OREGON REAL ESTATE ROUND TABLE

Tag: Lake Oswego

  • Owners Escape Tax Debt By Rebuying Foreclosed Homes, by Christine MacDonald/ The Detroit News


    Detroit —Landlord Jeffrey Cusimano didn’t pay property taxes on seven of his east-side rentals for three years, owing the city of Detroit more than $131,800.

    Typically, that would mean losing the properties. But Cusimano not only got to keep them — his debt, including interest, fees and unpaid water bills, was virtually wiped free.

    Cusimano and a growing number of Detroit property owners are using a little-known loophole to erase tax debt by letting their properties go into foreclosure and then buying them back a month later at the Wayne County Treasurer‘s auction for pennies on the dollar.

    It’s legal. But that doesn’t mean it’s fair, said homeowner Marilynn Alexander, who lives on Fairmount next door to one of Cusimano’s rentals. The landlord owed $26,200 in taxes and other fees on the bungalow, but bought it back in October for $1,051.

    “He shouldn’t be able to get away with that,” said Alexander, a 57-year-old laundry worker who said she scrapes together every year her $1,500 in property taxes at the house where she’s lived for 20 years. “That’s not a fair break to anybody else out here.”

    Critics described it as a growing problem as the foreclosure crisis deepens. A record number of properties — nearly 14,300 — are expected to be auctioned this fall, and officials predict more owners will try to buy back their properties.

    The News identified about 200 of nearly 3,700 Detroit properties sold at auction last year that appeared to be bought back by owners, some under the names of relatives or different companies and many for $500. The total in taxes and other debts wiped away was about $1.8 million.

    “I don’t think it’s OK; it’s just how things are,” said Cusimano, who argues Detroit taxes are so unfairly high he was forced to buy back the foreclosed properties.

    At the September auction, the properties’ prices are the debt that’s owed. But in October, the county treasurer sells off whatever is left at a $500 opening bid. That’s where most of the sales happen, including owners buying back their properties.

    There’s an effort in Lansing to ban the practice, but others defend it.

    Many of those defenders are struggling homeowners, said Ted Phillips, who runs a legal advocacy nonprofit agency. He helped about 140 families buy their houses back last year and expects to “easily” double that in October.

    “It’s absolutely better to have folks in their homes,” said Phillips, executive director of the United Community Housing Coalition.

    “The system is just so broken. This is a little bit of a way to correct the broken system. Not a great way, but a way.”

    But he agreed that others who can afford to pay the taxes are exploiting the loophole and should be stopped.

    Besides Cusimano, well-known land speculator Michael Kelly bought back three properties last fall through a company he is affiliated with to erase a $37,595 debt. The News profiled the Grosse Pointe Woods investor who, through the tax sale, gained control of more Detroit properties than any other private landowner as of earlier this year.

    Cusimano, who owns about 80 rentals, makes no apologies and blamed Detroit for failing to reduce his assessments on homes whose values have crashed. He said he’s got small bungalows with $4,000-a-year tax bills, which he argues sometimes is more than the house is worth.

    “The taxes are ridiculous,” Cusimano said. “I don’t even pay that for my house in Clinton Township.”

    Huge debts wiped clean

    The savings can be striking.

    One owner bought back her storefront on West Seven Mile last year for $15,000, eliminating nearly $37,000 in debt. Another owed $23,100 on two buildings and a parking lot on Conant, but bought each back for the minimum $500.

    And Cusimano got his seven rentals back for $4,051, erasing nearly $128,000 in property taxes and other government liens.

    Cusimano, a landlord in the city for two decades, said the method wasn’t his first choice. He said he tried to appeal his high taxes without success. He admits he’s taking advantage of the loophole, but said he must to survive the tough economic times.

    “You just have to go with how the system goes,” said Cusimano. “I have been learning that in the last few years.”

    Owners often buy back their properties using the same name under which they lost them. And there’s generally a low risk of getting outbid because of the glut of vacant land. Last fall, at least 6,847 parcels in Detroit went into the city’s inventory after they didn’t sell at auction.

    Landlord Allen Shifman justified his buys, saying “every house is going to the highest bidder.” He owed $35,300 on three properties owned by one business in which he has an interest, but bought them back under another affiliated business for $3,500.

    Shifman described them as “garbage properties” even though the city puts the three houses’ market value between $20,000 and $60,000. He said many of the city’s landlords are struggling.

    “It didn’t work out that well for me,” Shifman said of repurchasing the properties. “I didn’t get anything for my money.

    “The taxes are more than it’s worth. The houses don’t have any value at all. If the properties were worth the value of the houses, people would pay the taxes.”

    Detroit’s tax rates — 65 mills for homeowners and 83 mills on other property owners — are the highest in the state, according to a recent Citizens Research Council of Michigan report. The average statewide rate is 31 mills for homeowners and 48 mills for other property owners.

    Dan Lijana, a spokesman for Mayor Dave Bing, said the city has been reducing residential assessments “in the double-digit range” over the last four years, but that “distressed sales,” such as the sales from the county auction, can’t be a factor.

    Cusimano’s neighbors on Fairmount, a street in northeast Detroit with mostly maintained aluminum-sided bungalows, argued they are paying taxes and were angered when told of the loophole.

    “OK, he gets to buy his back and my mother has to struggle?” said Tekena Crutcher, who lives with her mom. “The city is the way it is because of people like him not paying his taxes.”

    Alexander said she’s suffering from throat cancer, but pays her taxes.

    “It’s disappointing to know that the system is set up like that and things like this are allowed to happen,” she said.

    Lijana said City Hall is looking at the city’s tax structure and the auction loophole.

    “We are working to make the City of Detroit run more like a business,” Lijana said in an email. “This is an example of a challenge that we are looking to address both from a fiscal perspective and as a land use policy.”

    Legislation aimed to stop it

    Wayne County Chief Deputy Treasurer David Szymanski, whose office runs the auction, said it’s frustrating to see people ditch tax obligations, but the law allows for it.

    “There is no restriction in the law about who can or cannot bid at auction,” Szymanski said. “It’s such a tough issue.”

    “It’s clearly in the best interest to keep people in their homes. But it’s a very bitter pill for the people next door.”

    Mah-Lon Grant, 62, and Gloria Grant, 57, said they would be homeless and their house likely gutted if Phillips’ nonprofit group hadn’t helped them buy it back.

    Their debt only was about $5,500, but it was overwhelming.

    The couple got behind on their taxes after losing their landscaping business when Mah-Lon Grant went to prison in 2005 for five years on felony firearm and assault charges, according to state records. He said the situation got out of control while he was defending himself as he collected a debt from an associate.

    “If we had to do it ourselves, I don’t think we would have been able to do it,” Mah-Lon Grant said. “There’s no way we could catch up.”

    “We are barely surviving.”

    The couple was able to buy the house, where they’ve lived for 34 years, back at auction for $500. They live there with their 22-year-old son and 15-month-old great-granddaughter.

    He said his family is different from other property owners using the loophole.

    “They are doing it for profit,” Grant said. “We are doing it for survival.”

    State Sen. Tupac Hunter, D-Detroit, has introduced legislation to ban buyers who owe back taxes.

    He said he’s looking to retool it to make sure nonprofits can buy properties on behalf of families, such as the Grants.

    But Hunter said he wants to stop “land speculation and the scavenging currently going on in Wayne County’s tax foreclosure auctions.”

    “My intent is to make it more difficult for land speculators to game the system,” Hunter wrote in an email.

    Szymanski said his office opposes Hunter’s bill because it’s too restrictive, but is brainstorming ways to prevent owners who can pay their taxes from buying back properties.

    “We want to help people in need, not make people rich,” Szymanski said.

    But Shifman and others who oppose limits on who can buy at auction said it will only hurt taxpayers further.

    All the revenue raised at the auction goes back to the city, schools and library.

    “I don’t know what the county is going to do without all those proceeds,” Shifman said. “You will eliminate a lot of buyers.”

    cmacdonald@detnews.com

    (313) 222-2396

    From The Detroit News: http://detnews.com/article/20110907/METRO01/109070383/Owners-escape-tax-debt-by-rebuying-foreclosed-homes#ixzz1XJMP2BOJ

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  • Promoting Housing Recovery Part 3: Proposed Solutions For The Housing Market


    This is the final part of a three-part, two-post series.  Click here to read parts I and II, which focus on recognizing the fundamental economic problems, and fixing the underlying economic issues (such as unemployment)

    Part Three – Proposed Solutions For The Housing Market

    Home Prices

    Home prices in many parts of the country are still inflated. People cannot afford the homes and cannot refinance to lower payments, so the homes go into default and are foreclosed up. Other homes remain on the market, vacant because there are no qualified buyers for the property at that price. This is a problem that can take care of itself over time, if the government gets out of the way.

    Currently the government, in cooperation with banks, is doing everything to support home prices instead of letting them drop. Doing so prevents homeowner strategic defaults, and others going into defaults. It also lessens the losses to lenders and investors. In the words of Zig Zigler, this is “stinkin thinkin”.

    Maintaining home prices artificially high will not stabilize the market. It is mistakenly thought this is the same as supporting home values. But inflating a price does not increase value, by definition. It just delivers an advantage to the first ones in at the expense of those coming later (think of the first and second homebuyer tax credits, which created two discernible “bumps” in home prices and sales in 2009 and 2010, both of which reversed).

    We must allow home prices to drop to a more reasonable level that people can afford. Doing so will stimulate the market because it brings more people into the market. Lower home prices mean more have an ability to purchase. More purchases mean more price stability over a period of time.

    To accomplish a reduction in home prices several steps need to be taken.

    Interest Rates

    The first thing to be done is that the fed must cease its negative interest rate policy. Let interest rates rise to a level that the market supports. Quit subsidizing homeowner payments on adjustable rate mortgages by the lower interest rates.

    Allowing interest rates to return to market levels would initially make homeownership more difficult and would result in people qualifying for lower loan amounts. However, this is not a bad thing because it eventually forces home prices down and all will balance out in the end. Historically, as interest rates decrease, home prices increase, and when rates increase, home prices drop. So it is time to let the market dictate where interest rates should be.

