I have received a number of emails and calls asking about Loan Modifications vs. Refinancing for those who want to stay in their homes but are just barely making “ends meet.” For many people, refinancing is no longer an option due to the declines in the housing prices and the increases in lender qualifying criteria. A Short Sale may also be a way out but a Loan Modification attempt may be worth the effort.

If you are late on a payment or are facing the imminent risk of default, contact your lender and get through to the home retention department or the loss mitigation department. General customer service may get you going in the right direction but are often a road block to expediting the process. Benefits of a modification to your mortgage may include a reduction in interest rate, principle reduction, lengthening of the loan term or capping the monthly payment to a percentage of the household income. Modifications are made at the lender’s discretion but may be a win-win situation as the bank will likely try to avoid going through the foreclosure process and taking the property back as REO inventory.

The Loan Modification process may take 3-6 months with no guarantees, so be patient! The FIRST STEP is to write a Hardship Letter specifically detailing your situation and demonstrating your type of hardship. Acceptable hardships are …..

1.       Loss of a Job or Income

2.       Increased Expenses

3.       Divorce

4.       Death of a Spouse or Family Member

5.       Illness or Accident of Home Owner or Family Member

6.       Any other cause which directly affects your ability to pay your monthly mortgage obligation.

Your hardship letter must be genuine and reasonable! You may want to also include a brief description of the “big picture” about your children and their schools, participation in community and church activities and any other information tying you and your family to the home and community.

The SECOND STEP will be preparing the requested lender documentation for the loan modification process. The lender should provide you a list of required documentation and be thorough from the start. Any omitted information can get your file sent back to the bottom of the pile.

BEWARE OF SCAMS! There is no reason to pay $1,000’s of dollars to an attorney or a modification company! This can be done on your own with a little help from your Realtor if you have questions.

The lender will verify your documents and analyzed your situation. If the lender finds your application acceptable and genuine, they will start the modification negotiations. This is the THIRD STEP! You have made it this far and it is likely that the lender’s first offer will not be their final “best” offer for your solution. Don’t be afraid to hold out and decline the first offer if you feel the first offer is insufficient to get you back on track.  If you have already missed some payments, the lender should come back with a second proposal and if not, the first offer will likely stay on the table.

If you have any questions, please contact me for professional guidance.

Jim Davey

760-419-5581

Since my last e-Newsletter, there has been a tremendous amount of global news, but one thing that has consistently been on the forefront is the turbulence within the real estate market.  We hear so much about declining property values, rising foreclosure rates occurring nationwide, homeowners looking for solutions to ease their financial burden or to just be able to sell their homes when they are “upside-down” in their equity position. Terms such as Short Sale, Deed in Lieu of Foreclosure or Strategic Defaults are now commonly used when discussions surrounding the real estate market take place.  Even though you may have no plans of moving now or in the near future, it is only natural for us to worry and ask ourselves “how does this current environment affect the value of my most prized possession, my home.” 

Access to public record data and current market conditions has become readily available today. Automated Valuation Models, known as AVM’s, can be accessed for free from various internet sites.  I am sure you have searched sites such as Zillow, HomeGain or RealtyTrac. Please keep in mind that these can be very conservative estimates of value or in some cases overly aggressive, varying significantly from one site to another.  There is no standardization within AVM models and there are so many factors that ultimately affect the final value estimate. The type of modeling and the freshness of the data have the most significant impact on value. In addition to online information, local real estate agents frequently distribute flyers reflecting current sales and listing activity in the neighborhood. These typically include ALL sales and listing with properties that have significant variances in square footages, bedroom and bath count as well as different locations within your general neighborhood.  The transactions could be a myriad of arms length sales, short sales or REO’s.  Although it is convenient that we can readily access this data, it may also leave us more confused as to how this distressed real estate market is affecting our home’s value.

The bottom line is that today, estimating the value of your home is significantly more complicated than it was in the past.  Internet sites are a great way to get a broad understanding of the market conditions but if you are looking to determine your home’s true market value,  please don’t hesitate to reach out to me, as I would be happy to assess your specific needs for whatever reason!

