Home buyers are back after foreclosures

Home buyers are back after foreclosures

AFTER FORECLOSURE OR SHORT SALE YOU CAN BUY AGAIN IN THREE YEARS
Millions of families lost their homes to foreclosure after the housing crash hit six years ago. Now, some of those families are back in the housing market. Call them the “boomerang” buyers.

Millions of families lost their homes to foreclosure after the housing crash hit six years ago. Now, some of those families are back in the housing market. Call them the “boomerang” buyers, as Dawn Wotapka explains on Lunch Break.

It is difficult to quantify the exact number of boomerang buyers, but real-estate agents, mortgage brokers and home builders all say a significant number of new buyers are families and individuals who went through foreclosure as recently as three years ago, the time period that buyers who defaulted on a mortgage must typically wait before becoming eligible for a mortgage backed by the Federal Housing Administration.

On a recent conference call with investors, Stuart Miller, chief executive of Miami-based home builder Lennar Corp., LEN +1.88%said the company was seeing more people “coming out of the penalty box.” At Cornerstone Communities, a San Diego home builder, roughly 20 of the 110 closings they have had this year came from buyers who have been through a foreclosure or short sale, estimates Ure Kretowicz, the company’s chief executive.

“It’s more than incremental business, that’s for sure,” adds Dan Klinger, president of K. Hovnanian American Mortgage, the mortgage arm of builder Hovnanian Enterprises Inc. HOV +9.26%With growing interest from these formerly delinquent buyers, K. Hovnanian provides its sales staff with a flier with industry guidelines listing the mortgage-eligibility rules for all types of derogatory events, from foreclosure to bankruptcy filings. “The industry is saying, ‘Pay your dues and then get back into the market,’ ” Mr. Klinger says.

Using the three-year benchmark it takes to get an FHA-guaranteed loan, in this year’s second quarter there were 729,000 households that were foreclosed upon during the bust that are now eligible to apply for an FHA mortgage, up from 285,000 in the second quarter of 2011, according to an analysis of foreclosure data by Moody’s MCO +0.90%Analytics. The company projects that number will grow to 1.5 million by the first quarter of 2014.

Typical boomerang buyers are people like April Del Rosario, who purchased her first home in 2006 when she was 24 years old. Newly married and unsure of what terms such as adjustable-rate mortgage meant, Ms. Del Rosario and her husband paid $315,000 for a two-bedroom condominium in San Diego’s Mission Valley area, a location they picked because it was central to their jobs. The $2,600 monthly mortgage payment was already a struggle, but when the mortgage rate was adjusted higher and Ms. Del Rosario became pregnant, the couple was overwhelmed. They lost the home to foreclosure in 2009.

“We were really young and stupid,” she says. “All of a sudden, our already really expensive mortgage was going to go up. I was pregnant and everything was just bad timing on our part.”

Three years later, the couple is back in the market. The Del Rosarios were recently approved for a loan for a $280,000 home in Chula Vista, south of San Diego, which, when it is completed in January, will have three bedrooms and a two-car garage. Instead of proximity to work, they picked the location based on its school district and their desire to live there a long time. And while they now must pay $300 a month in mortgage insurance, the family’s income has grown, and their total mortgage payment is still a little lower than before, around $2,400. “We’re trying to be really conservative. We just want to have a nice place for our son,” she says.

There is a web of rules for when and how people who have lost homes to foreclosure or short sales or have gone through a bankruptcy can become eligible for a new mortgage. It typically takes three years after a foreclosure or short sale for a buyer to qualify for an FHA-backed loan. In many cases, it takes just one year after a Chapter 13 bankruptcy discharge, according to the agency.

Fannie Mae FNMA 0.00%or Freddie Mac FMCC +0.39%require a wait period of as much as seven years after a foreclosure or short sale before a consumer can become eligible for a conventional mortgage, though some short sellers can purchase again after as little as two years.

Becoming eligible for a new mortgage doesn’t mean that buyers will necessarily qualify for one. Lenders still require borrowers to have strong credit score and to have been paying their other bills on time.

Until recently, many of the people who had lost their home to foreclosure or short sale have rented homes, leaving many economists and industry watchers to wonder if the nation would become more of a renter society. In the second quarter, the national home-ownership rate came in at 65.5%, down from 65.9% a year earlier and 69.2% in the second quarter of 2004. Each percentage-point decline represents about one million households.

But as rental rates continue rising—they climbed 0.8% in the third quarter to a national average of $1,090 per month, according to Reis Inc. REIS 0.00%—homeownership is increasingly becoming cheaper than renting.

That is part of what enticed Ronda Martinez, 39, back in to the market. In 2007, she and her husband, Mark, let their two-story, $430,000 home in Perris, Calif., go into foreclosure when they were unable to sell it when required to move to Phoenix for a job.

Later, in 2010, she was laid off from her job at a real-estate-data company.

