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The government wants to turn foreclosures into rentals.
NEW YORK (CNNMoney) — Federal officials hope to launch a pilot program in early 2012 to convert government-owned foreclosures into rental properties.
The program, which was cited by Federal Reserve Chairman Ben Bernanke last week as one way to address the housing crisis, would sell foreclosed homes now owned by Fannie Mae (FNMA, Fortune 500) and Freddie Mac (FMCC, Fortune 500) to investors in bulk. The properties would then be converted into rentals.
The initiative began back in August, when the Federal Housing Finance Agency, the Treasury Department and the U.S. Department of Housing and Urban Development announced they were seeking suggestions on ways to dispose of repossessed homes now owned by Fannie Mae, Freddie Mac and the Federal Housing Administration.
In addition to getting the properties off the government’s books, officials are hoping putting the homes back into productive use will stabilize neighborhoods and housing values. Also, it is looking to expand the supply of rentals, which are increasingly in demand.
The agency is not releasing details on how the rental program would work, instead saying it is “proceeding prudently but with a sense of urgency to lay the groundwork for the development of good initial transactions in early 2012.”
Administration officials said they are continuing to work with the agency to develop the program.
Housing, stocks, gold and oil: Hot or not in 2012?
Until now, most foreclosed homes have been sold individually because investors have demanded bigger discounts to buy large numbers of properties.
But federal officials are warily eyeing the expected surge in foreclosures as banks ramp up their action against delinquent homeowners. The process had been stalled since late 2010 when banks’ shoddy paperwork practices came to light.
There are close to 2 million homes in the late stages of delinquency, according to Lender Processing Services. Since foreclosed properties often sell below market value, they can wreak havoc on home prices.
0:00 / 2:33 Should you buy a home in 2012?
Converting these homes to rentals can both help the neighborhood and minimize losses to Fannie, Freddie and the FHA, which hold about 250,000 properties, Bernanke told lawmakers last week.
He urged lawmakers to ramp up their efforts to fix the housing market, placing particular emphasis on the problem of vacant homes on the market.
“Restoring the health of the housing market is a necessary part of a broader strategy for economic recovery,” he said.
Bernanke’s comments launched a full-court press by Federal Reserve officials last week to raise awareness of the continuing problems plaguing the housing market.
His proposals were quickly followed by Fed Governors Sarah Bloom Raskin, who spoke on ramping up enforcement of mortgage servicers, and Elizabeth Duke, who said Fannie Mae and Freddie Mac could do more to help heal the housing market.
Meanwhile, New York Fed President William Dudley gave a speech that touched on a wide range of housing policies — including principal reduction and mortgage refinancing — that he believes will boost the economy.
The Fed has already tried to boost real estate sales by pushing mortgage rates down to record lows through massive bond-buying programs.
But the renewed push for housing help indicates that the Fed, which has basically run out of monetary policy ammunition to revive the real estate market, is urging the federal government to ramp up its efforts.
“The Federal Reserve is signaling in even stronger terms the need for the government to do more to help housing,” said Jaret Seiberg, a policy analyst with the Washington Research Group.
By Tami Luhby @CNNMoney January 10, 2012: 11:36 AM ET
My name is Becket Morgan, and The Red Eye was my idea. Where are you standing, on Buyer’s Road or Sellers Lane? Or both?
Cheers-www.becketmorgan.com
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Housing analysts are expecting home prices to stabilize in 2012, but that doesn’t mean that buyers and sellers won’t continue to be at odds over home prices in the New Year.
While buyers are feeling good about the housing market and saying it’s a great time to buy, seller sentiment is falling to record low, a new report by the Mortgage Bankers Association shows. Sellers say they are unhappy because they’re unable to snag the prices for the home that they want.
According to the MBA report, a large gap is occurring between home buying and home selling that isn’t expected to narrow for at least the next five quarters.
From 1992 to 2005, seller sentiment remained high — between 40 percent and 60 percent, according to the report. However, since 2005, seller sentiment has decreased to 7.6 percent. Meanwhile, home buyer sentiment has remained high despite unemployment and economic conditions. Nearly 80 percent of American households say now is a good time to purchase a home.