Jim Davey  

760-419-5581                                                                                      

While record-low mortgage rates aren't doing much to spur regular home sales, the higher end of the housing market is getting a significant boost from the decline in so-called jumbo rates—mortgages of $417,000 and above.

 An economy suffering from high unemployment and falling home prices has left many potential buyers unable take advantage of the lower conventional rates. But it's different for those seeking bigger jumbo loans for the more-expensive homes.  

"Sales volume for homes worth more than $1 million across the country are up more than 35 percent from last year at this time," says Walter Maloney, spokesman for the National Association of Realtors (NAR). "Homes between $700,000 and a million are also on the rise by some 29 percent over last year. There's no question that's because of the historic low jumbo rates."

 Just how low are the current jumbo rates? Last year at this time, a 30-year fixed jumbo rate was averaging more than 6 percent. It's now at an all time low average of 5.07 percent. And the re-finance rate for a 30 year jumbo is currently at 5.30 percent. A fifteen year jumbo is at the historic low average of 4.68 percent.

 The reason for the rate decline is simple, say the experts: banks, which have a part in setting jumbo rates, have money to lend and see the benefits in doing so at lower rates. "Lenders are getting more comfortable making high end loans these days," says Greg McBride, senior financial analyst at Bankrate.com. "They're using their cash reserves to make the loans and see a profit in having rates lower right now." Unlike conventional mortgages, jumbo loans by definition exceed the conforming loan limit of $417,000 set by Fannie Mae and Freddie Mac. Jumbo rates are loosely tied to long term treasurys but they are traditionally higher because of the risk involved for the banks in making a larger loan.

But the risk seems worth it, even in today's sluggish economy as foreclosures rise and unemployment remains high. "People at the higher incomes are not so much worried about their jobs as others might be. And they have the money to come up with 30 percent down." says McBride. "There is some pent up demand for the more expensive homes. The lower rates are helping release that demand." While banks seems ready to make the bigger loans, they are putting borrowers through the same tough underwriting rules that conventional loan borrowers face.

"Banks are asking for every piece of financial information they can," says Mitchell Hochberg, a consultant and principal at Madden Real Estate Ventures. "They are being very strict on all the paperwork when it comes to home buying or re-financing." Strict or not, the banks are lending and refinancing jumbo loans at much higher volumes than last year.

"Sales are fairly good right now," says Alan Rosenbaum, president and ceo of Guardhill Financial, a mortgage banker and brokerage company based in New York. "But what's even better this year is the refinancing. We've had significant volume there. I'd say that even getting a half a point now on a jumbo refinance is good with these rates." Like their conventional brethren, the question over how far jumbo rates will continue to fall remains mostly unanswered. No one can say for sure whether the economy can sustain them if inflation fears force the banks and the Federal Reserve to make lending harder.

However, the question about their rising has a more definitive answer.

"There's no way to tell where rates will really go on conventional or jumbo loans," says Lawrence Yun, chief economist at the NAR. "I do expect them both to remain low. But it's clear to say that if they do go up, it will hurt housing. They aren't the only factor in the housing market. There's the jobs picture and home prices. But having the conventional or jumbo rates go up will definitely not help."

URL: http://www.cnbc.com/id/38674499/

I have been reviewing the various sources of data available to provide a snapshot of the current market as well as possible future direction of the real estate market.  As a Real Estate Agent in the San Diego area that works with out of state buyers, I am often asked how much further I expect San Diego houses to decline.  Buyers are surprised when I tell them the bottom of our market was in April 2009.  Most buyers today are paying anywhere from 5 to 10 percent premium over what I consider the lows.  We have recently been refinancing previous home buyers who purchased in the past 12 months and typically are seeing appraisals coming in approximately 5 percent above the purchase prices. 

