Call 480-478-0709
or fill in the fields below
for a consultation!

Archive for December, 2010

Underwater Home: What Should You Do if You Owe More on Your Home than It’s Worth?

Tuesday, December 21st, 2010

One of our colleagues, Brent White, just released a new book titled, Underwater Home: What Should You Do if You Owe More on Your Home than It’s Worth?  I’ve pasted a description of the book below, and The book was recently discussed by the WSJ here:

http://blogs.wsj.com/developments/2010/12/07/walking-away-from-your-home-for-dummies

Underwater Home: What Should You Do if You Owe More on Your Home than It’s Worth?

Underwater on your home? Don’t know what to do? Let one of the the nation’s leading experts guide you to the right decision. In Underwater Home, Professor White addresses all your concerns and helps you work through the emotions and practical realities of being underwater on your home. He explains your options and gives you the facts that will empower you to make the best decision for your family, free from guilt or fear, and with clarity, confidence, and peace of mind.

Underwater Home is both an emotional and practical guide for the underwater homeowner. Professor White explains when it makes financial sense to stay in your underwater home and when it makes sense to get out. And he offers no-nonsense insight into how to negotiate with your lender.

Walking Away from Your Home for Dummies.

Monday, December 20th, 2010

By Nick Timiraos

You might call it, “Walking away from your home, for dummies.”

Brent White, the University of Arizona law professor who’s made a name for himself by urging more underwater homeowners to consider walking away from their homes, has published a 168-page book to help borrowers who are wrestling with that decision.

In a tone that is both conversational and precise, “Underwater Home: What Should You Do if You Owe More on Your Home than It’s Worth?” lays out the case for and against walking away from an upside-down mortgage where the home is worth less than the mortgage balance. As is his habit, Mr. White strips away many of the emotional reasons that are often touted to deter walkaways.

Mr. White, who specializes in behavioral economics and the law, touched a nerve with a paper last year that was one of the first to seriously challenge the long-held view that borrowers have a moral obligation to continue making their mortgage payments. He says he’s been inundated with thousands of emails from people that showed him “the real texture of what’s going on—what difficult times people are having, and how people really do struggle with these decisions.”

Mr. White tells readers that he hasn’t set out to recommend any particular course of action. Borrowers need to factor in their personal situation, and the laws in their state. “The bottom line is, people need to make their own call,” he says in an interview. He adds that he wrote the book because he realized “they may need help about how to think about it.”

Too much information about walking away from mortgages “is intended to scare homeowners,” he says. His advice to borrowers wrestling with the decision: “Make sure you’re staying in your house because you decide it’s worth to you, and not because you’re worried about things that are probably not going to happen.” These views, and others, are likely to give heartburn to mortgage investors and lenders.

The book falls roughly into two parts. The second half walks borrowers through the different options available depending on their situation. The first half gets there by evaluating three considerations: financial concerns, practical ones and moral dimensions.

On the first two, Mr. White urges readers to answer a series of questions to decide whether walking away makes financial and practical sense. Can your bank pursue your assets? How much of a hit will your credit score take? How much will you save, if anything, if you rent? The book also includes a handful of worksheets to calculate these and other costs.

But it’s on the moral question where Mr. White has penned a polemic against the lending industry’s arguments against walking away. Financial institutions and the government, he writes, “have acted to make sure that underwater homeowners and not lenders bear the primary burden of the housing collapse.” (Left unsaid is that taxpayers, too, could bear the costs of mistakes made by lenders, Fannie, Freddie, the government, and homeowners that walk away.)

Mr. White says there’s lots of blame to go around, and that “a little of it” belongs on homeowners. But he says that underwater borrowers have paid a far higher price than lenders or the government, which are more responsible for the bust. So should borrowers feel badly about defaulting?:

[Y]our lender knew the bargain that it was making when it loaned you the money, including that it was loaning money on a home with a possibly inflated price. It also knew that you might default if prices crashed.…

If your lender miscalculated the risk of defaults due to a housing collapse, that‘s not your fault. You aren‘t barred from collecting on an insurance policy if your insurance company miscalculates the chances of a tornado and wishes that they had charged you more. If your lender miscalculated the risk of a housing collapse and borrowers defaulting as a result, that‘s the lender‘s error. It will be more careful next time. But you still have an option to default.