As home values have dropped over the last few years, many sellers are refusing to budge on their prices to reflect current market traditions. One reason why: Some sellers are underwater on their homes. About 20 percent of home owners nationwide are considered “underwater,” owing more on their mortgage than their home is currently worth. Also, some sellers are realizing there may be a benefit in waiting to sell or to keep the home on the market holding out for a higher price, notes the author of the report, Gary Engelhardt, a Syracuse economics professor. “This could hold prices high enough to drive a substantial wedge between the existing buyer and seller. And a poor jobs market with limited mobility, a key driver of housing-market transactions, may exacerbate this,” an article at HousingWire notes about the report. housingwire.com buyer-seller sentiment
Sources: REALTOR® Magazine | Friday, December 30, 2011| www.housingwire.com
My name is Becket Morgan, and The Red Eye was my idea. So-where are you standing, on Buyer’s Road or Seller’s Lane?
Cheers- www.becketmorgan.com
By Julie Schmit, USA TODAY
Steven and Lisa Maultsby lost their Mississippi home to foreclosure this year while awaiting a loan modification.
At the time, they thought they were being reviewed for a loan modification through the U.S. government’s foreclosure-prevention program.
A Realtor knocking on their door to tell them to vacate told them otherwise.
MORE: Comparing the foreclosure aid programs
STORY: Inflated home sales figures from 2007-10 to be lowered
“I’m bitter,” says Steven Maultsby, 51, who works with undersea robots in the oil industry. “We did everything they told us to do.”
The Maultsbys are angry not only at their mortgage company, but also at the government, and they’re two voices among a discontented chorus.
The Obama administration’s initial foreclosure-prevention programs, launched in early 2009, were intended to help 7 million to 9 million people. So far, they’ve aided about 2 million, and not all of those are out of foreclosure danger.
Programs begun later have also faltered. One intended to help at least 500,000 has helped just a few hundred a year after its launch. Another initiative to extend $1 billion to help the jobless or underemployed avoid foreclosure ended in September, obligating less than half of its funds. The unused money went back to theU.S. Treasury. As of Nov. 30, the government had spent just $2.8 billion of the $46 billion war chest it had in 2009 to devote to the housing crisis, the Treasary Department says. More has been committed, but only $13 billion will ultimately be spent, the non-partisan Congressional Budget Office estimated in March. Meanwhile, 2.5 million homes have been lost to foreclosure since 2009, an additional 4 million are in the foreclosure process or seriously delinquent, and home prices are still falling in much of the U.S., shrinking household wealth for millions of Americans.
“Every program has fallen far short of goals. I can’t think of one that’s been largely successful,” says John Dodds, director of the Philadelphia Unemployment Project, a non-profit that’s been involved in foreclosure prevention for decades. The administration’s programs were hampered by design flaws, their reliance on a mortgage industry overwhelmed by the fallout from a historic collapse in home prices, and a brutal extended housing downturn. Nor could they always overcome the conflicting interests of borrowers with too much debt, mortgage investors unwilling to surrender profits and mortgage servicers with sometimes greater financial incentives to foreclose on loans than to permanently modify them, say housing and government policy analysts, consumer advocates and former administration officials.
Critics also say the administration failed to entice banks and mortgage-finance giants Freddie Mac and Fannie Mae to take bolder steps to address the crisis even though the institutions received billions in government bailout funds. ”There was nowhere near the effort to help Main Street as there was to help the banks,” says former senatorTed Kaufman, D-Del., who chaired a congressional oversight panel that oversaw $475 billion in Troubled Asset Relief Program (TARP) funds. Most of that went to banks and the auto industry, but $46 billion in TARP money also funded foreclosure-prevention efforts.
Administration officials defend their response. They say the scope of the problem was unprecedented — and so were their actions. Federal programs prevented many foreclosures even if they didn’t help as many people as expected, officials say. They say the administration’s efforts will save homeowners billions in mortgage costs. They also say the initiatives helped millions of other homeowners by driving service improvements in the mortgage industry and preventing an even worse collapse in home prices. Since the peak of the housing market in 2006, $3 trillion in home equity has been lost, researcher LPS Applied Analytics estimates.
