What’s the Deal with Shadow Inventory?

The subprime mortgage debacle in ’07- ’08 caused an unparalleled number of foreclosures and disintegration of the housing market. Because of this, lenders were left with significant real estate in their portfolios.

Shadow inventory is a term referring for the most part to properties that are in the process of or have been foreclosed on and haven’t been listed or sold as yet. Many of these homes are not being listed for sale by banks who are waiting for market prices to recover. These lenders are also apprehensive of putting too much inventory on the market as flooding the market would further drive down prices, lowering their projected return on investment.

The good news (for the moment anyway) is that residential shadow inventory as of July 2011 decreased a bit to 1.6 million units, which is a 5 month supply of homes for sale. Before you laugh, it is down from the 1.9 million units (a 6 month supply) reported one year ago. Additionally, there was a decline from April 2011 when shadow inventory was at 1.7 million units.

Will this be a continued pattern? One can only hope… The bottom line right now is that movement or sales of distressed homes is slightly faster than the new delinquencies being taken on by the banks and this is encouraging for the time being.

Has Your Equity Line Been Reduced or Cancelled?

A potential class-action lawsuit could have an immense influence on the future of homeowner rights under the Truth in Lending Act and some consumer protection statutes.

Here’s the scenario:

You’re a home owner who has taken out a $100,000 home-equity line for home improvements. Cash has been pulled out to hire contractors and purchase materials for the renovation. Then a letter comes from the bank stating that the credit line has been canceled and there is no further access to it.

The bank claims that your home is worth substantially less than when the credit line was opened. And now you have bills to pay with no equity line available.

To add insult to injury, the bank has not done a formal physical appraisal, but an automated valuation done with no more than a computer program. If you believe your property to be worth more than the bank claims, you can appeal it and pay to have another formal appraisal done at your expense, but it will be with an appraiser of the bank’s choosing.

There are apparently huge numbers of home owners (in the millions) whose credit lines have been reduced, frozen or canceled in 2009. Banks were understandably gun shy during that time after the close call of near disintegration of the marketplace.

In Chicago, a federal district court has given the go-ahead to customers of J. P. Morgan Chase Bank to commence with a class action suit alleging that their equity lines were illegally reduced or cancelled. Chase attempted to get the case dismissed, but a judge rejected the bank's motion to dismiss the case, clearing the way for a possible giant class action suit.

Suits are being filed in six different states including California which should have a great (and hopefully positive) influence on the future of consumer protection laws for homeowner rights.

At the forefront of the suit will be alleged violations of truth in lending practices and consumer protection laws. The suits should bring attention to the manner in which the lenders are expediting these automated appraisals with tools and programs that are egregiously inaccurate in many cases. Word has it that there are similar suits being filed against other big players such as GMAC Mortgage, Wells Fargo and Citibank.

The Chicago law firm representing the plaintiffs found that the computer valuations used by J. P. Morgan Chase were "grossly in error" after later physical appraisals were done.

Also hovering about will be the issue of Chase having accepted $25 billion in emergency funds from the Treasury. This money was to be used to assist them in lending to borrowers in need of credit which was subsequently cut back.

In fairness, it should be noted that Chase has since paid back the treasury money and they are one of the better lenders in approving short sales in an expedient manner. It will be interesting to see how this shakes out...

http://www.LynnKenton.com

Short Sale Update: A Win for Short Sale Sellers

This month, Gov. Jerry Brown signed SB 458 (Corbett) into law. SB 458 extends the protections of SB 931 (2010), to guarantee that any lender agreeing to a short sale is required to accept the approved short sale payment as payment in full of the outstanding balance of all loans.

Under previous law (SB 931 of 2010), a first mortgage holder could accept the agreed-upon short sale payment as full payment for the outstanding balance of the loan, but that rule didn’t apply to junior lien holders (second trust deeds). SB 458 extends the protections of SB 931 to junior liens. SB 458 contains an urgency clause making it effective upon signing. This should make sellers’ lives a little less stressful after undergoing the hardships that necessitated the short sale.

If you know of someone considering a short sale, give me a call- we’ve assembled a great team of short sale negotiating experts and can equip you with information to make the right decision for you.

