borrowers with adjustable rate mortgages who were late on three consecutive monthly mortgage payments or at three different times over the past 12 months. FHA will require a 90 percent LTV ratio for these borrowers to refinance.

With these new criteria, the expanded FHASecure can help additional borrowers access a more viable refinancing option and will offer lenders an alternative to foreclosing on these individuals. Lenders may voluntarily write down the outstanding subprime mortgage principal balances to a 97 percent or 90 percent LTV ratio depending on the borrowers' circumstances. FHA will also encourage lenders to make other arrangements, such as subordinate financing, to "fill the gap" between the existing loan balances and the FHA-insurable loan amount. The refinanced loan amount backed by the FHA would be based upon a new appraisal, performed by an FHA-approved appraiser.

FHA will insure new, more affordable mortgages in exchange for this equity cushion, which will protect FHA's insurance fund, and thus the taxpayer, against risk. Currently, FHA's insurance fund is self-sustaining, meaning that it requires no appropriation of taxpayer dollars because homeowners pay for the product themselves. Further, any new FHASecure loans will continue to meet FHA's no-nonsense underwriting standards. Lenders will be required to ensure borrowers have the capacity to repay their mortgages; show a reasonable credit history; employment history; and fully document and verify their incomes.

Like all FHA-insured loans, borrowers will be required to pay upfront and annual premiums on their loans, which directly contribute to the soundness of FHA's insurance fund and protect taxpayers. FHA will also be simultaneously updating the pricing policy for these premiums. The new policy will base premiums on the individual borrower's credit risk profile. More than 90 percent of FHA-backed loans are 30-year fixed rate mortgages. Homeowners currently using FHASecure are saving $400 a month on average compared to their previous subprime loans.

"More homeowners continue to turn to FHA to find mortgage terms they can afford. We're keeping families in their homes while doing what's in the best interest of future generations who will rely on the safety and soundness of FHA to put a roof over their heads. The modifications to the existing FHASecure product offer a prudent, yet appropriate, way to help more families refinance without putting the government or taxpayers at risk. Consistent with FHA's historical mission, the changes are designed to help FHA provide additional liquidity and stabilize local real estate markets."

Since September 2007, FHA has helped pump nearly $68 billion of much-needed mortgage activity into the housing market, $28.5 billion of which was through FHASecure. FHASecure has helped more than 150,000 homeowners who are current or past due on their loans avoid foreclosure, and, with today's announcement, it is expected to assist 500,000 total families by December 31, 2008.

###

HUD is the nation's housing agency committed to increasing homeownership, particularly among minorities; creating affordable housing opportunities for low-income Americans; and supporting the homeless, elderly, people with disabilities and people living with AIDS. The Department also promotes economic and community development, and enforces the nation's fair housing laws. More information about HUD and its programs is available on the Internet at www.hud.gov and espanol.hud.gov. For more information about FHA products, please visit www.fha.gov.