“It’s too easy to underestimate the scale and complexity of these issues,” Shaun Donovan, secretary of Housing and Urban Development, said in a recent interview, while acknowledging that some administration programs “haven’t reached as many people as we originally targeted.”
Those shortfalls are most evident in the:
•Home Affordable Modification Program (HAMP). Through October, the biggest foreclosure-prevention effort has resulted in 883,076 homeowners getting permanent loan modifications that made their loans more affordable and improved their ability to avoid foreclosure. But HAMP was targeted to help 3 million to 4 million homeowners, President Obama said when he announced it in 2009. When it expires next December, it will have prevented fewer than 800,000 foreclosures, Kaufman’s congressional oversight panel estimated in December 2010. HAMP “has been a failure,” Neil Barofsky, the former special inspector general for TARP, told a congressional committee in October.
•Home Affordable Refinance Program (HARP). Through September, it’s helped 928,570 homeowners get lower-interest loans even though they lacked the amount of equity usually needed for a new loan.
HARP was intended to help 4 million to 5 million homeowners. While it was recently overhauled to encourage more refinancings, federal officials now say it will help fewer than 2 million borrowers by the end of 2013, when it expires.
So far, those getting HARP refis also tend to be people who aren’t deeply underwater — those who owe more on their homes than they’re worth. HARP refis have gone largely to homeowners with some equity or who were only slightly underwater, government data show. It’s unclear whether the recent revamping will significantly change that, says Alan White, law professor and mortgage lending expert at the Valparaiso University School of Law.
More than 11 million homeowners — more than a fifth of homeowners with mortgages — are underwater, says market researcher CoreLogic. Many are unable to take advantage of today’s historically low interest rates and wring some relief from the ravages of the recession and weak economic recovery. Rep. Dennis Cardoza, D-Calif., whose district encompasses Stockton, one of the nation’s worst foreclosure hot spots, says more needs to be done and that the changes to HARP are “too little, too late.”
•Federal Housing Administration Short Refinance program. Intended to help 500,000 to 1.5 million homeowners refinance into loans with a lower interest rate, the FHA program did fewer than 400 deals through September, a year after the effort’s launch, government data show. The program requires mortgage owners to forgive at least 10% of a borrower’s unpaid principal before that loan can be refinanced into an FHA loan at a lower interest rate. But mortgage owners have been reluctant to forgive principal, fearing that doing so for some would create a “moral hazard,” leading other borrowers to default to get help, says James Parrott, a senior adviser to the White House’s National Economic Council. “The moral hazard concern was stronger than we realized,” Parrott says.
One big bank says it warned of the program’s limitations. Bank of America, which services 12 million mortgages, gave federal officials data showing the program would benefit only 10,000 to 15,000 customers because of its design and the degree of support from investors who owned loans, says spokesman Dan Frahm.
Almost 1 million modifications
Administration officials say the programs’ statistics alone don’t fully reflect what’s been accomplished. “You have to look at the ripple effect,” Donovan says. HAMP, which most often lowers mortgage payments through interest rate reductions, is approaching 1 million permanent loan modifications. That is “not a negligible sum,” Parrott says. HAMP also “significantly changed the market,” says Michael Barr, former assistant secretary at Treasury who worked on mortgage issues while in the Obama administration.
Before HAMP, mortgage servicers had no standard approach to modify loans. HAMP created one and streamlined the process, says Barr, who now teaches at the University of Michigan Law School. Since HAMP’s launch, lenders have independently offered more than 2.5 million loan modifications outside of HAMP, staving off foreclosures for many. ”The overall impact of the (HAMP) program has gone unnoticed,” says Teri Schrettenbrunner, senior vice president of communications for Wells Fargo Home Mortgage. HAMP was announced just weeks after Obama took office and at a time when home prices had fallen for 30 months in a row. Given the short time the administration took to launch HAMP and HARP, “We knew they wouldn’t be perfect. We knew they’d be as good as they could be given the time we had,” Barr says. He says a prime reason that government programs haven’t reached more people is that mortgage servicers “were really bad at doing their jobs.”