    Furthermore, by allowing interest rates to increase, it makes lending money more attractive. Profit over risk levels return, and lenders are more willing to lend. This creates greater demand, and would assist in stabilizing the market.

    Fannie & Freddie

    We have to eliminate the Federal guarantee on Fannie and Freddie loans. The guarantee of F&F loans only serves to artificially depress interest rates. It does nothing to promote housing stability. Elimination of the guarantees would force rates up, leading to lower home values, and more affordability in the long run.

    It is seriously worth considering privatizing Fannie and Freddie. Make them exist on their own without government intervention. Make them concerned about risk levels and liquidity requirements. Doing so will make them responsive to the profit motive, tighten lending standards, and lessen risk. It will over time also ensure no more government bailouts.

    Allow competition for Fannie and Freddie. Currently, they have no competition and have not had competition since the early 1990s. Competition will force discipline on F&F, and will ultimately prove more productive for housing.

    The new Qualified Residential Mortgage rules must not be allowed to occur as they stand. If the rules are allowed to go forward, it will only ensure that Fannie and Freddie remain the dominant force in housing. Make mortgage lending a level playing field for all. Do not favor F&F with advantages that others would not have like governmental guarantees. We must create effective competition to counter the distorting effects of F&F.

    Government Programs like HAMP

    When government attempts to slow or stop foreclosures, it only offers the homeowner false hopes that the home can be saved. The actions will extend the time that a homeowner remains in a home not making payments, and also extend the length of time that the housing crisis will be with us. Nothing else will generally be accomplished, except for further losses incurred by the lender or investor.

    When modifications are advanced to people who have no ability to repay those modifications, when the interest rates adjust in five years, all that has happened is that the problem has been pushed off into the future, to be dealt with later. This is what government programs like HAMP achieve.

    If the government wants to play a role in solving the housing crisis, it must take a role that will be realistic, and will lead to restoration of a viable housing market. That role must be in a support role, creating an economic environment which leads to housing recovery. It must not be an activist and interventionist role that only seeks to control outcomes that are not realistic.

    Portfolio Lenders

    Usually, the portfolio lender is a bank or other similar institution that is subject to government regulations, including liquidity requirements. Because of liquidity issues and capital, it is not possible for many banks to lend, or in sufficient numbers to have a meaningful effect upon housing recovery at this time. Additionally, the number of non-performing loans that lenders hold restricts having the funds to lend do to loan loss reserve issues. Until such is addressed, portfolio lending is severely restricted.

    To solve the problem of non-performing loans, and to raise capital to address liquidity requirements, a “good bank – bad bank scenario” scenario must be undertaken. Individual mortgage loans need to be evaluated to determine the default risk of any one loan. Depending upon the risk level, the loan will be identified and placed into a separate category. Once all loans have been evaluated, a true value can be established for selling the loans to a “purchase investor”. At the same time, the “bank investor” is included to determine what capital infusion will be needed to support the lender when the loans are sold. An agreement is reached whereby the loans are sold and the new capital is brought into the lender, to keep the lender afloat and also strengthen the remaining loan portfolio.

    The homeowner will receive significant benefit with this program. The “purchase investor” should have bought the loans for between 25 and 40 cents on the dollar. They can then negotiate with the homeowner, offering them significant principal reductions and lowered payments, while still having loans with positive equity. Default risk will have been greatly reduced, and all parties will have experienced a “win-win” scenario.

    However, portfolio lending is still dependent upon having qualified borrowers. To that end, previous outlined steps must be taken to create a legitimate pool of worthy borrowers to reestablish lending.

    MERS

    Anyone who has followed the foreclosure crisis, the name MERS is well known. MERS (Mortgage Electronic Registrations System) represents the name of a computerized system used to track mortgage loans after origination and initial recording. MERS has been the subject of untold articles and conspiracy theories and blamed for the foreclosure process. It is believed by many that the operation of MERS is completely unlawful.

    To restart securitization efforts, a MERS-like entity is going to be required. (MERS has been irrevocably damaged and will have to be replaced by a similar system with full transparency. Before anyone gets upset, I will explain why such an entity is required.)

    Securitization of loans is a time consuming process, especially related to the tracking and recording of loans. When a loan is securitized, from the Cut-Off date of the trust to the Closing Date of the trust when loans must be placed into the trust, is 30 days. During this 30 day period of time, a loan would need to be assigned and recorded at least twice and usually three times. To accomplish this, each loan would need assignments executed, checks cut to the recorder’s office, and the documents delivered to the recorder’s office for recording.

    Most recorder’s offices are not automated for electronic filing with less than 25% of the over 3200 counties doing electronic filing. The other offices must be done manually. This poses an issue in that a trust can have from several hundred to over 8000 loans placed into it. It is physically impossible to execute the work necessary in the 30 day time period to allow for securitization as MERS detractors would desire. So, an alternative methodology must be found.

    “MERS 2.0″ is the solution. The new MERS must be developed with full transparency. It must be designed to absolutely conform with agency laws in all 50 states. MERS “Certifying Officers” must be named through corporate resolutions, with all supporting documentation available for review. There can be no question of a Certifying Officer’s authority to act.

    Clear lines of authority must be established. The duties of MERS must be well spelled out and in accordance with local, state, and Federal statutes. Recording issues must be addressed and formalized procedures developed. Through these and other measures, MERS 2.0 can be an effective methodology for resolving the recording issues related to securitization products. This would alleviate many of the concerns and legal issues for securitization of loans, bringing greater confidence back into the system.

    Securitization & Investors

    Securitization of loans through sources other than Fannie and Freddie represented 25% of all mortgage loans done through the Housing Boom. This source of funding no longer exists, even though government bonds are at interest rates below 1%, and at times, some bonds pay negative interest. One would think that this would motivate Wall Street to begin securitization efforts again. However, that is not the case.

    At this time, there is a complete lack of confidence in securitized loan products. The reasons are complex, but boil down to one simple fact: there is no ability to determine the quality of any one or all loans combined in a securitization offering, nor are the ratings given to the tranches of reliable quality for the same reasons. Until this can be overcome, there can be no hope of restarting securitization of loans. However, hope is on the way.

    Many different companies are involved in bringing to market products and techniques that will address loan level issues. Some products involve verification of appraisals, others involve income and employment verification. More products are being developed as well. (LFI Analytics has its own specific product to address issues of individual loan quality.)

    What needs to be done is for those companies developing the products to come together and to develop a comprehensive plan to address all concerns of investors for securitized products. What I propose is that we work together to incorporate our products into a “Master Product”, while retaining our individuality. This “Master Product” would be incorporated into each Securitization offered, so that Rating Agencies could accurately evaluate each loan and each tranche for quality. Then, the “Master Product” would be presented to Investors along with the Ratings Agency evaluation for their inspection and determination of whether to buy the securitized product. Doing so would bring confidence back into the market for securitized products.

    There will also need to be a complete review of the types of loans that are to be securitized, and the requirements for each offering. Disclosures of the loan products must be clear, with loan level characteristics identified for disclosure. The Agreements need to be reworked to address issues related to litigation, loan modifications, and default issues. Access to loan documentation for potential lender repurchase demands must be clarified and procedures established for any purchase demand to occur.

    There must be clarification of the securitization procedures. A securitized product must meet all requirements under state and Federal law, and IRS considerations. There must be clear guidance provided on how to meet the requirements, and what is acceptable, and what is not acceptable. Such guidance should seek to eliminate any questions about the lawfulness of securitization.

    Finally, servicing procedures for securitization must be reviewed, clarified, and strengthened. There can no longer be any question as to the authority of the servicer to act, so clear lines of authority must be established and agency and power of attorney considerations be clearly written into the agreements.

    Borrower Quality

    Time and again, I have referenced having quality borrowers who have the ability to buy homes and qualify for loans. I have outlined steps that can be taken to establish such pools of buyers and borrowers by resolving debt issues, credit issues, and home overvaluation issues. But that is not enough.

    Having examined thousands of loan documents, LFI Analytics has discovered that not only current underwriting processes are deficient in many areas still, but the new proposed Qualified Written Mortgage processes suffer from such deficiencies as well. This can lead to people being approved for loans who will have a high risk of default. Others will be declined for loans because they don’t meet the underwriting guidelines, but in reality they have a significantly lower risk of default.

    Default Risk analysis must be a part of the solution for borrower quality. Individual default risk must be determined on each loan, in addition to normal underwriting processes, so as to deny those that represent high default risk, and approve those that have low default risk.

    This is a category of borrower that portfolio lenders and securitization entities will have an advantage over the traditional F&F loan. Identifying and targeting such borrowers will provide a successful business model, as long as the true default risk is determined. That is where the LFI Analytics programs are oriented.

    Summary

    In this series of articles, I have attempted to identify stresses existing now and those existing in the future, and how the stresses will affect any housing recovery. I have also attempted to identify possible solutions for many of the stresses.

    The recovery of the housing market will not be accomplished in the near future, as so many media and other types represent. The issues are far too complex and interdependent on each other for quick and easy remedy.

    To accurately view what is needed for the housing recovery, one must take a macro view of not just housing, but also the economic and demographic concerns, as I have done here. Short and long term strategies must be developed for foreclosure relief, based upon the limiting conditions of lenders, borrowers, and investor agreements.

    Lending recovery must be based upon the economic realities of the lenders, and the investors who buy the loans. Furthermore, accurate methods of loan evaluation and securitization ratings must be incorporated into any strategy so as to bring back investor confidence.

    Are steps being taken towards resolving the housing crisis and beginning the housing recovery? In the government sector, the answer is really “no”. Short term “solutions” are offered in the form of different programs, but the programs are ineffective for most people. Even then, the “solutions” only treat the symptom, and not the illness. Government is simply not capable of taking the actions necessary to resolve the crisis, either from incompetence or from fear of voter reprisal.

    In the private sector, baby steps are being taken by individual companies to resolve various issues. These companies are refining their products to meet the needs of all parties, and slowly bringing them to market.

    What is needed now is for the private sector to come together and begin to offer “packages of products” to meet the needs of securitizing entities. The “packages” should be tailored to solve all the issues, so that all evaluation materials are complete and concise, and not just a handful of different reports from different vendors. This is the “far-sighted” view of what needs to be done.