Since then, the family has repaired their finances, and Mrs. Martinez found a new job. This month, the family is closing on a $150,000 home in Phoenix that has five bedrooms and a pool in the back.

“Initially people are upset and think, ‘I’ll never buy again,’ ” she said. But “there’s no reason to give up on owning.”

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Bank litigation still going strong

HARDLY a week goes by without an announcement of a big lawsuit against a bank in America. Wells Fargo was this week’s target: the Department of Justice sued the bank for allegedly dodgy lending, among other things. Last week it was JPMorgan Chase’s turn, as New York’s attorney-general took aim at practices at Bear Stearns, a crisis-era acquisition. Foreign banks have also been hit: HSBC, Standard Chartered and Barclays have all been on the end of high-profile charges recently. Considering the banks’ role in America’s worst recession since the Depression, this is hardly surprising.

First, America’s overlapping layers of regulators and litigators—state, federal and contingency-fee-financed civil action—have all expanded. So banks face a prosecutorial maze. They can find themselves under investigation by several different offices of the same federal agency while grappling with other federal departments, state ones and class-action lawsuits. In theory, overlaps should be minimised by the deference government entities grant to one another in the name of efficiency. In practice, numerous entities now descend on financial institutions, if only to demand reams of documents. Wells receives about 5,000 legal orders a week and has two centres, one on each coast, devoted to processing them—and its legal costs are lower than most. Double jeopardy does not apply to the banks: the end of an investigation by one agency does not mean an end to scrutiny by others.

Second, lawsuits and investigations may end up looking like a shakedown. Because of the sheer volume of cases, and because banks believe there is often little choice but to cut a deal, the outcome is far likelier to be a settlement than a determination of guilt in a courtroom. During fiscal year 2011 the Securities and Exchange Commission collected $414m in fines from big financial institutions, and settlements in class-action lawsuits reached $1.5 billion during the corresponding calendar year. These murky resolutions make it impossible to know if banks are being wrongly attacked or their injustices are being wrongly buried (see article).

This damages the banks, the justice system and America as a whole. A healthy financial system is not one that collects money from investors at one end and pays a big chunk of it out at the other end to lawyers in fees and to the government in fines. This mess therefore needs to be brought under control.

Divide and rule

One step would be to introduce a far clearer divide between federal and state systems of regulation. National issues (international money-laundering, terrorist finance, tax matters) should be supervised in Washington, DC. Responsibility for consumer protection, which is inevitably tied to local trade-offs, more properly belongs with the states.

Regulators should not be in the business of extracting cash from banks in behind-the-scenes settlements. Such deals are a nice little earner for regulators—too nice, because banks are always in a rush to settle, so regulators are rarely required to prove their case in court. The danger of losing in an open trial might discourage regulators from pursuing weak cases.

Such an approach will carry costs of its own. Reducing competition between different agencies, for instance, may allow banks and regulators to get too cosy. Protecting consumers at state level would create a patchwork across the country, making life harder for nationwide institutions. Court cases might be costlier than settlements.

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Foreclosures hit 5 year low


Foreclosure activity reached a 5-year low in September with only 180,427 filings made on distressed properties, RealtyTrac said Thursday.

The filings surveyed include default notices, scheduled foreclosure auctions and bank repossessions.

Overall, September’s foreclosure numbers fell 7% from August and 16% from last year as more non-judicial foreclosure states moved through backlogs of foreclosure inventory.

“We’ve been waiting for the other foreclosure shoe to drop since late 2010, when questionable foreclosure practices slowed activity to a crawl in many areas, but that other shoe is instead being carefully lowered to the floor and therefore making little noise in the housing market — at least at a national level,” said Daren Blomquist, vice president at RealtyTrac. “Make no mistake, however, the other shoe is dropping quite loudly in certain states, primarily those where foreclosure activity was held back the most last year.”

The steep drop in activity is attributed to significant declines in foreclosure inventory levels within nonjudicial foreclosure states such as California, Georgia, Texas, Arizona and Michigan.

While the nonjudicial foreclosure state of California saw foreclosure starts fall 45% from last year, gains made in certain states could be disrupted by pending legislative changes.

Analysts have already projected California will become a quasi-judicial foreclosure state now that financial firms are wary of the state’s Homeowner Bill of Rights and the penalties associated with it.

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Oregon MERS case Niday

In the Niday v. GMAC case, the Oregon court of appeals ruled against MERS when it overturned the lower court’s ruling.

The court’s reversal of a lower judge’s decision negatively effects MERS role as the foreclosing party in the Niday v. GMAC Mortgage case. However, MERS claims the decision will not impact judicial foreclosures or the “validity of mortgages or deeds of trust recorded in MERS name in Oregon.”

But the court found that the Oregon Trust Deed Act requires the party that receives loan payments to publicly record all changes in mortgage ownership before starting a so-called nonjudicial foreclosure.