HOMEBUYER CREDIT REPAIR SEMINAR

Have you experienced a short sale or foreclosure in the past? Even though you may have fallen on some difficult times home ownership could be attainable sooner than you think. Separate the myths from the facts and learn what steps to take to qualify for homeownership once again. This is a no cost community service seminar to assist those who are interested in reentering the housing market after foreclosure or short sale.

Presented by: Linda Hall of Guild Mortgage Company, Karen Campbell and Lynn Kenton of Ventura Property Shoppe and Eric Olson of U.S. Settlement Group. Seminar will be held on Thursday, July 21st at 6:30pm at Guild Mortgage Company, 711 East Daily Drive #110, Camarillo. To reserve your seat call Lynn Kenton @ 805-901-5444 or Linda Hall @ 805-208-8951.

How Soon Can You Buy a Home After a Short Sale or Foreclosure?

You or someone you know lost their home. Once recovered from the gut wrenching experience, the question is will you ever be able to buy a home again?

The short answer is yes. Below is a cheat sheet with the time frames and details.

Conventional Financing

For Foreclosures (home was given back to the bank- no owner participation)

7 years from foreclosure completion date and given back to bank if there were no
extenuating circumstances.

3 years from foreclosure completion date and given back to bank if there was
acceptable extenuating circumstances AND a 10% down payment. Only for
primary owner occupied homes.

For Short Sale (Home sold for less than amount owed) or
Deed in Lieu of Foreclosure (Home returned to lender in exchange for canceling the loan)

7 years from sale date closed and transferred to new owner or transferred back to
bank with less than 10% down payment.

4 years from sale date closed and transferred to new owner or transferred back to
bank with 10% down payment.

2 years from sale date closed and transferred to new owner or transferred back to
bank with 20% down payment.

2 years from sale date closed and transferred to new owner or transferred back to
bank with acceptable extenuating circumstance and 10% down payment.

FHA Financing

For Foreclosures (home was given back to the bank- no owner participation) or
Deed in Lieu of Foreclosure (Home returned to lender in exchange for canceling the loan)

3 years from foreclosure completion date and given back to bank.

12 months to 2 years from date foreclosure completed and transferred back to
bank may be acceptable if the result of extenuating factors.


For Short Sale (Home sold for less than amount owed)

3 years from sale date closed and transferred to new owner.

No waiting period if borrower had no late payments on any mortgages and
consumer debts within the 12 month period prior to the short sale AND they
are not taking advantage of declining market conditions.


Contact me for more info or questions!

REAL ESTATE SNAPSHOT

The real estate opportunities right now are unprecedented.

Distressed properties, also known as short sales and foreclosures, are indeed the bulk of real estate inventory. And, sadly, many home owners have suffered hardships causing them to lose these homes. Additionally, “traditional” sellers are bearing the brunt of the market as their home values have been driven down alongside the others.

But for investors, first-time buyers and those with the ability to move up, the market couldn't be better. Interest rates are hovering around 4 ¼ to 4 ½ % right now for 30 year fixed rate loans. That’s outstanding.

Now there are some out there who want to wait to buy and see if prices go down some more. The average sale prices of single family homes in Ventura dropped about 5% over the last year, so that may seem like a good plan at first blush. But here’s some food for thought...

Since the entry level homes are driving the market, let’s say we’re looking at a home for $400,000 with a 10% down payment and a 4.5% interest rate. Your payment (including taxes and insurance) would be about $2324 per month.

Let’s suppose that home values decline by 5% and interest rates go up 1 %. You’re buying the same home for $380,000 (a 5% lower price) with a 10% down payment and a 5.5% interest rate. Your payment would now be about $2417 per month. Hmmm.

I left my crystal ball at home, but I’d be willing to bet interest rates will go up before anything remarkable transpires in home values. My counsel would be to take advantage if you can. We won’t know the bottom has hit until it’s already in the past.

Weekly Fraud Alert: Leasing Back Your Home

From California Association of Realtors

To get around federal laws outlawing people from charging up-front fees for mortgage modification, fraudulent mortgage modifiers are approaching homeowners in default and offering to pay cash for the home and lease it back to the owners.

However, once the mortgage is paid off, the scammer effectively owns the house and does not lease it back to the original owner.

If you or someone you know is in a similar situation with their home, encourage them not to grab onto the thing that seems too good to be true...