    If all parties cannot come together and present a unified and legitimate approach to solving the housing crisis, then we will see a “lost decade” (or two) like Japan has suffered. Housing is just far too important of an economic factor for the US economy. Housing has led the way to recovery in past recessions, but it not only lags now, it drags the economy down. Until housing can recover, it shall serve to be a drag on the economy.

    I hope that I have sparked interest in what has been written and shall lead to a spirited discussion on how to recover. I do ask that any discussion focus on how to restore housing. Recriminations and blame for what has happened in the past serves no purpose to resolution of the problems facing us now, and in the future.

    It is now time to move past the anger and the desire for revenge, and to move forward with “can-do” solutions.

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  • Promoting Housing Recovery Parts 1 and 2, by Patrick Pulatie


    Previously, I have posted articles regarding housing and foreclosure issues. The purpose was to begin a dialogue on the steps to be taken to alleviate the foreclosure crisis, and to promote housing recovery.   Now, we need to explore how to restart lending in the private sector.  This will be a three part article, with parts I and II herein, and III in the next post.

    To begin, we must understand how we got to the point of where we are today, and whereby housing became so critical a factor in the economy. (This is only an overview. I leave it to the historians to fill in all the details.)

    Part One – Agreeing On The Problems

    Historical Backdrop

    At the beginning of the 20th century, the U.S. population stood about 76,000,000 people. By the end of 2000, the population was over 310 million. The unprecedented growth in population resulted in the housing industry and related services becoming one of several major engines of wealth creation during the 20th century.

    During the Depression, large numbers of farm and home foreclosures were occurring. The government began to get involved in housing to stop foreclosures and stimulate housing growth. This resulted in the creation of an FHA/Fannie Mae– like program, to support housing.

    WWII led to major structural changes in the U.S., both economically and culturally. Manufacturing and technological changes spurred economic growth. Women entered the work force in huge numbers. Returning veterans came back from the war desiring to leave the rural areas, begin families, and enter the civilian workforce. The result was the baby boom generation and its coming influence.

    From the 1950s through the 1970s, the US dominated the world economically. Real income growth was occurring for all households. Homeownership was obtainable for ever increasing numbers of people. Consumerism was rampant.

    To support homeownership, the government created Fannie Mae and Freddie Mac so that more people could partake in the American Dream. These entities would eventually become the primary source of mortgages in the U.S. F&F changed the way mortgages were funded, and changed the terms of mortgages, so that 30 year mortgages became the common type of loan, instead of 5 to 15 year mortgages.

    Storm clouds were beginning to appear on the horizon at the same time. Japan, Korea, Germany, and other countries had now come out of their post war depressions. Manufacturing and industrial bases had been rebuilt. These countries now posed an economic threat to the U.S. by offering improved products, cheaper labor costs, and innovation. By the end of the 1970s, for many reasons, US manufacturing was decreasing, and service related industries were gaining importance.

    In the 1980s and 1990s, manufacturing began to decline in the U.S. Service Industries were now becoming a major force in the economy. With the end of the Cold War in 1989, defense spending began to decline dramatically, further depressing the economy.

    In the early 1990s, F&F engaged in efforts to increase their share of the mortgage market. They freely admitted wanting to control the housing market, and took steps to do so, undermining lenders and competition, and any attempts to regulate them.

    In 1994, homeownership rates were at 64% in the US. President Clinton, along with Congress and in conjunction with Fannie and Freddie, came out with a new program with the intent to promote a 70% homeownership rate. This program was promoted even though economists generally considered 64% to be the maximum amount of homeownership that an economy could readily support. Above 64%, people would be 

    “buying” homes, but without having the financial capabilities to repay a loan. The program focused upon low income persons and minorities. The result was greater demand for housing and homeownership, and housing values began to increase.

    Lenders and Wall Street were being pushed out of the housing market by F&F, and had to find new markets to serve. F&F did not want to service the new markets being created by the government homeownership programs. The result was that Wall Street would naturally gravitate to that market, which was generally subprime, and also to the jumbo market, which F&F could not serve due to loan amount restrictions. This was the true beginning of securitized loan products.

    The events of 9/11 would ultimately stoke the fires of home ownership even further. 9/11 occurred as the US was coming out of a significant recession, and to keep the country from sliding back into recession, the Fed lowered interest rates and kept them artificially low until 2003. Wall Street, recognizing the promise of good financial returns from securitized loans, freed up more and more capital for banks and mortgage bankers to lend. This led to even greater demand for homes and mortgages.

    To meet the increased demand, home construction exploded. Ancillary services did well also, from infrastructure, schools, hospitals, roads, building materials, and home decor. The economy was booming, even though this was “mal-investment” of resources. (Currently, as a result of this activity, there are estimated to be from 2m to 3.5m in excess housing units, with approximately 400k being added yearly to housing stock.)

    It did not stop there. Buyers, in their increasing zeal, were bidding for homes, increasing the price of homes in many states by 50 to 100,000 dollars more than what was reasonable. The perception was that if they did not buy now, then they could never buy. Additionally, investors began to purchase multiple properties, hoping to create a home rental empire. This led to unsustainable home values.

    Concurrently, the Fed was still engaged in a loose money policy. This pumped hundreds of billions of dollars into the housing economy, with predictable results. With increasing home values, homeowners could refinance their homes, often multiple times over, pulling cash out and keeping the economy pumped up artificially. A homeowner could pull out 50,000 to 100,000 dollars or more, often every year or two, and use that money to indulge themselves, pretending they had a higher standard of living than what existed. The government knew that this was not a reasonable practice, but indulged in it anyway, so as to keep up an appearance of a healthy economy. Of course, this only compounded the problem.

    The end result of the past 40 years of government intervention (and popular support for that intervention) has been a housing market that is currently overbuilt and still overvalued. In the meantime, real wages have not increased since the mid 1990s and for large numbers of the population, negative income growth has been experienced. Today, all segments of the population, homeowners especially so, are saddled with significant mortgage debt, consumer debt, and revolving credit debt. This has led to an inability on the part of the population to buy homes or other products. Until wage and debt issues are resolved, employment increases, and housing prices have returned to more reasonable values, there can be no housing recovery.

    Current Status

    As all know, the current status of housing in the US is like a ship dead in the water, with no ability to steer except to roll with the waves. A recap:

    Private securitization once accounted for over 25% of all mortgage loans. These efforts are currently nonexistent except for one entity, Redwood Trust, which has issued one securitized offerings in 2010 and one in 2011. Other than this, Wall Street is afraid to invest in Mortgage Products (to say nothing of downstream investors).

    Banks are unable to lend their own money, which represented up to 15% of all lending. Most banks are capital impaired and have liquidity issues, as well as unknown liabilities from bad loans dating to the bubble.

    Additionally, banks are suffering from a lack of qualified borrowers. Either there is no equity in the home to lend on, or the borrowers don’t have the financial ability to afford the loan. Therefore, the only lending that a bank can engage in is to execute loans and sell them to Fannie Mae, Freddie Mac, or VA and FHA. There are simply no other options available.

    F&F are buying loans from the banks, but their lending standards have increased, so the loan purchases are down. F&F still distort the market because of government guarantees on their loans (now explicit instead of implicit), and they are still able to purchase loans above $700k, which was implemented in response to the housing crisis.

    F&F are still having financial issues, with the government having bailed them out to the tune of $140b, with much more to come.

    VA is buying loans and doing reasonably well, but they serve a tiny portion of the market.

    FHA has turned into the new subprime, accepting credit challenged borrowers, and with loan to values of 95% or greater. Default rates on FHA loans are rising significantly, and will pose issues for the government when losses absorb all FHA loss reserves, which may have already happened (depending on how you look at the accounting).

    The Mortgage Insurance companies are financially depressed, with PMI being forced to stop writing new policies due to loan loss reserves being depleted. Likely, they will cease business or be absorbed by another company. Other companies are believed to be similarly in trouble, though none have failed yet.

    The US population is still overburdened with debt. It is believed that the household consumer debt burden is over 11%, for disposable income. This is far too high for effective purchasing of any products, especially high end. (There has been a lessening of this debt from its high of 14% in 2008, but this has primarily been the result of defaults, so most of those persons are not in a position to buy.)

    Patrick Pulatie is the CEO of LFI Analytics. He can be reached at 925-522-0371, or 925-238-1221 for further information. http://www.LFI-Analytics.com, patrick@lfi-analytics.com.

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  • Government Officials Weigh New Refi Program, Carrie Bay, DSNEWS.com


    Word on the street is that the Obama administration is sizing up a new program to shore up and stimulate the housing market by providing millions of homeowners with new, lower interest, lower payment mortgage loans.  According to multiple media outlets, the initiative would allow borrowers with mortgages backed by Fannie Mae and Freddie Macto refinance at today’s near record-low interest rates, close to the 4 percent mark, even if they are in negative equity or have bad marks on their credit.

    The plan, first reported by the New York Times, may not be seen as a win-win by everyone. The Times says it could face stiff opposition from the GSEs’ regulator, the Federal Housing Finance Agency (FHFA), as well as private investors who hold bonds made up of loans backed by the two mortgage giants.

    The paper says refinancing could save homeowners $85 billion a year. It would also reach some homeowners who are struggling with underwater mortgages, which can disqualify a borrower from a traditional refinance, and those who fail to meet all the credit criteria for a refinance as a result of tough times brought on by the economic downturn.

    Administration officials have not confirmed that a new refi program is in the works, but have said they are weighing several proposals to provide support to the still-ailing housing market and reach a greater number of distressed homeowners.

    According to information sourced by Bloomberg, Fannie and Freddie guarantee nearly $2.4 trillion in mortgages that carry interest rates above the 4 percent threshold.

    The details that have been reported on the make-up of the refi proposal mirror recommendations put forth by two Columbia business professors, Chris Mayer and R. Glenn Hubbard.

    They’ve outlined the same type of policy-driven refi boom in a whitepaper that calls for Fannie- and Freddie-owned mortgages to be refinanced with an interest rate of around 4 percent.