Servicers collect home loan payments for investor-owners. Big banks, such as Bank of America, Wells Fargo and JPMorgan Chase, are among the largest ones. The servicers lacked adequate processes and enough employees to meet the crush of distressed borrowers, Barr says. They took too long to beef up staff. They couldn’t do “basic blocking and tackling” in communicating with borrowers, he says.
The Government Accoutability Office documented problems when it surveyed housing counselors who work with borrowers seeking HAMP modifications. Almost 60% complained that servicers lost documents, 54% said trial modifications took too long, and 42% said borrowers felt that they were wrongly denied modifications, according to the GAO’s report in March. The Maultsbys weren’t the only ones who lost a house to foreclosure while thinking help was on the way. Others did, too, said Treasury official Darius Kingsley in congressional testimony in October. He called such situations egregious.
The administration casts much of the blame on the industry, but others blame the government. Barofsky says Treasury had to have known that servicers were “totally unequipped” to handle HAMP when it launched. Still, it rushed out a “poorly designed program,” he says. Servicers say changing program guidelines made it tough to implement the government programs. In a three-month period, Treasury made 100 changes to HAMP, making it “physically impossible” for servicers to keep up, said Barbara Desoer, president of Bank of America Home Loans, in a recent speech to community leaders in San Francisco. HAMP provides financial incentives — generally about $4,000 a loan — to servicers to modify loans. The goal is to make it more economical for servicers to modify a loan than to foreclose. But the incentives weren’t big enough to draw broader servicer participation, says Jared Bernstein, former economic policy adviser to Vice President Biden.
What’s more, the government made HAMP a voluntary program for servicers, then failed to make sure that participating servicers followed HAMP’s rules, consumer advocates say. HAMP ran for two years before financial incentives were withheld from any uncompliant servicer, even though abuses were “widespread,” Barofsky says. ”There’s been no enforcement or accountability,” says Diane Thompson of the National Consumer Law Center. The $1 billion Emergency Homeowner Loan Program was open to homeowners in 32 states who were ineligible for aid from a $7.6 billion fund for homeowners in 18 states hardest hit by the recession and falling home prices.
HUD took too long to launch the program, which didn’t leave enough time to get applicants through an onerous application process, consumer advocates say. Instead of helping 30,000 homeowners as first intended, the program is on track to help fewer than 12,000, HUD’s preliminary data show. That “is an absolute disgrace,” says Ira Rheingold, executive director of the National Association of Consumer Advocates. HUD officials say it took time to identify contractors to run the program, set up fiscal controls and ensure the program was run fairly. ”We, too, are disappointed,” Carol Galante, a senior HUD housing official, testified at a congressional hearing in October.
More but smaller plans to come
New efforts are underway, but none appear to have the scope of previous plans. State attorneys general and federal officials are negotiating a multibillion-dollar settlement with major mortgage servicers to help more homeowners. If a deal is struck, it will include principal forgiveness on more home loans, Donovan says. That may show loan owners that forgiving principal really does lead to fewer defaults, Rheingold says, and encourage more of it.
Most of the $7.6 billion in Hardest Hit Funds, too, have yet to reach the market. States have through 2017 to use those funds. The Treasury Department also says there are still 1 million homeowners who could be eligible for HAMP. ”We’re going to keep fighting to fix this housing market,” Donovan says.
My name is Becket Morgan, and The Red Eye was my idea.
So-where are you standing, on Buyer’s Road or Seller’s Lane?
Cheers-
Home owners who fail to get a building permit for a remodeling project can jeopardize a sale.
When home owners take on a remodeling project, they’re often far more focused on choosing glistening fixtures for a new bathroom or debating the type of granite to use on a kitchen countertop than, say, navigating the intricacies of the building permit process. That could be a huge mistake, however, and it may not even come to light until the house is put up for sale. Ignoring local approval requirements not only poses safety and legal problems but also can potentially derail an otherwise smooth sale.
Home owners using licensed contractors for remodeling work typically don’t have to get involved with permitting. Most licensed contractors will handle the cumbersome process for them—filling out the paperwork with the municipality, collecting fees, and being present for the required inspections, says Michael Hydeck, president of the National Association of the Remodeling Industry. But when home owners tackle do-it-yourself projects or use unlicensed contractors, they risk problems later.
