Editorials -- August 2009 -- the [HOLT] group, RE/MAX Sonoran Hills AZ Real Estate

It was fitting that President Obama chose the Phoenix Valley to announce his help for homeowner’s plan back in February. The program allowed individuals to refinance their current mortgage to up to 105% of its current value, then it was raised to 125% of the homes’ current value. While this has helped many families around the country, it offers little relief to our local community that is on average 50% underwater.

The second part of ‘The Making Homes Affordable’ plan was pressuring the lenders to make loan modifications. This sounded like a great way to stabilize values and finally do something for “we the people” in this era of bailouts and unprecedented debt. As many local neighbors have found out, if it sounds too good to be true, it probably is. On August 4^th, the Treasury Department announced its first monthly “report card” on the Home Affordable Modification Program, it was far from making the grade.

The report showed that of the 2.7 million eligible borrowers (you must be 60 days past due to be eligible) 235,000 loans we modified in some way. Bank of America has the largest number of eligible borrowers but was only able to modify 4% of their loans. Wells Fargo modified 6%, Wachovia trailed at 2%. Overall, the banks modified about 9% of eligible borrowers.

Having spoken with many of our neighbors about their personal experiences, these numbers were not much of a surprise. I’ve meet more than a few people who have been told they must miss two payments to be eligible, only to then be told they don’t qualify because of their lowered credit score. It is this kind of frustration that continues to plague our market with foreclosures, and short sales.

The banks, under pressure from Washington, have started making some headway in the streamlining of short sales. Not all of them are on board yet, but a few key players are really trying to speed up the process. They have expanded departments in an effort to keep up with an ever increasing demand. Some major institutions have stopped asking the seller for detailed personal information, such as tax returns, income verification, and proof of hardship. They are trying to remove some of the barriers that scare away distressed homeowners, because a short sale is better for the lenders’ bottom line.

Despite the lack of initial success from the government and banks, it is important to remember you do have options. If you, a friend, or neighbor is struggling with payments or unable to complete a loan modification, a short sale is a much better alternative than a foreclosure. Short sales have minimal impact on your credit, where as a foreclosure crushes your credit and stays on public record forever. Short sales can also stop your trustee auction even if it is just weeks or days away. In this tough economy, waiting for help will get you nowhere, you have to be proactive and take the first step. If you have any questions about the local real estate market or the short sale process, please feel free to contact the [HOLT] group or visit www.TheHoltGroupAZ.com.

Robert Holt 623.748.9583 & Phil Mills 480.643.0558

the [HOLT] group

RE/MAX Sonoran Hills

Wednesday, 08.19 2009

“Real Estate for Real People”

A new government program that might actually Help

Recently, the government announced a new program under the Making Home Affordable Plan. In light of the fact that very few of the millions of distressed homeowners are getting the help they need via loan mods, and many of those that have received help still can’t afford their homes, the government is now creating a program that would encourage banks to accept a Short Sale rather than foreclosing.

Details of the new program are still coming out, but essentially the government will offer banks cash incentives for accepting short sales instead of foreclosing. They will also lay out a streamlined process to help short sales close faster. Right now, it can take at least 2 months to close a short sale with 4-6 months not being uncommon.

So why would the banks prefer a short sale to foreclosure?The simple answer isforeclosures are killing the bottom line of the banks. These are the same banks that have received billions of taxpayer dollars in order to stay afloat. Because REO’s (Real Estate Owned) are considered non-performing assets for banks, the act of foreclosing on a property is actually very detrimental in terms of the bank’s reserve requirements. It is this very reason that so many institutions have been taken over by the FDIC in the last two years. The latest mammoth bank to fall victim was Taylor Bean & Whitaker (the third largest underwriter of FHA loans in the country), which was shut down on 8/04/09. Additionally, foreclosed homes lose value fast as they decline in condition after the foreclosure because no one is maintaining them. Unfortunately, previous owners or vandals also gut many of these properties, which further deteriorate the value. This, of course, is not good for neighbors or communities.

At the end of the day, it is all about the bottom line. Banks do not approve shorts sales because they care about the distressed homeowner. They only approve the short sale out of their own self-preservation. For a long time, it seemed as if the banks did not really believe the homeowner would let the home go into foreclosure. They are no longer under that delusion as evidenced by the over 45,000 homeowners with a notice of sale in the Greater Phoenix area. Most of these will ultimately result in foreclosure since less than a third of them are listed for sale and given that statistically, no visible intervention takes place in seven out of 10 foreclosures.

I don’t support many of the new programs that have come out to combat the crisis, but I do support this one. Although foreclosures result in a lower home price for the buyer, there are many pitfalls in purchasing a foreclosure as the buyer has very fewer protections and potentially more costs. In a traditional sale, the seller discloses everything they know about the property, including defects. They also usually make repairs to the property. In a foreclosure, the bank discloses virtually nothing and require the buyer to sign away any future opportunity to pursue a judgment against the bank for major defects. The buyer is responsible for all inspections and the bank will rarely agree to repair anything. In a short sale, the owner offers the same disclosures as a traditional sale. Although most aren’t required to make repairs, some sellers will be willing to. Most of all, the home is generally occupied during the process, so you don’t have to worry about vandals or thieves stripping out wires, plumbing, or fixtures. This process also keeps the seller thoroughly vested in the process resulting in a property that is in far better condition than an REO and consequently renders a higher sale price. This not only helps the bank recoup more of its money while keeping them solvent, it also helps the next-door neighbor since the property retains more value than an REO.

Despite all the happy talk out of Washington, there will be many more foreclosed homes that will hit the market, so it doesn’t make sense to add more to the collection when banks stand to lose less money by agreeing to short sales. Maybe we all can benefit from this plan since there is no chance of a serious recovery as long as we have unprecedented foreclosures.

For more information on Short Sales or the current real estate market, please contact Robert Holt @ 623.748.9583 or Phil Mills @ 480.643.0558 or visit www.TheHoltgroupAZ.com.