    They say not only would it provide mortgage relief to some 30 million homeowners – to the tune of an average reduction in monthly payments of $350 — but it would yield about $118 billion in extra cash being pumped into the economy.

    Other ideas for housing stimulus are also being considered. One involving a public-private collaboration to get distressed properties off the market and turn them into rental homes has progressed to the point that officials issued a formal notice earlier this month requesting recommendations from private investors, industry stakeholders, and community organizations on how best to manage the disposition of government-owned REOs.

    Treasury is also reviewing a proposal from American Home Mortgage Servicing that would provide for a short sale of mortgage notes from mortgage-backed securities (MBS) trusts to new investors as a means of facilitating principal reduction modifications.

    There’s speculation that President Obama will make a big housing-related announcement in the weeks ahead as part of a larger economic plan.

  • RATES WAY DOWN, APPS WAY UP… THAT’S GOOD, RIGHT?, by Diane Mesgleski, Mi–Explode.com


    Last week mortgage applications rose a whopping 21.7% from the previous week according to the Mortgage Bankers Association’s Weekly Mortgage Applications Survey.  Great news for the industry to be sure.  Great news for the housing market?  Not so much, when you consider that the bulk of the applications are refinances, not purchases.  Refis rose 31% from the previous week, while purchases remain low. Actually they dropped a skooch.  Low purchase numbers mean continued stagnation in the housing market and continued increase in inventory as foreclosures continue to be added to the count.  Which means lower values. Kind of a vicious cycle.  Those of us in the mortgage biz were not surprised by last week’s numbers, since low rates spur refis and rising interest rates signal a purchase market.  You don’t even need to understand the reason why, you just know that is how it works. It is comforting to know that something is working the way it always has.

    What is not comforting is the bewildered Fed chairman, and many baffled economists who don’t understand why the present policies are not working.  Even if rates could go lower it would not have an impact on the housing market.  There is no lack of money to lend, there is a lack of qualified borrowers.  And that situation is not improving with time, it is getting worse.   At the same time Washington is tightening their stranglehold on lenders with ever increasing regulation, then wondering why banks are not lending.  No matter what you believe should be the course, whether more regulation or less, you have to agree that government intervention has not and is not helping.

    Has anybody else noticed, the only winner in this current climate are the Too Big To Fail banks?   They have plenty of cash, since they cannot lend it.  One article I read put it this way, their balance sheets are “healing”.   Sounds so soothing you almost forget to be angry.

    There is one other factor in the current housing crisis worth mentioning: the lack of consumer confidence.  Nobody is going to buy a house when the prices are continuing to fall.  And even in areas where the prices are stable, people have no confidence in the economy or in Washington’s ability or willingness to fix it. They are simply afraid to make the biggest investment of their lives in this climate.   If our leaders would actually lead rather than play political games we might actually start seeing change.

    But only if we give them another four years.   No wonder Ben does not think that anything will get better until 2013….now I get it.

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  • The Meat of the Matter – In Re: Veal Analyzed, by Phil Querin, Q-Law.com


     

    “When a note is split from a deed of trust ‘the note becomes, as a practical matter, unsecured.’ *** Additionally, if the deed of trust was assigned without the note, then the assignee, ‘having no interest in the underlying debt or obligation, has a worthless piece of paper.’” [In re Veal – United States Bankruptcy Appellate Panel of the Ninth Circuit (June 10, 2011)]

    Introduction. This case is significant for two reasons: First, it was heard and decided by a three-judge Bankruptcy Appellate Panel for the Ninth Circuit, which includes Oregon.  Second, it represents the next battleground in the continuing foreclosure wars between Big Banks and Bantam Borrowers: The effect of the Uniform Commercial Code (UCC”)on the transferability of the Promissory Note (or “Note”).

    Remember, the Trust Deed follows the Note.  If a lender is the owner of a Trust Deed, but cannot produce the actual Note which it secures, the Trust Deed is useless, since the lender is unable to prove it is owed the debt.  Conversely, if the lender owns the Note, but not the Trust Deed, it cannot foreclose the secured property. [For a poetic perspective on the peripatetic lives of a Note and Trust Deed, connect here. – PCQ]

    By now, most observers are aware that Oregon’s mandatory recording statute, ORS 86.735(1), has been a major impediment to lenders and servicers seeking trying to foreclose borrowers.  Two major Oregon cases, the first in federal bankruptcy court, In re McCoy, and the other, in federal district trial court, Hooker v. Bank of America, et. al, based their decisions to halt the banks’ foreclosures, squarely on the lenders’ failure to record all Trust Deed Assignments.  To date, however, scant mention has been made in these cases about ownership of the Promissory Note. [Presumably, this is because a clear violation of the Oregon’s recording statute is much easier to pitch to a judge, than having to explain the nuances – and there are many – of Articles 3 and 9 of the UCC.  – PCQ]

    Now we have In re: Veal, which was an appeal from the bankruptcy trial judge’s order granting Wells Fargo relief from the automatic stay provisions under federal bankruptcy law.   Such a ruling meant that Wells Fargo would be permitted to foreclose the Veals’ property.  But since this case arose in Arizona – not Oregon – our statutory law requiring the recording of all Assignments as a prerequisite to foreclosure, did not apply.  Instead, the Veals’ lawyer relied upon the banks’ failure to establish that it had any right under the UCC to enforce the Promissory Note.

    Legal Background. For reasons that do not need to be explained here, the Veals filed two contemporaneous appeals. One was against Wells Fargo Bank, which was acting as the Trustee for a REMIC, Option One Mortgage Loan Trust 2006–3, Asset–Backed Certificates Series 2006–3.  In the second appeal, the Veals challenged the bankruptcy court’s order overruling their objection to a proof of claim filed by Wells Fargo’s servicing agent, American Home Mortgage Servicing, Inc. (“AHMSI”).

    Factual Background. In August 2006, the Veals executed a Promissory Note and Mortgage in favor of GSF Mortgage Corporation (“GSF”). On June 29, 2009, they filed a Chapter 13 bankruptcy.  On July 18, 2009, AHMSI filed a proof of claim, on behalf of Wells Fargo as its servicing agent.  AHMSI included with its proof of claim the following documents:

    • A copy of the Note, showing an indorsement[1] from GSF to “Option One”[2];
    • A copy of the GSF’s Mortgage with the Veals;
    • A copy of a recorded “Assignment of Mortgage” assigning the Mortgage from GSF to Option One; and,
    • A letter dated May 15, 2008, signed by Jordan D. Dorchuck as Executive Vice President and Chief Legal Officer of AHMSI, addressed to “To Whom it May Concern”, stating that AHMSI acquired Option One’s mortgage servicing business.[3]

    The Veals argued that AHMSI [Wells’ servicing agent] lacked standing since neither AHMSI or Wells Fargo established that they were qualified holders of the Note under Arizona’s version of the UCC.

    In a belated and last ditch effort to establish its standing, Wells Fargo filed a copy of another Assignment of Mortgage, dated after it had already filed for relief from bankruptcy stay.  This Assignment purported to transfer to Wells Fargo the Mortgage held by “Sand Canyon Corporation formerly known as Option One Mortgage Corporation”.

    The 3-judge panel noted that neither of the assignments (the one from GSF to Option One and the other from Sand Canyon, Option One’s successor, to Wells) were authenticated – meaning that there were no supporting affidavits or other admissible evidence vouching for the authenticity of the documents.  In short, it again appears that none of the banks’ attorneys would swear that the copies were true and accurate reproductions of the original – or that they’d even seen the originals to compare them with.  With continuing reports of bogus and forged assignments, and robo-signed documents of questionable legal authority, it is not surprising that the bankruptcy panel viewed this so-called “evidence” with suspicion, and did not regard it as persuasive evidence.

    • As to the Assignment of Mortgage from GSF (the originating bank) to Option One, the panel noted that it purported to assign not only the Mortgage, but the Promissory Note as well.[4]
    • As to the Assignment of Mortgage from Sand Canyon [FKA Option One] to Wells Fargo[created after Wells Fargo’s motion for relied from stay], the panel said that the document did not contain language purporting to assign the Veals’ Promissory Note.  As a consequence[even had it been considered as evidence], it would not have provided any proof of the transfer of the Promissory Note to Wells Fargo. At most, it would only have been proof that the Mortgage had been assigned.

    After considerable discussion about the principles of standing versus real party in interest, the 3-judge panel focused on the latter, generally defining it as a rule protecting a defendant from being sued multiple times for the same obligation by different parties.

    Applicability of UCC Articles 3 and 9. The Veal opinion is well worth reading for a good discussion of the Uniform Commercial Code and its applicability to the transfer and enforcement of Promissory Notes.  The panel wrote that there are three ways to transfer Notes.  The most common method is for one to be the “holder” of the Note.  A person may be a “holder” if they:

    • Have possession of the Note and it has been made payable to them; or,
    • The Note is payable to the bearer [e.g. the note is left blank or payable to the “holder”.]
    • The third way to enforce the Note is by attaining the status of a “nonholder in possession of the [note] who has the rights of a holder.” To do so, “…the possessor of the note must demonstrate both the fact of the delivery and the purpose of the delivery of the note to the transferee in order to qualify as the “person entitled to enforce.”

    The panel concluded that none of Wells Fargo’s exhibits showed that it, or its agent, had actual possession of the Note.  Thus, it could not establish that it was a holder of the Note, or a “person entitled to enforce” it. The judges noted that:

    “In addition, even if admissible, the final purported assignment of the Mortgage was insufficient under Article 9 to support a conclusion that Wells Fargo holds any interest, ownership or otherwise, in the Note.  Put another way, without any evidence tending to show it was a “person entitled to enforce” the Note, or that it has an interest in the Note, Wells Fargo has shown no right to enforce the Mortgage securing the Note. Without these rights, Wells Fargo cannot make the threshold showing of a colorable claim to the Property that would give it prudential standing to seek stay relief or to qualify as a real party in interest.”

    As for Wells’ servicer, AHMSI, the panel reviewed the record and found nothing to establish that AHMSI was its lawful servicing agent.  AHMSI had presented no evidence as to who possessed the original Note.  It also presented no evidence showing indorsement of the Note either in its favor or in favor of Wells Fargo.  Without establishing these elements, AHMSI could not establish that it was a “person entitled to enforce” the Note.