Under what circumstances, then, is it reasonable to walk away?

I think it‘s OK to stop paying the mortgage long before you clean out your savings, sacrifice your retirement, spend your children‘s college fund, and certainly before you have to start using your credit cards to survive. Before you do any of those things, I think the more moral course is to stop paying your mortgage. Indeed, I think it‘s morally acceptable to default if your mortgage threatens your ability to save adequately for the future, regardless of whether you can pay it according to some arbitrary definition of “affordability.” It may be more responsible to put the money saved from giving up your home and renting instead into an investment account, so that you are secure in retirement. Or put it into a college fund, so that you can give your children a chance at a higher education.

In other words, things aren‘t so black-and-white. Given the unprecedented nature of the housing collapse, it should at least be possible for reasonable people to disagree about the most moral or responsible course of action for underwater homeowners. No one is entitled to sit in judgment of you.

Readers, are you thinking about walking away from an underwater mortgage and willing to be interviewed?  Email me at nick.timiraos@wsj.com. Follow Nick on Twitter for more housing and mortgage news: @NickTimiraos

U.S. Homes to Lose $1.7 Trillion in Value This Year: Report

Friday, December 10th, 2010

by Carrie Bay

According to analysis released Thursday by the research firm Zillow, U.S. homes are expected to lose more than $1.7 trillion in value this year. Since the market peaked in June 2006, the company says homeowners have been stripped of $9 trillion in equity.

To put things into perspective, Zillow cites a report by the Congressional Research Service, which says from 2001 to the end of September 2010, the war in Iraq has cost the United States $750.8 billion. That means the value lost in residential property values since mid-2006 exceeds the cost of 12 Iraq wars.

 The depreciation of residential property values this year is 63 percent more than the $1 trillion lost in all of 2009, according to Zillow.

 The bulk of the total value lost during 2010 came in the second half of the year. From January to June, the housing market lost $680 billion, but from June to December, Zillow projects residential home value losses will top $1 trillion.

 Less than one-fourth of the 129 markets tracked by Zillow showed gains in total home values during 2010. Among those were the Boston metropolitan statistical area (MSA), which saw a $10.8 billion increase in its residential property values, and the San Diego metro area, where home values rose $10.2 billion.

 Dr. Stan Humphries, Zillow’s chief economist, notes that despite a strong start to 2010, by the end of the year homes lost more of their value this year than they did in 2009.

 “Government interventions like the homebuyer tax credit helped buoy the market during the second half of 2009 and the first half of 2010, but we saw a renewed downturn in the last half of this year,” Humphries said. “It’s a testament to the nearly irresistible force of the overall market correction that government incentives can only temporarily hold back the tide, and that the market will ultimately find its natural equilibrium of supply and demand.”

 Humphries doesn’t see that equilibrium setting in any time soon, though. “Unfortunately, with foreclosures near an all-time high in late 2010 and high rates of negative equity persisting, it does not appear that the first part of 2011 will bring much relief,” he said.

 Declines in home values have led to an increase in the percentage of borrowers who owe more on their mortgage than the home is worth.

Zillow says at the end of 2009, 21.8 percent of single-family homeowners with mortgages were in negative equity. In the third quarter of 2010 – the last time Zillow calculated negative equity – 23.2 percent were underwater.

Federal program for short sellers goes largely unused

Thursday, December 9th, 2010

Premium content from Phoenix Business Journal – by Jan Buchholz

As many homeowners frantically try to sell their homes through short sales, few of them know about a government program that could expedite that process and pay them up to $3,000 for relocation expenses.

The Home Affordable Foreclosure Al­ternatives program was approved in 2009 to complement the Obama administration’s Home Affordable Modification Program, or HAMP. The thought was, home­owners who worked out modifications with lenders but still couldn’t afford their payments could take advantage of HAFA to get a few thousand dollars for short-selling their homes.

According to the Oct. 27 issue of national newsletter Housing Wire, only 342 HAFA sales had closed nationwide in 2010 as of Sept. 30, and about 117,000 were in progress as of Oct. 27. Considering HAFA went into effect April 5, those modest numbers are breeding discontent among many local agents.

Jim Hogan, owner of the Hogan School of Real Estate in Tucson, understands their annoyance. He taught the ins and outs of the complicated HAFA program at the National Association of Realtors’ national convention in New Orleans in early November.