The permit process varies widely from city to city and state to state. But the purpose of the document is the same everywhere: It offers assurance by a municipal building department that the work being done meets all safety codes.
Ask Sellers Before You List
Home owners may be asked about permits in the process of selling a home. At closing, they may have to disclose any remodeling work they did and verify permits. A home inspector evaluating a property for a buyer may want to know whether a permit was obtained. Furthermore, the buyer’s appraiser may want to see permit records to check the legality of any home renovations.
This is Important: “If no permits are found and it’s obvious the home has been renovated, the bank will likely refuse to make the loan,” according to the American Bar Association’s book Legal Guide 
to Home Renovation (Random House Reference, 2006). If the permit-less work isn’t discovered until after closing, the home’s value could even be subject to a lawsuit, such as in cases when an addition added extra square footage to the home’s value but the construction wasn’t done legally with a permit.
That’s why contractors and legal experts say real estate practitioners are well advised to ask sellers before they take on a listing for a renovated home: “Did you get a permit for that?”
Remodeling contractor John Price in Merced, Calif., has been called in to help home owners after permit problems have been uncovered. He once worked with a home owner who installed siding by himself, but added it too far down along the wall of the house, so it rubbed up against dirt and picked up moisture. Eventually the poor installation led to mold growing in the drywall throughout the inside of the house.
Some home owners, however, are tempted to sidestep the permit process not wanting to pay the fees (municipalities generally charge a minimum issuing fee—such as $25—as well as an additional fee—sometimes 1 percent—of total construction costs), or they might not want to risk delaying a project or a sale by waiting for city inspections (obtaining permits can take anywhere from a day to six weeks or more).
“People have strong incentives to cheat, and some of that lies squarely on the feet of policymakers who have sometimes created a system that is time-consuming and frustrating,” Price says.
But-caught without a permit during resale, home owners may face big consequences. They may have to pay fines (possibly up to quadruple the original permit cost) or may have to tear the project down and redo it.
Virtually No Job Is Too Small
Home owners making any changes to the structures of a home will likely need a permit—and you may need more than one, Price says.
While kitchen and bathroom remodels and housing additions are obvious permit candidates, people may not realize they might also need one for such projects as installing a window, adding a new light switch, or replacing a shower. “There are not too many jobs you don’t need a permit for,” Hydeck adds. “It’s better to be safe than sorry.”
By Melissa Dittmann Tracey, REALTOR® Magazine
My name is Becket Morgan, and The Red Eye was my idea. So, what’s on your community (Buyer/Seller) mind?
Cheers-
Purchasing a home is often the biggest financial investment your customers will make, so opting to have a “background check” conducted on a property before deciding to buy is becoming more commonplace.
Databases and companies have been surfacing in recent months that set out to give buyers a full picture of a home’s history or area around it.
For example, the Realtors Property Resource, which started rolling out in 2010, is an online real estate library–only available to National Association of REALTOR® members–that provides in-depth property information of nearly every property in the country. It includes public record information, prior transactions, notice of default, foreclosure data, flood plain maps, demographics, zoning restrictions, liens, permits, school district information, and more. You can use the information to create custom reports to distribute to your clients so they can make informed decisions about a property.
Another home-background check company, BuildFax, compiles reports for real estate professionals, appraisers, and customers that can even show you the age of the home’s roof, plumbing, electrical, air conditioning, and heating systems. It also provides details about the home’s remodel or repair history, as well as the dates and scopes of projects done and even the contractors who did the work. The reports also can help sellers prepare accurate disclosures for the property prior to listing it for-sale.
The company charges about $40 per analysis, but it’s offering a free report to consumers through Aug. 31, in case you want to test it out.
Also, be sure to check out this month’s Architecture Coach column at REALTOR® Magazine online, Promoting a Home With a Past Life, about how sometimes uncovering a home’s back story can actually even become a selling point.
My name is Becket Morgan, and The Red Eye was my idea. So, what’s on your Buyer/Seller Community Mind?
Cheers-
REALTOR® Magazine | Posted by Melissa Dittman Tracey