    Quoting from the opinion:

    “When debtors such as the Veals challenge an alleged servicer’s standing to file a proof of claim regarding a note governed by Article 3 of the UCC, that servicer must show it has an agency relationship with a “person entitled to enforce” the note that is the basis of the claim. If it does not, then the servicer has not shown that it has standing to file the proof of claim. ***”

    Conclusion. Why is the Veal case important?  Let’s start with recent history: First, we know that during the securitization heydays of 2005 – 2007, record keeping and document retention were exceedingly lax.  Many in the lending and servicing industry seemed to think that somehow, MERS would reduce the paper chase.  However, MERS was not mandatory, and in any event, it captured at best, perhaps 60% of the lending industry.  Secondly, MERS tracked only Mortgages and Trust Deeds – not Promissory Notes.  So even if a lender can establish its ownership of the Trust Deed, that alone is not enough, without the Note, to permit the foreclosure.

    As recent litigation has revealed, some large lenders, such as Countrywide, made a habit of holding on to their Promissory Notes, rather than transferring them into the REMIC trusts that were supposed to be holding them.  This cavalier attitude toward document delivery is now coming home to roost.  While it may not have been a huge issue when loans were being paid off, it did become a huge issue when loans fell into default.

    So should the Big Banks make good on their threat to start filing judicial foreclosures in Oregon, defense attorneys will likely shift their sights away from the unrecorded Trust Deed Assignments[5], and focus instead on whether the lenders and servicers actually have the legal right to enforce the underlying Promissory Notes.

    [1] The word “indorsement” is UCC-speak for “endorsement” – as in “endorsing a check” in order to cash it.

    [2] Although not perhaps as apparent in the opinion as it could have been, there were not successive indorsements of the Veals’ Promissory Note, i.e. from the originating bank to the foreclosing bank. There was only one, i.e. from GSF to Option One.  There was no evidence that the Note, or the right to enforce it, had been transferred to Wells Fargo or AHMSI.  Ultimately, there was no legal entitlement under the UCC giving either Wells or its servicer, AHMSI, the ability to enforce that Note.  The principle here is that owning a borrower’s Trust Deed or Mortgage is insufficient without also owning, or have a right to enforce, the Promissory Note that it secures.

    [3] Mr. Dorchuck did not appear to testify.  His letter, on its face, is clearly hearsay and inadmissible.  The failure to properly lay any foundation for the letter, or authenticate it “under penalty of perjury” is inexplicable – one that the bankruptcy panel criticized. This was not the only example of poor evidentiary protocol followed by the banks in this case.  However, this may not be the fault of the banks’ lawyers. It is entirely possible these were the documents they had to work with, and they declined to certify under “penalty of perjury” the authenticity of them. If that is the case, one wonders how long good attorneys will continue to work for bad banks?

    [4] This is a drafting sleight of hand.  Mortgages and Trust Deeds are transferred by “assignment” from one entity to another. But Promissory Notes must be transferred under an entirely different set of rules – the UCC. Thus, to transfer both the Note and Mortgage by a simple “Assignment” document, is facially insufficient, by itself, to transfer ownership of – or a right to enforce – the Promissory Note.

    [5] The successive recording requirement of ORS 86.735(1) only applies when the lender is seeking to foreclose non-judicially.  Judicial foreclosures do not contain that statutory requirement.  However, to judicially foreclose, lenders will still have to establish that they meet the standing and real party interest requirements of the law.  In short, they will have to deal head-on with the requirements of Articles 3 and 9 of the Uniform Commercial Code.  The Veal case is a good primer on these issues.

    Phil Querin
    Attorney at Law
    http://www.q-law.com/
    121 SW Salmon Street, Suite 1100 Portland, OR 97204 
    Tel: (503) 471- 1334

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  • Multnomahforeclosures.com: July 15th, 2011 Update.


    Multnomah County highlighted in Oregon; Portla...
    Image via Wikipedia

    Multnomahforeclosures.com was updated with the largest list of Notice Defaults to date. With Notice of Default records dating back nearly 3 years.  

    If you are planning on investing in real estate, want to learn the status of the home you are renting/leasing or about to rent or lease  you should visit Multnomahforeclosures.com.

    All listings are in PDF and Excel Spread Sheet format.

    Multnomah County Foreclosures

    Multnomah County Foreclosures
    http://multnomahforeclosures.com

     
     

    Fred Stewart 
    Broker
    Stewart Group Realty Inc.
    http://www.sgrealty.us/
    info@sgrealtyinc.com
    503-289-4970 (Phone)

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  • PMI to pay underwater borrowers to stay put by by Jacob Gafney, Housingwire.com


    Private mortgage insurer PMI Group (PMI: 1.34 -11.26%) will offer cash incentives to some homeowners in negative equity to help prevent mortgage defaults.

    PMI subsidiary, Homeowner Reward is working with Loan Value Group, to administer the pilot program, called Responsible Homeowner Reward.

    The program launched Monday and will start in select real estate markets where falling house prices left borrowers owing significantly more on their mortgage than what the property is worth.

    Participation in RH Reward is voluntary and there is no cost to the homeowner, according to PMI. The cash will come after a lengthy period of keeping the mortgage current, generally from 36 to 60 months. According to PMI, the reward will be between 10 to 30% of the unpaid principal balance.

    The Loan Value Group works “to positively influence consumer behavior on behalf of residential mortgage owners and servicers,” according to its website.

    LVG programs already delivered more than $100 million in cash incentives to distressed homeowners. However, those programs focus on turnkey solutions such as cash for keys, with an aim to avoid principal forgiveness. The Homeowner Reward program is taking a different path.

    “We continue to seek creative and effective loss mitigation strategies,” said Chris Hovey, PMI vice president of servicing operations and loss management. “PMI is especially supportive of homeownership retention efforts in states that are facing unprecedented housing challenges.”

    Write to Jacob Gaffney.

    Follow him on Twitter @jacobgaffney.

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  • Below Market Interest For Some Home Buyers Rate Available , by Brett Reichel, Brettreichel.com


    If an interest rate below 4% is appealing to you, you should consider the Oregon State Bond Loan as an option in your next home purchase.

     Yes – it can be used in a “next” situation.  Though the program is a first time home buyer program, there are options for previous home owners to use this program.  The Bond Loan defines a first time home buyer as someone who hasn’t owned a home in the last three years.  So, if you owned a home, but sold it prior to 2007, it’s possible that you could qualify for this loan.

    Currently, the State Bond Loan has an interest rate of 3.875%* and an APR of 4.721%*.  These low interest rates might be a once in a lifetime opportunity. 

    The program is underwritten to FHA guidelines so it’s a pretty easy program to qualify for.  FHA allows for less than perfect credit, and has flexible debt-to-income guidelines as well. 

     There are income limitations, but they are quite generous.  You should plan on being a long term owner due to the potential “recapture” tax penalty (which isn’t automatic, nor is it as bad as many loan officers make it out to be).

    Any “first time” home buyer should be considering this tool to minimize their housing expense!

    *Based on a $200,000 sales price and $194,930 loan amount.  Finance Charge $157,406.55, Amount Financed $190,935.08 and Total of Payments $348,341.73.  Credit on approval.  Terms subject to change without notice.  Not a commitment to lend.  Call for details.  Equal Housing Lender.

     

    Brett Reichel’s Blog  http://www.brettreichel.com

     

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  • Appraisal Fraud in Clackamas, Oregon? , by Brett Reichel, Brettreichel.com


    Wowza…..pretty bold headline, isn’t it?

    How can that claim be made or the question raised?

    First – a quick note on technicalities on appraisals – Comparable Sales are compared to the Subject property to try to lead the appraiser to a supportable “opinion of value”.   Differences in properties are accounted for by “adjustments” to the comparable sale, which then leads to an “adjusted value” of the comparable.  The adjustments are supposed to equalize differences in properties.  Adjustments are supposed to be supported through market analysis, specifically “matched pair analysis“.

    A simplified example of a “matched pair analysis” would be two houses that are identical in every way, with the exception of one of them having a fireplace.  House A, without the fireplace sells for $100,000, and House B, with the fireplace sells for $101,000.  What’s the value of the fireplace?  Since the houses are identical in every way, the value of the fireplace is clearly $1,000.  In that market area, in that price range, fireplaces are worth $1,000 and until proven differently, the appraiser is justified in adjusting comparable sales $1,000 for fireplaces (having them or not having them).

    One of the things we’ve seen adjustments for lately, is the adjustment in “time”.  This adjustment is made for changes in the market between when a comparable sale is sold and when your subject sold.  If the market is dropping, then the adjustment to the comparable would be downward, and in a rising market, upward.

    As you might suspect, appraisers have been making this adjustment…..a lot….lately.  The problem is, they have been skipping the “matched pair analysis” process and just using median prices to justify the adjustment.  This is NOT acceptable appraisal practice.  But, if it’s become the norm, if it’s become acceptable, it should apply when median prices escalate.

    Thus the headline.  A recent market report indicates that median prices have been on a 90 day upswing in Clackamas, Oregon.  Have the appraisers reversed their course and adjusted upward for time?  No they haven’t.  Why?

    Lender pressure is why.  The whole point of industry reform (HVCC and/or Dodd-Frank) was to eliminate lender pressure, but now the lenders have even greater methods of applying pressure with the new rules.  Really, the problem starts in two places, regulation and the GSE‘s.   The GSE’s are Fannie Mae & Freddie Mac.  Their forms require the use of Median Prices.  Fannie/Freddie, Barney and Chris (a criminal “friend of Angelo”) are behind this lender fraud.  The rest of the market is captive and held to their criminal standards, including the poor appraiser.

    Frankly, this only helps the banks, and it doesn’t do anything for the borrower, the seller.  It doesn’t help stabilize our markets or improve our economy.

    What to do?  Well, don’t shoot the appraiser – he/she can’t do anything about what the lenders force them to do.  Complain to the lender, complain to your legislators, complain to regulators, call Elizabeth Warren, complain long, hard and loud….maybe if enough voices are heard we can get out from under the tyranny of the banks and Fannie Mae and Freddie Mac.