“I know there’s frustration among agents because the servicers are not up to speed,” Hogan said. “Plus, real estate agents don’t fully understand the program.”

Hogan believes no more than 700 agents have been trained in the HAFA program through his classes in Arizona. It’s a small percentage of the 42,000 Realtors licensed in the state.

“Next year, the first six to eight …

As many homeowners frantically try to sell their homes through short sales, few of them know about a government program that could expedite that process and pay them up to $3,000 for relocation expenses.

The Home Affordable Foreclosure Al­ternatives program was approved in 2009 to complement the Obama administration’s Home Affordable Modification Program, or HAMP. The thought was, home­owners who worked out modifications with lenders but still couldn’t afford their payments could take advantage of HAFA to get a few thousand dollars for short-selling their homes.

According to the Oct. 27 issue of national newsletter Housing Wire, only 342 HAFA sales had closed nationwide in 2010 as of Sept. 30, and about 117,000 were in progress as of Oct. 27. Considering HAFA went into effect April 5, those modest numbers are breeding discontent among many local agents.

Jim Hogan, owner of the Hogan School of Real Estate in Tucson, understands their annoyance. He taught the ins and outs of the complicated HAFA program at the National Association of Realtors’ national convention in New Orleans in early November.

“I know there’s frustration among agents because the servicers are not up to speed,” Hogan said. “Plus, real estate agents don’t fully understand the program.”

Hogan believes no more than 700 agents have been trained in the HAFA program through his classes in Arizona. It’s a small percentage of the 42,000 Realtors licensed in the state.

“Next year, the first six to eight months will tell,” Hogan said of the prospects for HAFA’s success.

In a nutshell, HAFA is designed to provide relief to home­owners who would qualify for HAMP, but loan modifications are insufficient to keep them from defaulting. HAFA provides financial incentives including up to $3,000 for the seller to move, $1,500 for processing and administrative costs, and up to $6,000 for subordinate lienholders, depending on restrictions. The money is provided through the federal government’s Troubled Asset Relief Program.

HAFA expedites the process first by using information collected for the modification program and then by setting specific time frames for accomplishing milestones in the HAFA sale. Once a short-sale offer is made, the lender has just 10 days to accept or reject it.

“It’s a hybrid short sale,” said Curtis Hall, an associate broker at Re/Max Achievers in Chandler, who taught a HAFA class to several dozen agents at a recent workshop sponsored by the Arizona Regional Multiple Listing Service.

Like Hogan, Hall believes the next few months will reveal whether the program works better and more efficiently than other distressed property options. Since short sales and lender-owned foreclosure sales accounted for 66 percent of the sales activity in Arizona from September 2009 to September 2010, it’s essential that brokers learn how to do HAFA sales, he said.

Conventional sales, Hall said, will continue to be the exception.

One real estate professional said, “Realtors will starve if they don’t know how to do HAFA sales.”

Although the process is expedited, that doesn’t mean it’s easy.

Neither JPMorgan Chase & Co. nor Wells Fargo was able to provide specific statistics on HAFA activity.

“It’s complicated,” said Wells Fargo spokesman Tom Goyda.

Chase spokeswoman MaryJane Rogers said she spoke with a “few national folks, (but) I’m not able to find much to discuss with regard to HAFA.”

Bank of America representatives did not respond when asked to comment.

Gerri Bara, an agent with John Hall & Associates in Tempe, said she’s not entirely encouraged by what she is learning about HAFA.

“My primary concern based on what I am learning is that there appear to be so many requirements, and they are deal-breakers,” Bara said. “So much effort, so much paperwork, so much time to go through the process — just to find out at the end of the maze that there is no door that quite fits your situation.”

Jean Batson, an agent with Realty Executives, said she’s hesitant to handle a HAFA sale.

“Will I try a short sale via HAFA on my own the first time out? Probably not,” said Batson. “I’d be more comfortable pairing up or co-listing with someone who has traveled the minefield of short sales numerous times before. Any short sale is challenging.”

There is a chance the government will try to streamline the process further, according to Hogan.

“The Treasury (Department) has stated in conversations that they expect to tweak HAFA in the next few weeks,” he said.

