Underwater Sellers, what are your Options? Cash to Short Sell? Cash for Keys? Foreclosure?

We get these questions and would like to share our thoughts about this dilemma.  Some home owners who are underwater may not know their alternatives. The “Cash for Keys” is a program that banks do for some home owners. The “new twist” you’ll be hearing more about is “Cash to Short Sale”. Lenders are figuring out that if there is anything they can do to make a deal happen, they need to do it. This apparently is what is starting to take place with people that are trying to “short sale” their homes. Instead of “Cash for Keys” to homeowners that lose their homes to foreclosure. This was not offered to home owners who were trying to short sale their home. Often the banks would basically give them a certain time to complete the short sale until they foreclosed.

Now because of tight lending practices, new buyers would take so long to qualify, it is often “too little, too late” to close escrow before foreclosure.  When that happens it seems everybody loses. The lenders lost a willing & able buyer and the seller because, now, not only did they lose their home to a foreclosure, but also because a foreclosure was now on their credit report instead of a short sale. (It may be better to have a short sale than a foreclosure on a credit report?) Plus, the buyer may or may not wait until the home came back on the market at a later date.

Source:  http://realtyworld-sierraproperties.com by Douglas Zeller

Mortgage-Audit Firm -- Surprise! -- Finds Lots of Errors in Foreclosures

A study of California foreclosures released late yesterday found that 99% of the files examined had some sort of irregularity and 84% of them had “one or more clear violations of law.” The study provides fresh evidence, to some, that the $26 billion foreclosure settlement withBank of America and other big lenders was just a down payment on their ultimate liability for “robosigning” and other illegal acts.

But let’s look at the report, and who wrote it. It’s byAequitas Compliance Solutions, a Newport Beach, Calif. firm that says it specializes in “complex litigation, investigation and internal audit issues” for regulators, investors and homeowners. In other words, Aequitas earns its keep by finding errors in mortgage paperwork for lawyers and regulators. It also has a unit that does court- or regulat0r-appointed compliance monitoring of lending institutions — a growing business as regulators crack down on mortgage servicers and get them to sign settlements that require continuing oversight by outside entities. Under the national foreclosure settlement, banks agreed to hire North Carolina’s former banking commissioner, Joseph Smith, as an independent monitor .

There’s nothing wrong with this, and I’m not suggesting Aequitas was biased or found irregularities that weren’t there. But readers should always consider the source. And once again, while the report found extensive errors, they were almost entirely upstream of the homeowners who were failing to make their payments on time. The closest thing to an error that directly affected a borrower was the failure to properly give notice of default “in person or by telephone.” In 6% of the foreclosures, Aequitas found no affidavit attesting to compliance with this requirement under California law. Does that mean that notice wasn’t given, or that the affidavit was missing? And does it mean that any of the 6% were not in default, and only found out they were going to be foreclosed when a sheriff walked up their driveway? The report doesn’t say, but I doubt it.

What Aequitas did find was a laundry list of technical violations in how the paperwork accompanying a foreclosure was processed. Seventy-five percent of the foreclosures had an error in the assignment of the deed of trust, meaning the handoff between one lender and another was botched in some way. This would be of concern to investors who own the underlying notes — but has there been a single case of an investor suing because the collateral ended up in the wrong hands? Aequitas found that in 27% of the foreclosures a trustee or servicer signed an assignment of the deed of trust, instead of the original owner of the note, for example. That couldmean that somebody snuck into the courthouse and stole a deed of trust that actually belonged to somebody else. Has it happened? Does it affect in any way the rights of the homeowner who isn’t paying his mortgage? The only way I can think of is if the homeowner wants to delay the foreclosure by asserting legal errors in the process.

The firm also found a number of foreclosure sales that occurred less than 20 days after the Notice of Trustees sale, casting doubt on the legitimacy of the title transfer to the new owner. That would be a problem for whoever buys the house from the bank. And there’s a thing called title insurance to cover that, I believe. (Though in Massachusetts, it could be a problem.) But no matter, it is a problem, and the banks could be liable for the damage it causes.

Aequitas also found widespread problems relating to MERS, the nationwide database for mortgages that lenders use to streamline foreclosures. In 58% of the sales, the beneficiary listed in the Trustees Deed Upon Sale conflicted with the investor information in the MERS database, the firm found. The report doesn’t explain how the discrepancy could cause a homeowner to be illegally sold out of his house.

Aequitas notes in the introduction that bankers complain “inadvertent violations should not provide windfall benefits to reckless borrowers.” That ignores the important role of California law as a last line of protection for borrowers against abusive practices by lenders, Aequitas notes. California, like many other states, allows banks to include clauses in mortgages allowing for non-judicial foreclosures with less court oversight. That comes at a cost, Aequitas notes — as would requiring every mortgage to allow only judicial foreclosure. Foreclosures in New York City have virtually ground to a halt as judges question the paperwork and require lawyers to personally attest to its accuracy.