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  • Home equity picture improves, a little, by Wendy Culverwell, Portland Business Journal


    The number of homes worth less than their outstanding mortgages fell slightly in the first three months, according to figures released Tuesday by CoreLogic Inc. (NYSE: CLGX), a Santa Ana, Calif.-based real estate data firm.

    According to CoreLogic, 27.2 percent — or 13.5 million homes — had negative or near-negative equity in the first quarter. That compares to 27.7 percent in the fourth quarter of 2010.

    In Oregon, 17.2 percent of homes are worth less than their mortgages and another 5.8 percent had near-negative equity. Collectively, Oregonians owe $121.9 billion on 696,142 mortgages on properties worth a total of $175 billion.

    “The current economic indicators point to slow yet positive economic growth, which will slowly reduce the risk of borrowers experiencing income shocks,” said Mark Fleming, chief economist with CoreLogic. “Yet the existence of negative equity for the foreseeable future will weigh on the housing market recovery by holding back sale and refinance activity.”

    Negative equity occurs when a borrower owes more than the home is worth. “Near-negative” refers to homes with less than 5 percent equity, a figure that would be wiped out by transaction costs if the property were sold.

    In Washington state, 16.9 percent of homes had negative equity and 5.8 percent had near-negative equity. Collectively, Washingtonians owe $291.7 billion on 1,412,110 mortgages on properties worth a total of $429.1 billion.

    Nevada, where 63 percent of all mortgaged homes are worth less than the outstanding loan balance, led the nation for negative equity. The other top five states were Arizona, 50 percent, Florida, 46 percent, Michigan, 36 percent and California, 31 percent. Nevada, Arizona and Florida showed improvement from the prior quarter.

    The average “underwater” home is worth $65,000 less than the outstanding mortgage balance.

    Read more: Home equity picture improves, a little | Portland Business Journal

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  • Use Caution When Selling REO Properties, by Phil Querin, PMAR Legal Counsel, Querin Law, LLC Q-Law.com


    Foreclosure Sign, Mortgage Crisis
    Image via Wikipedia

    By now, most Realtors® have heard the rumblings about defective bank foreclosures in Oregon and elsewhere. What you may not have heard is that these flawed foreclosures can result in potential title problems down the road. 

    Here’s the “Readers Digest” version of the issue: Several recent federal court cases in Oregon  have chastised lenders for failing to follow the trust deed foreclosure law. This law, found inORS 86.735(1), essentially says that before a lender may foreclose, it must record all assignments of the underlying trust deed. This requirement assures that the lender purporting to currently hold the note and trust deed can show the trail of assignments back to the original  bank that first made the loan.

    Due to poor record keeping, many banks cannot easily locate the several assignments that  occurred over the life of the trust deed. Since Oregon’s law only requires assignment as a condition to foreclosing, the reality of the requirement didn’t hit home until the foreclosure crisis was in full swing, i.e. 2008 and after.

    Being unable to now comply with the successive recording requirement, the statute was frequently ignored. The result was that most foreclosures in Oregon were potentially based upon a flawed process. One recent federal case held that the failure to record intervening assignments resulted in the foreclosure being “void.” In short, a complete nullity – as if it never occurred.

    Aware of this law, the Oregon title industry is considering inserting a limitation on the scope of its policy coverage in certain REO sales. The limitation would apply where the underlying foreclosure did not comply with the assignment recording requirement of ORS 86.735(1). This means that the purchaser of certain bank-owned homes may not get complete coverage under their owner’s title policy. Since many banks have not generally given any warranties in their

    REO deeds, there is a risk that a buyer will have no recourse (i.e. under their deed or their title insurance policy) should someone later attack the legality of the underlying foreclosure.

    Realtors® representing buyers of REO properties should keep this issue in mind. While this is  not to suggest that brokers become “title sleuths,” it is to suggest that they be generally aware of the issue, and mention it to their clients, when appropriate. If necessary, clients should be told to consult their own attorney. This is the “value proposition” that a well-informed Realtor®  brings to the table in all REO transactions.

    ©2011 Phillip C. Querin, QUERIN LAW, LLC

    Visit Phil Querin’s web site for more information about Oregon Real Estate Law http://www.q-law.com

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  • Fannie Mae Homepath Review, by Thetruthaboutmortgage.com


    Government mortgage financier Fannie Mae offers special home loan financing via its “HomePath” program, so let’s take a closer look.

    In short, a HomePath mortgage allows prospective homebuyers to get their hands on a Fannie Mae-owned property (foreclosure) for as little down as three percent down.

    And that down payment can be in the form of a gift, a grant, or a loan from a nonprofit organization, state or local government, or an employer.

    This compares to the minimum 3.5 percent down payment required with an FHA loan.

    HomePath financing comes in the form of fixed mortgages, adjustable-rate mortgages, and even interest-only options!

    Another big plus associated with HomePath financing is that there is no lender-required appraisal or mortgage insurance.

    Typically, private mortgage insurance is required for mortgages with a loan-to-value ratio over 80 percent, so this is a pretty good deal.

    HomePath® Buyer Incentive

    Fannie Mae is also currently offering buyers up to 3.5 percent in closing cost assistance through June 30, 2011.

    But only those who plan to use the property as their primary residence as eligible – second homes and investment properties are excluded.

    Finally, many condominium projects don’t meet Fannie’s guidelines, but if the condo you’re interested in is owned by Fannie Mae, it may be available for financing via HomePath.

    Note that most large mortgage lenders, such as Citi or Wells Fargo, are “HomePath Mortgage Lenders,” meaning they can offer you the loan program.

    Additionally, some of these lenders work with mortgage brokers, so you can go that route as well.

    Final Word

    In summary, HomePath might be a good alternative to purchasing a foreclosure through the open market.

    And with flexible down payment requirements and no mortgage insurance or lender-required appraisal, you could save some serious cash.

    So HomePath properties and corresponding financing should certainly be considered alongside other options.

    But similar to other foreclosures, these homes are sold as-is, meaning repairs may be needed, which you will be responsible for. So tread cautiously.

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  • Don’t Be Fooled Again! by Brett Reichel, Brettreichel.com


    Many people will tell you that an Adjustable Rate Mortgage (ARM)  is horrible, and something a borrower should never take out.  A friend recently stopped by worried that his ARM was adjusting and that his payment would go through the roof.  We analyzed his paperwork and found out that his interest rate would be going down by MORE THAN 2 PERCENT!  This made a big impact on his payment!

    The ARM’s that were bad were:

    • Sub Prime loans where the rate was artificially low
    • Had super short introductory periods like two years or less
    • Had a pre-payment penalty that was in force longer than the first adjustment of the loan
    • Had a payment that didn’t even cover their interest

    These loans were definitely toxic.

    The difference between today’s ARM’s?  Today’s ARM’s are much safer and better loans.  If you think you are only going to be in a property for 5, 7 or 10 years, you can find an ARM that has a fixed rate time frame that matches!   Here are features to look for in an ARM:

    • A fixed rate period that is the same or longer than the time frame you are planning on staying in the house.  If you think you’ll be there for five years, get a 5 year fixed ARM, or a 7 year fixed ARM.
    • Caps or limits to how high the interest rate a go to both at each adjustment and for the life of the loan.
    • Low margins.  What’s a margin?  Essentially, it’s the lenders “mark up” over the cost of their funds.  The lower the margin, the lower your future interest rate.
    • Most importantly, a lower rate than a 30 year fixed rate loan.  If you are sharing the interest rate risk with the lender, you should get a break in your costs.

     Recent customers of mine who are moving to a new town for just five years, will be saving over 1% in interest rate compared to the thirty year fixed rate loan.  For them this means about $100 per month!  For $100 a month, they can buy their loan officer a steak dinner every month for getting them such a good deal!

    Don’t be fooled by so-called experts.  ARMS are a great deal IF MATCHED to the correct situation.  Thirty year fixed rate loans are great, but sometimes an ARM is a better option.

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  • Oregon Foreclosures: The Mess That MERS Made, by Phil Querin, Q-Law.com


    For the past several years in Oregon, foreclosures have been processed fraudulently and in violation of Oregon’s trust deed law. Banks, servicers, title companies and licensed foreclosure trustees, were all aware of the problem for years, but no one did anything about it. This was not a minor error or simple oversight – it was a patent disregard for the laws of Oregon.

    Oregon’s Trust Deed Foreclosure Law. It is widely known that during the credit/housing boom, lenders frequently sold their loans between one another. When the ownership of a loan is transferred, it is necessary to execute, in recordable form, an “Assignment of Trust Deed.” ORS 86.735(1) governs what must occur before a trust deed may be foreclosed in Oregon; all such assignments must be placed on the public record. This is not a new law and it is not significantly different from the laws of many other states. Oregon’s law has been on the books for decades.

    ORS 86.735(1) is not complicated or confusing. It simply means that after the original lender makes a loan and takes back a trust deed (which is immediately recorded), all subsequent assignments of that loan must be recorded before the foreclosure is formally commenced. In this manner, one can see from the public record, the “chain of title” of the loan, and thereby know with certainty, that the lender filing the foreclosure actually has the legal right to do so. It protects the consumer and assures the reliability of Oregon land titles.

    The MERS Solution. In the 1990s, MERS came into existence. Its avowed purpose was to replace the time honored system of public recording for mortgage and trust deed transfers, with an electronic registry which its members would voluntarily use when a loan was transferred. This registry is for use only by MERS members, all of whom are in the lending industry. The immediate effect of MERS was that lenders stopped publicly recording their mortgage and trust deed assignments. This deprived local governments of millions of dollars in recording fees, and took the business of the sale of loans “underground.” A more detailed discussion of MERS’ business model is posted here.

    Although the numbers vary, it is believed that MERS comprises approximately 60% of the national lending industry. Until recently, it had no employees. MERS was not born from any state statute or national enabling legislation. It was the brainchild of its owners, Mortgage Bankers Association, Fannie Mae, Freddie Mac, Bank of America, Nationwide, HSBC, American Land Title Association, and Wells Fargo, among others.