Ultimately, Hall said, every agent, seller and buyer needs to be advised by an attorney who knows the potential pitfalls of short sales.

Consumers Don’t Expect Housing Recovery Until 2013, Experts Agree

Wednesday, December 8th, 2010

By: Carrie Bay

Americans continue to grapple with uncertainty about the housing market, with 58 percent of U.S. adults expecting recovery to be at least another two years away, according to the results of a new survey conducted by Trulia and RealtyTrac, which tracks homebuyers’ attitudes toward foreclosed homes. One in five consumers believe it will be 2015 or later before we see a housing recovery.

As a result of the recent robo-signing debacle, nearly half of U.S. adults surveyed said they now have less faith in mortgage lenders and banks. Thirty-five percent believe the robo-signing issue will delay the housing market’s recovery, and 24 percent of those surveyed say they have lost faith in the government because of the way the robo-signing mess has been handled.

Pete Flint, co-founder and CEO of Trulia, stressed in a conference call with reporters announcing the survey results that consumer confidence is key to a healthy housing market.

“Government incentives have come and gone and historic lows in interest rates have done little to spur recovery,” Flint said. “Then, as if prospective buyers and sellers needed more to be concerned about, the robo-signing issue caused a ‘what’s next?’ fear to surface in the minds of consumers who, frankly, have lost faith in banks and their government to make good decisions.”

Rick Sharga, RealtyTrac SVP, told reporters that the best thing the government can do right now to support housing is to create more jobs to ensure people can continue making mortgage payments and keep their homes and to get more buyers into the market.

Sharga says the most likely scenario that will play out as a result of the industry’s affidavit problems is that we’ll see massive fines levied against some of the servicers being investigated, with some possibly facing criminal prosecution.

But in terms of foreclosure sales themselves, Sharga says the impact will be “very minimal,” in both judicial and non-judicial states. He notes that there have been some temporary delays in sales timelines as REO homes were pulled from the market to allow for proper case reviews, but Sharga says there hasn’t been a single case so far

where a foreclosure has been completed and the property subsequently sold that has been overturned as a result of affidavit errors.

Sharga expects the robo-signing scandal to have a dampening effect on fourth-quarter sales in general in terms of artificially low numbers, but again he argues that the net effect will be “minimal.”

Flint says the robo-signing mess might rear its ugly head again in the new year, but he believes it will effect the market in a good way. Flint thinks it’s likely the investigation by state attorneys general will lead to more widespread utilization of foreclosure alternatives by servicers, such as short sales, which in turn would serve to deter strategic default and allow the market to more quickly absorb the most distressed properties.

Both Flint and Sharga are of the same mind as consumers in projecting the long-awaited housing upturn. They peg the recovery to begin taking shape between 2013 and 2014.

Flint notes that 68 percent of consumers surveyed by Trulia and RealtyTrac say it will be at least two years before they buy a home, closely in line with the time span most Americans anticipate for a recovery to take hold. He’s also forecasting long-term mortgage rates to continue to creep up to at least 5 percent by 2012, a hike that he says may push some buyers out of the market, further depressing demand.

With demand already weak, sales activity will continue to be volatile through next year, Flint says, but he notes that real estate is “hyper-local” and the recovery of individual markets will be too. Several markets have proven particularly resilient to home price declines, and Flint expects them to be exceptions to the slow-recovery rule, namely Oklahoma City, Oklahoma; Austin, Texas; Omaha, Nebraska; Salt Lake City, Utah; and the Raleigh-Durham region of North Carolina.

Sharga says he expects at least another 5 percent decline in national home prices, before residential values begin to recover in 2014, primarily because consumer appetite will be too weak over the next couple of years to absorb the already engorged supply of homes for sale.

Even though he says the industry might get back to a somewhat balanced level of foreclosure activity by 2013, Sharga maintains that with a large number of delinquencies still hanging over the market, compounded by economic hurdles such as high unemployment, there will be an extremely taxing inventory of distressed properties to work through for years to come.

Sharga says RealtyTrac’s data shows that 2010 will be another record year in terms of foreclosure activity and the number of homes taken back by lenders. He estimates more than 3 million homes will have received a foreclosure filing by the end of the year, eclipsing last year’s tally of 2.8 million foreclosure filings, and about 1.2 million homes will have been repossessed.