Conservatives typically are accused of elevating legal process above substance, of looking only at whether the courts followed the rules and not whether the outcome was just. In this case, the roles are reversed. As the Aequitas report shows, the foreclosure process was “utterly broken,” with missed handoffs and improper documentation nearly every step of the way. Homeowner advocates want to use those errors to slow down foreclosures, distribute $1,500 checks to people who already lost their homes, and impose tougher regulations on lenders. As Aequitas puts it:

What’s at stake here is more than merely fairness and minimal due process. Foreclosures impact not only homeowners, but also entire communities and housing markets. The integrity of California’s record title system is also at stake because the validity of title for subsequent purchasers is dependent on those that precede it.

It’s the conservatives who are saying wait: Despite the errors who was actually hurt? The law makes for ironic role reversals.

Source: Daniel Fisher, Forbes Staff www.forbes.com

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California House Dems Call for Recess Appointment at FHFA

Brian Beutler writes that President Obama will likely have to make more recess appointments if he wants to staff key positions, including the newly-created vacancy at the Office of Management and Budget, as Jack Lew has become White House Chief of Staff. The assumption here is that Republicans will react to recess appointments at the CFPB and the NLRB by refusing to confirm any other Presidential appointee, and that’s a reasonable assumption.

But the President won’t get pressure just from Republicans on naming recess appointments. House Democrats in the California delegation, the largest in the Congress, wrote a letter late yesterday to Obama asking him to recess-appoint a new director to the Federal Housing Finance Administration. That institution has been without a confirmed director for over two years, since David Lockhart left.

The President has never had his own nominee at FHFA. And Democrats believe that FHFA, which currently oversees Fannie Mae and Freddie Mac, is uniquely positioned to help the country out of the housing mess. They accuse acting director Ed DeMarco of obstructing efforts to aid the housing market and keep borrowers in their homes. Here’s an excerpt from the California Dems’ letter, which I’ll put in its entirety on the flip:

As part of the FHFA’s ability to promote policies that will prevent foreclosures, they have the authority to establish rules over residential mortgages that Fannie Mae, Freddie Mac and other government enterprises are able to underwrite. FHFA has consistently and erroneously interpreted its mandate far too narrowly and as such has failed to take adequate action to help homeowners and has brought an end to successful, local initiatives—such as the PACE (Property Assessed Clean Energy) program [...]

As the fiduciary of government-backed entities, there are steps that the FHFA can take to help prevent future foreclosures while also protecting taxpayers. Installing a permanent Director of the FHFA will allow the FHFA to move forward to make key decisions that will help keep families in their homes and improve our economy. We appreciate your recent appointment of Richard Cordray as the new Director of the United States Consumer Financial Protection Bureau over similar Republican opposition and we urge that you take the same action to put in place a permanent Director to the FHFA.

I’m of two minds on DeMarco. He has interpreted his mandate very narrowly. It’s a bad thing when he refuses to engage in principal reductions for troubled borrowers, even though that would make more money for Fannie and Freddie in the long run, because he doesn’t want to take the short-term financing hit. But it’s a good thing when he sues 17 banks over misrepresentations of the mortgages in the securities they sold to Fannie and Freddie, with the hope of forcing repurchases of those mortgage pools.

There have been signs that DeMarco is warming to a more activist stance. He agreed to the changes to HARP, which is more of a stimulus program than a program that will save homes, but which will allow expanded refinancing come March of this year on GSE-owned properties. Freddie Mac just initiated a program for a 12-month forbearance (where the borrower can skip payments) for unemployed borrowers, although Democrats maintain that not everyone eligible will receive that forbearance.

Most promisingly, DeMarco is considering a principal pay-down program put forward by a California Democrat, Zoe Lofgren, that would allow underwater homeowners with GSE loans to have their mortgage payments go entirely to equity for five years, waiving the interest payments. DeMarco said he would look into the idea back in October, and there have been leaks since then suggesting that principal pay-down would happen. However, there has been no final word, and officially FHFA “continues to evaluate” the Lofgren proposal, even though in a meeting with House Dems they promised an assessment within two weeks.

I don’t think some in the Administration would have any problem getting rid of DeMarco – they don’t particularly like his aggressive stance on bank repurchases. But that would not necessarily be the best news for the housing market or the rule of law. If anything, the California Dems’ action shows that the previous recess appointments have opened a Pandora’s box for the Administration, and now everyone wants a recess appointment tailored to their concerns.

The entire letter from the Congressional Dems in California is below the fold.

The President The White House Washington, DC 20500

Dear President Obama:

We urge you to act on behalf of the American people and immediately make an appointment for the Director of the Federal Housing Financial Agency (FHFA). For two and a half years, Senate Republicans have been blocking the appointment of this position, causing there to be no permanent Director. The FHFA regulates and oversees Fannie Mae and Freddie Mac, which together hold 70% of mortgages in the US. The current economic crisis began in the housing market and our economic recovery is dependent on the important work pending before the FHFA. It is time to move forward and put in place a permanent FHFA Director.