    How MERS Has Contributed To Oregon’s Mortgage Mess. In an effort to give MERS the appearance of authority, its rules clarify that it will act solely as a “Nominee” for each of its members – doing only what its member instructs, but in its own name and not the name of the member. The “Nominee” is, as some Oregon federal judges have correctly observed, nothing more than “a strawman.”

    When the foreclosure crisis hit, lenders realized that they needed some way to get the trust deed into current bank’s hands to initiate the process. Since MERS’ existence was virtual, and with no real employees, whenever it came time to assign a mortgage or trust deed, a MERS “Assistant Vice President” or “Assistant Secretary” would execute the assignment on behalf of MERS in their “official” capacity. But since MERS has no such officers, it simply created mass “Corporate Resolutions”, appointing one or more low level member bank employees to “robo-sign” thousands of bogus assignments.

    It is important to note that these MERS “officers” only made one assignment – i.e. from the original lender whose name appeared on the public record when the loan was first made, to the foreclosing lender. In Oregon, this means that ORS 86.735(1) requiring the recording all of the intervening assignments, was intentionally ignored. Hence, there was never a “chain of title” on the public record disclosing the intervening assignments of the loan. As a result, in Oregon, no one – including the homeowner – knows if the bank foreclosing a loan even has a legal right to do so.

    And there is reason to believe many of the banks did not have the legal right to foreclose. In every Oregon foreclosure I have witnessed during the last twelve months, where the loan was securitized into a REMIC, there is substantial doubt that the foreclosing bank, acting as the “trustee” of the securitized loan pool, actually had any right to foreclose. This is due to the strict tax, accounting, and trust laws governing the REMIC securitization process.

    The short explanation is that if the paperwork was actually transferred into a loan pool between, say 2005 – 2008, there would be no need for an assignment to that trustee today – the loan would have already been in the pool and the trustee already had the right to foreclose; but if the loan was not transferred into the pool back then – when it should have been, it cannot be legally assigned out to that trustee today. Although it is not always easy to locate, the Pooling and Servicing Agreement, or “PSA,” governing the REMIC will contain a “Cut-Off Date.” That date is the deadline for the sponsor of the REMIC to identify the pool’s notes and trust deeds (or mortgages) in the trust. After that time [subject to limited exceptions – which do not include the transfer of nonperforming loans into the trust – PCQ], no new loans may be added. For example, if the REMIC was created in early 2006, the Cut-Off Date is likely to also be in 2006. This would mean that a bank, acting in the capacity of a trustee for a certain REMIC today, would not have the legal right to foreclose, if that trustee only recently received the trust deed assignment. The REMIC had been closed years earlier.

    This is fraudulent. Yet it was so widespread, that foreclosures routinely adopted this “single assignment” model, and it became an assembly line business for MERS and its member banks. The assignment documents were typically prepared in advance by foreclosure mill attorneys and foreclosure trustee companies, uploaded into cyberspace to a servicer or foreclosure processing company, and signed, en masse, by robo-signers. Then the assignments were shipped over to notaries, who never actually witnessed the MERS “officer” sign an document. Once completed, the original assignment document was sent via overnight mail to the foreclosure trustee to record and begin the foreclosure. In many instances, the foreclosure trustee, (a) acting as a MERS “officer” would sign the assignment document transferring ownership of the loan to a lender, then (b) he or she would sign another document appointing their company as the Successor Trustee, then (c) that same person would also sign the Notice of Default, which commenced the foreclosure. No conflict of interest there…. It is this “need for speed” that epitomizes the MERS business model.

    The result has been predictable – today there is evidence of fraudulent foreclosure paperwork on a massive scale. Forgeries are rampant. Notarization laws are flaunted. Until recently, the banks and MERS have gotten away with this scheme. The lending, servicing and title industries have simply taken a “don’t ask, don’t tell” approach to foreclosures in Oregon and elsewhere.

    However, in 2010, Oregon and several other states said “enough.” In Oregon for example, there were at least three federal district court and bankruptcy court cases that struck down foreclosures due to the use of the MERS strawman model, and also based upon the flagrant violation of ORS 86.735(1). The most notable of these cases is the February 7, 2011 published opinion of Hon. Frank R. Alley III, Chief Bankruptcy Judge in Donald McCoy III v. BNC Mortgage, et al. Judge Alley held, in part, that: “…the powers accorded to MERS by the Lender [whose name appears in the Trust Deed] – with the Borrower’s consent – cannot exceed the powers of the beneficiary. The beneficiary’s right to require a non-judicial sale is limited by ORS 86.735. A non-judicial sale may take place only if any assignment by [the Lender whose name appears in the Trust Deed] has been recorded.” [Parentheticals mine. PCQ]

    Judge Alley concluded that a failure to follow the successive recording requirement of ORS 86.735(1) meant that the foreclosure was void. It is important to note that in McCoy, as in most rulings against MERS lenders, the courts have not held that the banks may not prosecute their foreclosures – merely that before doing so, they must record all intervening assignments, so there is no question as to the foreclosing bank’s standing.

    MERS is now engaged, through surrogates and one or more lobbyists, to introduce a bill in the Oregon legislature. It is a bold effort to legislatively overturn Judge Alley’s ruling, as well as similar adverse rulings by Oregon federal court judges, King, Hogan, and Perris.

    MERS, its member banks, and the foreclosure industry, including its foreclosure mill attorneys, have never had justification for ignoring Oregon’s foreclosure law. Nor have they offered any justification. Instead, they have threatened that if ORS 86.735(1) and other homeowner protections in our foreclosure statutes are not amended to give MERS the right to continue acting as a strawman, and to avoid recording all successive assignments, the Oregon housing and foreclosure crisis will continue longer than necessary. Metaphorically speaking, having been caught with their hand in the cookie jar, MERS now asks the Oregon Legislature to legalize cookie theft.

    Oregon Consumers Need To Be Protected. MERS’ proposed legislative solution does nothing to protect homeowners. Rather, it is aimed at legalizing patently fraudulent conduct, in the name of “helping” Oregon homeowners get through the foreclosure crisis faster. Thanks, but no thanks. The title and lending industry are concerned that if a law is not immediately passed giving MERS its way, foreclosures will come to a halt and commerce will suffer. The banks have even threatened to file judicial foreclosures against homeowners, to somehow avoid the recording of assignments law. This is a complete ruse. Here’s why:

    Lenders cannot avoid their paperwork problems in Oregon by going into court. As we have seen in Oregon’s federal court cases, the banks are still unwilling to produce the necessary documents to prove they have standing to foreclose. If a bank does not have the legal documentation minimally necessary to establish its right to foreclose non-judicially, why would it go into court and shine a bright light on its own fraudulent paperwork? The outcome will be the same – as we have seen in judicial foreclosure states such as Florida, where they now require the banks’ attorneys to certify to the truthfulness of their pleadings and paperwork.
    Lenders will not go into court for fear of further alienating an already alienated public. [Note the recent MERS Announcement to it’s members, tightening is rules due to concern over its “…reputation, legal and compliance risk….” – PCQ]
    The banks know that with the high court filing fees and lawyers, it will be much more costly for them to foreclose judicially in court. While they do not seem concerned about their high executive bonuses, when it comes to the cost of foreclosures, they’ll pinch a penny ’til it screams.
    In any event, there is little reason to fear judicial foreclosures clogging court dockets. With proper documentation, the process can be relatively fast (3+ months), since the cases could be disposed of on summary judgment. If judicial foreclosure cases became too numerous, the local courts can create expedited protocols and assign certain judges to speed them through – as done in other states. Lastly, many foreclosures are already being filed judicially, especially on commercial properties. To date, there has been no hue and cry that it is overwhelming the court systems.
    The lenders’ complaints that foreclosures are slowing Oregon’s housing recovery are not necessarily verified by the stats. Oregon’s Regional Multiple Listing Service (“RMLS™”) shows that January 2009 housing inventory (i.e. dividing active listings by closed sales) was 19.2 months; January 2010 was 12.6 months; January 2011 was 11.3 months. February 2009 was 16.6 months, February 2010 was 12.9 months; and February 2011 was 10.9 months. March 2010 showed housing inventory at 7.8 months (down from 12.0 months in 2009), and there is no reason we cannot expect even better numbers when this month is over.

    These numbers suggest that housing inventory is gradually being reduced year over year. Although it is true that housing prices continue to decline, that is more likely the result of lenders fire-selling their own REO inventory, than anything else. I say this because of many anecdotal reports of lenders refusing short sales at prices higher than they ultimately sold following foreclosure. Perhaps lender logic is different than human logic….

    In an online article in Mortgage News Daily [a lender resource site – just look at their advertising – PCQ], it was reported:

    The cost of a foreclosure, it turns out, is pretty staggering and we wonder why lenders and the investors they represent aren’t jumping at a solution, any solution, that would allow them to avoid going to foreclosure whenever possible.***According the Joint Economic Committee of Congress, the average foreclosure costs were $77,935 while preventing a foreclosure runs $3,300.

    Overall, foreclosure is a lose-lose proposition for all concerned – except perhaps the companies servicing and foreclosing the loans [Point of Interest: Bank of America owns BAC Servicing and ReconTrust, and is making millions from the business of servicing and foreclosing the loans it made to its own borrowers. A sterling example of vertical integration in a down market… PCQ]

    The only good solution is a non-foreclosure solution. Lenders already have ultimate control over the outcome for every loan in default. In those cases where modifications are viable, they should do so on an expedited basis. [Point of Interest: Go to the following CoreLogic site here , where in 2010 they touted their new analytics program that is designed to enhance lender decision making on modifications, short sales, and deeds-in-lieu. One has to believe that if such programs exist and banks stopped losing borrowers’ paperwork, they could actually have a decision back fairly quickly – rather than the 14-month horror stories we hear about. – PCQ]

    Although it is doubtful that the industry can and will – anytime soon – create a fast and fair process to reduce principal balances, that is certainly a fair solution. It is fair to the homeowner in need, and actually fair to the bank, since the cost of foreclosure, including taxes, insurance, commissions, and other carrying costs, are significantly more than the short term pain of a write down. [If the banks need a little accounting sleight-of-hand from the FASB, there’s no reason they couldn’t put some pressure on, as they did with the mark-to-market rules. -PCQ]

    Another, more likely and quicker solution, is to establish a fast-track short sale process. This should not be complicated if the banks stopped “losing paperwork” and focused on turning short sales into 45-60 day closings, consistent with the timing for equity sales. It has been lender delays that have stigmatized short sales, so only hungry investors, and buyers with the patience of Job, participate. This can change if banks begin expediting their short sale processing.