I continue to read how the U.S. housing market as well as many parts of the country are still showing price declines and or are seeing a second dip in home prices.  When you review the existing Data, you will find California, and San Diego specifically were typically well ahead of the rest of the country in home appreciation, as well as the subsequent huge price declines.  Having experienced this, my feeling is you will see our markets lead the way out of the bottom.  I have cut and pasted an excerpt from a recent Forbes article I found

"One way or another the market must clear, and as it has so often in the past, California appears to be leading the way. Los Angeles, San Diego and San Francisco have all had respectable years thus far."

Since April 2009 lows, the San Diego market has experienced month over month price appreciation for 14 consecutive months according to the Case Schiller index.  Over this period San Diego has appreciated nearly 12%.  Of the 20 cities tracked by this report, San Diego was only second to San Francisco's amazing 18% return.

I reviewed the latest Zillow Home Value Index report for housing through May 31st.  Six out of the top ten cities in Year over Year home appreciation were located in California.  San Diego topped all California Cities with 7.0% appreciation second only to Virginia Beach.  The following is the order of appreciation:

Virginia Beach   7.7%
San Diego        7.0%
San Francisco   5.9%
Los Angeles      5.3%
San Jose          4.7%
Santa Barbara   4.5%
Ventura           4.0%
U.S. Avg.        -3.8%

Within the San Diego market you will find certain areas are showing large appreciation while other areas are still showing price declines.  For the most part, the more desirable coastal areas all showed better than average appreciation while the areas in the east part of the county showed less than average appreciation.  The most expensive areas of the county typically showed the worst price appreciation, due to lack of buyers in the multi million dollar home category. 

I would not bet on home prices to return another 12 month run of 12 percent price appreciation.   My best advice to home buyers and investors is to project out 60 months.  Most home buyers will look back at this period of time and wished they had purchased another home come 2015. 

Feel free to comment on this or provide any relevant data.

Government-sponsored mortgage purchaser Fannie Mae is trying to encourage distressed homeowners to find alternatives to foreclosure by banning those who walk away from getting new loans for seven years.

Troubled borrowers who do not try in good faith to work out a deal, but have the capacity to pay, are targeted by the policy announced Wednesday.

"Walking away from a mortgage is bad for borrowers and bad for communities and our approach is meant to deter the disturbing trend toward strategic defaulting," said Terence Edwards, executive vice president for credit portfolio management.

A strategic default occurs when a homeowner stops making payments on a mortgage despite being able to do so. It has become increasingly common in communities where housing values fell sharply and homeowners are "underwater," or owe more than their houses are worth.

Fannie Mae said that in locations where the law allows, it also plans to take legal action to recoup outstanding mortgage debt from borrowers who strategically default. The company plans to instruct its servicers to monitor delinquent loans facing foreclosure and recommend cases to pursue for such judgments.

A spokesman for fellow government-backed mortgage buyer Freddie Mac said its current policy requires at least a five-year wait. Freddie Mac will "take a close look" at the new Fannie policy, said spokesman Brad German. "We'll consider it in light of current market conditions in order to manage our risk as effectively as possible."

Fannie and Freddie were created by Congress to buy mortgages from lenders and package them into bonds that are resold to investors. Together, they own or guarantee almost 31 million home loans worth about $5.5 trillion. That's about half of all mortgages.

The wave of foreclosures affecting Fannie and Freddie loans has caused a major problem for the U.S. government, which effectively guarantees the loans.

Source: AP Business Writer Eileen Aj Connelly

The program:

• California plans to spend around $200 million dollars to fund this tax credit.

Who is eligible?

• The home buyer must be a California taxpayer.
• There is no limit on the income of the home buyer.
• The program is available to both existing homeowners and first-time home buyers.
• Current homeowners are eligible only if they buy a newly-built home.
• First-time home buyers are eligible whether they buy a newly-built or existing home.
• To be a first time home buyer, you cannot have owned a home anywhere in the world during the three years prior to buying your new home. If you’re married, that applies to your spouse as well.

How much is the credit worth?

• The tax credit is worth up to 5% of the purchase price of the home, or $10K, whichever is less.

How does the home buyer receive the tax credit?