According to RealtyTrac, 224,394 U.S. properties had foreclosure filings in November, 2011. This means that 1 in every 579 housing units received a foreclosure filing nationwide. In California, 1 in every 211 housing units received a foreclosure filing. And there are fears that a new set of foreclosure waves may come in the next few months. According to RealtyTrac cofounder, James Saccacio, “November’s numbers suggest a new set of incoming foreclosure waves, many of which may roll into the market as REOs or short sales sometime early next year…some bellwether states such as California, Arizona and Massachusetts actually posted year-over-year increases in foreclosure activity in November.”

It is clear that we must take immediate steps to prevent more foreclosures. As part of the FHFA’s ability to promote policies that will prevent foreclosures, they have the authority to establish rules over residential mortgages that Fannie Mae, Freddie Mac and other government enterprises are able to underwrite. FHFA has consistently and erroneously interpreted its mandate far too narrowly and as such has failed to take adequate action to help homeowners and has brought an end to successful, local initiatives—such as the PACE (Property Assessed Clean Energy) program. The PACE program allows property owners to finance energy efficiency measures and renewable energy projects for their homes and commercial buildings, thereby reducing their energy costs and making them better able to make mortgage payments. It has been successful in many of our districts, however, in July of 2009 FHFA issued a decision that essentially put an end to PACE programs across this country.

As the fiduciary of government-backed entities, there are steps that the FHFA can take to help prevent future foreclosures while also protecting taxpayers. Installing a permanent Director of the FHFA will allow the FHFA to move forward to make key decisions that will help keep families in their homes and improve our economy. We appreciate your recent appointment of Richard Cordray as the new Director of the United States Consumer Financial Protection Bureau over similar Republican opposition and we urge that you take the same action to put in place a permanent Director to the FHFA.

By: David Dayen Wednesday January 11, 2012 7:00 am

Hollywood High-Rise Plan Has Some Up In Arms

Hollywood, that mythic land where movie drama was invented, suddenly finds itself caught up in its own real-life drama, one involving high-priced real estate and people taking on City Hall.

In this storyline, the issue is whether it is time for a famously spread-out, freeway-centric city’s best known tourist destination to begin looking a little more like New York City by adding a towering skyline and pedestrian-friendly sidewalks.

The city Planning Commission recently gave its unanimous blessing to a new Hollywood Community Plan that would allow buildings of 50 stories or more in some areas. The skyscrapers, which planners see someday dotting what they call the Hollywood Corridor, would be linked by a section of subway that runs right underneath the fabled Hollywood Walk of Fame.

Planning Commissioner Michael Woo says the proposal is likely to come before the City Council in February or March for the first of several public hearings before a vote is taken.

But in the canyons and along the hillsides that make up much of Hollywood’s more quiet residential areas, the plan is already getting a raucous public hearing from people who live in homes that run the gamut from sprawling mansions to century-old crackerbox apartments.

Several neighborhood associations are banding together, vowing to fight it.

The plan’s opponents worry that bringing skyscrapers to a section of the city that already has seen traffic proliferate with the arrival in recent years of trendy hotels like the W and hot-spot nightclubs like the SkyBar will destroy the ambiance of their neighborhoods as well as compromise safety.

They will become prisoners in their homes, they say, their narrow, winding streets blocked day and night by the cars of outsiders while emergency vehicles are unable to reach them.

“I love living in Hollywood. I love the craziness,’’ said Patti Negri, president of the Hollywood Dell Civic Association. “I don’t care when they close Hollywood and Highland for a premiere or when they close the streets for a show at the Hollywood Bowl. That’s why I live here and I’ll take the little inconvenience that goes with it. That’s part of the deal. But this is not part of the deal.’’

Negri, who has lived for 20 years just up the hill from Hollywood Boulevard and around the corner from the Hollywood Bowl, says this deal would gridlock her neighborhood at all hours, every day, not to mention blocking the neighborhood’s views of the city.

If the City Council ultimately approves the plan it would create a blueprint for future development in 25-square-mile Hollywood, an area that is home to 228,000 people as well as numerous production offices, soundstages and tourist attractions. Any new towers would have to meet the city’s strict seismic standards.

January 08, 2012|John Rogers, Associated Pres

Short sales better option for homeowners

MSNBC reports that the recent increase in short sales may be the relief that the housing market needs during its slow recovery. The number of short sales has increased by 26,000 this year following a jump in the number of foreclosures and short sales in 2010.

According to the source, short sales may also be a better option for homeowners when compared to foreclosures, especially for those who don't qualify for loan modification.

Homeowners who choose short sales can stay in their homes and start rebuilding their credit sooner than those who find themselves in foreclosure, says the source. FICO reports that the number of points homeowners lose is the same when foreclosing or selling the home for less than the amount owed on the mortgage, but those who opt for short sales will likely obtain a loan quicker, which will help improve their credit scores.

The source reports that some economists are concerned that the decrease in foreclosures may be a result of a built up amount of foreclosures that have not been processed.

"Foreclosures are going to be a drag on the market for a long period of time," Dean Baker of the Center for Economic and Policy Research told the source. "Until these distressed homes are resold and assimilated back into the market, real estate prices can't stabilize."

Source: Today's MLS Real Estate Dec. 30, 2011

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