    With both the modification and short sale alternatives, lenders do not receive the property back into their already bloated REO departments; and there is the added advantage that the banks do not have to risk a judicial slapdown, when using their fraudulently prepared Assignments of Trust Deed. In short, it is a “win-win” solution for lender and borrower.

    Conclusion. The MERS business model was based upon the concept that “It is better to seek forgiveness than permission.” The problems they created were done with their eyes wide open in a brazen act of “might makes right” hubris. After having created these problems, they are now seeking to legislatively overturn the rulings of several of Oregon’s highly regarded federal judges. These decisions have affirmed the rule of law. To do otherwise – that is to sanctify MERS’ illegal conduct by eviscerating statues designed to protect homeowners, would be a travesty.

    MERS, the banks, and the title industry own this problem, and they should own the solution. Whatever the outcome, it must be fair, and should not be borne on the backs of Oregon’s already struggling homeowners.

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  • An Old Idea is New Again: Second Homes in Oregon , By Fred Stewart, Stewart Group Realty Inc.


    2011 may be the year buyers start considering second homes again. Our mountains, high desert and coastlines have long been considered legendary vacation destinations. Both urban dwelling Oregonians and people from out of state go home from visits to these places with a dream of returning as often as possible.

    Owning a second home is a good idea – one that makes family life more enjoyable. It is the dream of many to finally have that special getaway. With the retraction of home values down to levels not seen in nearly 10 years, coupled with still historically low interest rates, this dream may once again be an opportunity whose time has come.

    But of course, there is the flip side to this rosy picture: it has become increasingly difficult to obtain financing. And the barriers are even higher for second homes then they are for people seeking to finance their primary residence. Lenders and banks have taken a lot of losses over the past few years. A significant portion of these losses is due to the second home market that developed between 2003 and 2006. Because of this, expect a lot more work to get financing then what you may have experienced in the past. It is important that you work closely with a loan officer that has a lot of experience in residential lending and is working with a Mortgage Banker or Bank. However, you may have found a truly awesome deal and still be unable to prove yourself sufficiently to a lender. It is time to think about this in new ways.

    Seller financing options such as land sales contracts and lease options should not be ignored. These options will sometimes be the only options that will allow a successful transaction to occur in the present financial climate. Do not hesitate to begin by speaking with a loan officer and exploring the possibility of traditional financing. At the same time, don’t waste precious time you begin to feel as if you are not making satisfactory progress. The “miracles” that good loan officers could pull off for borrowers in the past, are simply not happening these days.

    If you have exhausted the bank loan route unsuccessfully, educate yourself about the various seller finance options. When you do reach mutually acceptable terms with your seller, be sure to draft an agreement that would last at least 3 to 5 years, if possible. It will take at least that long for lending to return to some normalcy and for you, the buyer, to develop a financial profile that would be encouraging for a lender or bank to work with them. Here your favorite loan officer can be of great assistance, and work with you during that time period to assist you in understanding and attaining eligibility for bank financing. Three to 5 years of good credit, stable employment and a healthy dedication to making the contract and mortgage payments on time will show the lender that you have the economic and character resources to deserve the credit for the loan. The three C’s (Capability, Creditworthiness and Character) will always be the basis of bank lending. What is different now is the stringency applied to each of these criteria.

    As always when looking to buy an investment property or a second home you should talk to your tax and financial advisors and get their opinion on how this will affect your tax exposure and your financial planning. A real estate purchase properly structured and managed will improve your financial standing. A second home can be a wonderful and satisfying improvement on your lifestyle.

     

    Fred Stewart
    Stewart Group Realty Inc.
    http://www.sgrealty.us
    info@sgrealty.us
    503-289-4970

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  • OregonLandSalesContract.com: New Real Estate and Home Buyer Listings


    New Listings on OregonLandSalesContract in both the Real Estate listings and buyer listings sections. OregonLandSalesContract is a web site dedicated to marketing real estate in which the seller is offering terms and buyers that are looking for seller financing opportunities.

    OregonLandSalesContract.com
    http://oregonlandsalescontract.com

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  • Multnomahforeclosures.com: Updated Notice Of Default Lists


    Multnomah County Courthouse in Portland, Orego...
    Image via Wikipedia

    Multnomahforeclosures.com was updated with the largest list of Notice Defaults to date. With Notice of Default records dating back nearly 3 years. Multnomahforeclosures.com idocuments the fall of the great real estate bust of the 21st century. Over 50,000 Notice of default Listings

    All listings are in PDF and Excel Spread Sheet format.

    Multnomah County Foreclosures

    http://multnomahforeclosures.com

    Stewart Group Realty Inc.

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  • Oregon to Launch Foreclosure Prevention Program on Friday, by Joy Leopold, Dsnews.com


    Half million dollar house in Salinas, Californ...
    Image via Wikipedia

    Since the development of the Hardest Hit Fund in February, the state of Oregon has received more than $200 million to help homeowners struggling with their mortgages and to develop foreclosure prevention measures.

    This Friday the state will open its first foreclosure prevention program.

    This launch follows this summer’s development of the Oregon Homeownership Stabilization Initiative (OHSI) to develop foreclosure prevention plans to distribute the $220 million.

    The application for the Mortgage Payment Assistance (MPA) program will be available on the recently launched OHSI Web site from December 10 to January 14, 2011.

    Program participants will be randomly selected from a pool of eligible applicants by a software program and notified after the application is closed.

    Each applicant will fill out the online application and then meet face-to-face with an advisor to answer questions and make sure all required documents have been submitted.

    “While we recognize there are not enough resources to serve the great need faced by homeowners in Oregon, we are pleased to have created a solid program that will help smooth the difficult path many families have been traveling,” said Victor Merced, director of Oregon Housing and Community Services (OHCS).

    Around 5,000 applicants will be selected to receive mortgage payment help for up to one year or up to a maximum payout of $20,000, whichever comes first.

    The MPA has been funded with $100 million of the Hardest Hit money. Three smaller programs developed by the OHSI will use portions of the remaining money for foreclosure prevention initiatives.

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  • Conventional Wisdom: 6 Things You Need to Know About Private Monthly MI, by Cecilia Farley MGIC


    Recently, the Federal Housing Administration (FHA) made a change to its premium pricing structure: lowering the upfront premium amount from 2.25% to 1% and raising its monthly premium from .50% to .85% for 30-year loans with 5% or more down and from .55% to .90% for 30-year loans with less than 5% down. This change has made some people anxious and others just don’t care. What does this change mean to today’s homebuyers? Is this a good change or not?

    Well, that depends. For borrowers with lower credit scores, an FHA loan may continue to be the best option. For borrowers with higher credit scores, private mortgage insurers offer cheaper alternatives.

    Even FHA commissioner David Stevens said, in an article that appeared in the National Mortgage News on September 27, 2010, “We have actually made GSE loans with private mortgage insurance a better option for some homebuyers.”

    Private mortgage insurance (MI) has become a better option because private mortgage insurance companies have made changes, too. In response to the housing and economic downturn many private companies, including mortgage insurers tightened, however,  as the economy began to recover most have spent the majority of 2010, opening up markets and normalizing guidelines and some have altered their pricing . The result is private MI options that are competitive with FHA, especially for borrowers of credit scores of 720 or higher.

     

    Here are 6 things you need to know about the Monthly MI premium plan offered by private MI insurers:

     

    1. No upfront premium: While all MI companies offer premium plans that allow for an upfront premium, the most popular premium structure by far in the industry is the Monthly MI plan where no upfront payment is needed. Borrowers choosing an FHA loan must either pay an additional 1% at closing or finance the amount into their loan.
    2. Lower loan amount: Most FHA borrowers choose to finance that upfront premium into the loan and spread it over the life of the loan, increasing their debt. With a private MI Monthly premium, there is no upfront premium and no need to increase the loan amount.

    3. Greater equity: Because there was no upfront premium to finance into the loan with a private MI Monthly premium, the borrower is put in a better equity position right from the start.

     

    1. Lower or comparable monthly payment: Here is where homebuyers and real estate professionals should rely on a professional loan originator, because several variables will come into play, especially the borrowers’ credit scores.

      For instance, at MGIC, the leading private mortgage insurance company, a borrower with a 720 credit score and 5% downpayment will pay a monthly premium rate of .67%, compared to FHA’s premium rate of .85% for a borrower with the same score and downpayment. But remember that FHA also charges a 1% upfront premium!  So it’s important to “do the math” to see which option is actually better for the borrower. In many cases, going the private MI route results in a lower monthly payment, compared to FHA.

     

    1. Lower total MI cost: Because there is no upfront premium and often a lower monthly premium, the amount paid for mortgage insurance can be dramatically less with private MI compared to FHA. For example, on a $150,000 loan where the borrower put 5% down and had a credit score above 720, the borrower will pay more than $2,500 more in MI costs over 3 years with FHA compared to MGIC’s Monthly MI.
    2. Cancellation: Fannie Mae and Freddie Mac have more flexible rules for cancellation than FHA, meaning a homebuyer using private MI may be able to cancel the monthly MI payment sooner than with FHA, saving even more money over the life of the loan.

    It’s obvious that checking out all the options can really pay off for savvy lenders and homebuyers. To find out which is the better option, all the MI companies provide calculators that allow originators to compare FHA and private MI premium plans. (MGIC’s calculator is located at: www.mgic.com/calculator)

    Cecilia Farley – MGIC
    Account Manager
    Cell (503) 869-5732
    cecilia_farley@mgic.com

    .

     

    MGIC (www.mgic.com), the principal subsidiary of MGIC Investment Corporation, is the founder and leader of the private mortgage insurance industry, serving more than 3,300 lenders with locations across the country and Puerto Rico.

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