• The payment is credited against the home buyer’s annual CA state income tax.
• The total payment will be spread evenly over three years.
• If you qualify for the full $10K, you’d get up to $3,333 per year – but only if you pay at least that much in annual CA state income tax.
• If your CA state income tax is $4,000 a year, you get a $3,333 credit against that amount, effectively lowering your state income tax to $667.
• If you owe less than $3,333 per year in CA state income tax, you’ll receive a tax credit only for that amount. The extra will not roll over into the following year’s payment.
• The credit will begin to be applied to the tax year in which the home was purchased. If you buy your home in 2010, the tax credit will begin to be applied against your 2010 taxes.
• You cannot apply the tax credit to your 2009 taxes, even if you file your 2009 taxes after you purchase your home.

What’s the deadline for claiming the credit?

• Buyers of existing homes must close escrow between May 1 and December 31, 2010.
• Buyers of new homes can either: Close escrow between May 1 and December 31, 2010, or… If they are unable to close escrows during that time, they can reserve a credit by entering into an enforceable contract between May 1 and December 31. They must then file the proper paperwork with the tax board and close escrow by August 1, 2011.

Here’s California’s official website on the new home buyer tax credit.

First announced on November 30, 2009, the Home Affordability Foreclosure Alternatives Program (HAFA) was implemented on April 5, 2010. This was the latest initiative derived from the Home Affordable Modification Program (HAMP). In short, HAMP is a government sponsored program to help distressed home owners with a loan modification in hardship situations. HAFA takes the next step if the homeowner does not qualify for the loan modification and helps the owner and lender or servicer to avoid the foreclosure process by standardizing and expediting the short sale process. Cash incentives to the lenders and the homeowner are also made so that parties involved can all make the best of a difficult situation.

It is anticipated that these programs will help to avoid many foreclosure situations and help to balance the inflow of distressed properties into the market. The long term benefits to the homeowner having a short sale vs. a foreclosure are not yet know but it is apparent that a short sale will have less impact on their credit rating. Depending on your situation, the lender may or may not have recourse on your relief of debt and there may be tax consequences as well. Please consult your accountant or tax attorney and call me if you or someone you know might benefit from some professional guidance!

Jim Davey

The FHA loan limits have been revised to $697,500 for San Diego County.  To check other counties in California click on the following link.  https://entp.hud.gov/idapp/html/hicostlook.cfm

With these new loan limits in place buyers will now be able to purchase a home in San Diego with as little down as 3,5% on loan up to $697,500. 

The new conforming loan guidelines were just recently released for San Diego, and other high-cost areas in California. The $697,500 limit was put in place for 2008.  This number will remain the conforming jumbo loan limit through 2010 for San Diego County.

Remember conforming loans are still $417,000, loans up to this amount will have minimal restrictions and will have the best interest rates. Loans from $417,001 to $697,500 should have approximatley 1/4 percent higher interest rates with slightly more restrictive guidelines.  All loans exceeding the new, higher limits will fall in true jumbo or portfolio loans and be subject to different underwriting guidelines and even higher rates.  So to ensure you are getting the lowest rates, you will want to put down enough down payment to keep your loan under the $697,500 loan amount.

I'm often asked if this is a good time to buy a home. Some clients are concerned that home prices may fall further than they have already. They are assuming that the best course of action is to wait for the bottom in the market and then buy. The problem with this approach is that you don't know where the bottom is until you see it in the rear view mirror, meaning until you've missed it!

Home prices are one factor in determining your cost of ownership, but so are interest rates and financing availability. Interest Rates are the lowest they have been in the last 40 years. Since your monthly mortgage payment is a combination of paying down your principal and paying the interest owed, if home prices come down a little further but interest rates go up, it could cost you even more to service a mortgage on an identical home!  We are locking buyers on purchase loans at or below 5 percent on 30 years fixed rates.  This was considered unheard of for interest rates. 

While a home is a major investment, it is also the center of your personal life. It's important to live in a home that reflects your taste and values, yet is within your financial "comfort zone." To that end, it may be more important to lock in today's lowest interest rates and low home prices, rather than to hope for a further break in prices in the future.

Please give me a call if I can be of any assistance in determining how much home you can afford in today's market.