MERS does not take loan payments and does not qualify as a “beneficiary” of a trust deed, so the digital registry cannot be used to avoid the recording requirement, the court ruled.

“A beneficiary that uses MERS to avoid publicly recording assignments of a trust deed cannot avail itself of a nonjudicial foreclosure process that requires that very thing–publicly recorded assignments,” the court ruled. Judge Lynn Nakamoto wrote the decision.

“The immediate impact of this decision is that MERS members will now likely have to proceed judicially with foreclosures, which will ultimately increase costs and be an added burden on the state’s court systems,” said Janis Smith, vice president of communications for MERS.

MERS validity as beneficiary has been affirmed in 48 prior Oregon rulings, however not in Oregon.

With this decision, the court essentially threw out MERS suggestion that while working in the non-judicial foreclosure state, the registry can serve as the beneficiary of the trust deed, meeting all of the statutory requirements to foreclose on the property.

The homeowner in the case argued on appeal that a beneficiary under the Oregon Trust Deed Act is a party that is actually owed a debt. The appellate court agreed, saying the real beneficiary in this case is GreenPoint Mortgage Funding Inc., the actual lender. The decision essentially shot down MERS claim that it can effectively be classified as a beneficiary in the state, giving the registry true foreclosing power.

MERS intends to file an appeal with the Oregon Supreme Court.

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10 reasons to still do a short sale this late in the game

The amount needed to pay off your existing loan is known as a short sale. While it isn’t the ideal situation for most homeowners, it can offer a better solution than foreclosure. Due to the housing crisis, many lenders are more lenient about accepting short sales than ever before. This option certainly isn’t for everyone; however there are times when it may be the best possible option. If you’re facing financial difficulty, here are ten reasons you may want to look into a short sale.

1.It Could Save Your Credit Rating – While a short sale will most likely have an adverse effect on your credit rating, it isn’t likely to be as damaging as going through the foreclosure process. Speaking to a trained professional who has extensive experience in short sales can help you determine if this is the right option for you.
2.To Avoid the Social Stigma of a Foreclosure – One of the most difficult parts of the foreclosure process for many families is the social stigma involved. A short sale can help to reduce some of this embarrassment for some homeowners.
3.Short Sales Can Decrease the Waiting Period Before Buying Again – A foreclosure will typically preclude you from buying again for up to 10 years; a short sale can, if handled properly, significantly reduce the amount of time you’ll have to wait before buying property again.
4.There Are Possible Tax Benefits – Homeowners who have had some or all of their mortgage debt forgiven may be eligible for special tax relief benefits.
5.Avoiding the Stressful Process of Foreclosure – Every aspect of a foreclosure is stressful and upsetting. Though a short sale is far from ideal, it’s an option that many troubled homeowners find the more tolerable option of the two.
6.Comparatively Low Cost Option – Short sales don’t require the improvements and upgrades that a homeowner would have to make in order to sell their home in a traditional market; when time is at a premium and money is scarce, it might be wise to attempt a short sale. Making a large investment in improvements for a home that is foreclosed on before it can be sold to a traditional buyer will only increase both your debt and stress level.
7.A Short Sale Can Speed Up the Process – The drawn-out process of foreclosure only adds to the stress of the situation; a short sale can take significantly less time and cause less heartache for those involved.
8.Maintaining Confidentiality – The legal requirements regarding notifications can make it almost impossible to maintain your confidentiality while suffering through a foreclosure. The short sale process can make keeping your financial woes under wraps a bit easier.
9.Keeping Your Home Absolutely is Not Feasible – Coming to the conclusion that you simply cannot afford to maintain your mortgage payments any longer is, without a doubt, one of a homeowner’s worst nightmares. However, once you’ve accepted that keeping your home is just not an option, you should start researching the possibility of a short sale.
10.Required relocation – If you are required to relocate for employment purposes or other unforeseeable reasons, choosing a short sale can get rid of the current mortgage payment much more quickly when the housing market in your area is in a slump. Maintaining two residences may simply not be feasible financially.

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Stated Loans Make a Comeback

Preparing for the return of the jumbo lending market and the days when Fannie Mae and Freddie Mac are no longer mortgage finance behemoths, Rancho Financial is bringing to market loans often blamed for the destruction of the nation’s housing economy.

“In the late 1990s and 2000s, no one was regulating anything and you had these loans that were made and sold on Wall Street, and they became known as ‘liar loans,'” says Rancho mortgage banker Craig Brock.”We’re staying clear of that. If someone has several hundred thousand in assets, chances are they do have the money. We’re trying to target smart people who have financial advisers, who have certified public accountants.”

But the concern that this product will again be abused permeates the mortgage-lending arena. “Yes, they can be abused, but that doesn’t mean the potential for abuse mean they should be taken out of the market place for everyone. That doesn’t seem to be an appropriate response,” says Rich Andreano, a partner at the Washington, D.C., law firm Ballard Spahr.

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