INDUSTRY NEWS Category
Californians Have Best Credit Scores In Nation
HOME LOANS, INDUSTRY NEWS, SHASTA COUNTY
A recent article in a mortgage trade journal pointed out the fact California mortgage applicants have the highest credit scores in the nation. According to the article authored by Heather Cernoch, prospective borrowers in California have average credit scores of 755, 20 points higher than the national average.
Hawaii came in second in the credit score ratings at 751. States in the northeast did well while the lowest credit scores were found in the Southeast region. Mississippi had the lowest average credit score at 695.
I suspect Redding/Shasta County avearge may be lower than California as a whole. The collapse in real estate prices locally in conjunction with double-digit unemployment and conversations with local lenders lead me to believe the average here is significantly lower.
Today, many homeowners with good jobs and credit are wrestling with the idea of strategic defaults on loans for their primary homes, second homes and investment properties. A strategic default is defined as a borrower who elects to walk away from their property because the mortgage is underwater, not because of any financial hardship.
As one mortgage industry expert points out in the article, Californians have managed to weather the wave of foreclosures and precipitous price drops without serious damage to their credit ratings. Let’s hope this trend continues!
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
NEARLY 30 YEARS LOCAL REAL ESTATE SALES EXPERIENCE
Experts Differ On Future of California Housing Market
INDUSTRY NEWS, TIPS FOR BUYERS, TIPS FOR SELLERS
Ask an economist, educator, foreclosure expert and developer their predictions for California’s housing market and you will get a mixed bag of responses. Leslie Appleton-Young, cheif economist for the California Association of Realtors, was optimistic in her belief California home prices will edge upward 2% in the coming year. Others predict prices to remain flat and one foreclosure expert predicts a 5% decline in prices.
Experts agree it will take years for prices to reach price levels attained at the 2006 peak. Leslie believes the moderate and low end of the market have stabilized but further price erosion can be expected for the high end of the market. Location will be an important factor determining which areas will recover first. Inland areas will not see a recovery for “a long time” according to Richard Green, director of the USC Lusk Center for Real Estate. Coastal areas from La Jolla to Marin can expect prices to recover to their peak within 5 years. Jobs will be key to price recovery.
Locally, high unemployment in the Redding/ Shasta County area and the lack of equity refugees from the metro areas will hold our market down. Key industries that once thrived here are gone and not likely to return. Service, government and recreation jobs have taken a hit with the slow national economy. Efforts by government officials at all levels to cut spending may further cripple an already battered housing industry.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
NEARLY 30 YEARS LOCAL REAL ESTATE EXPERIENCE
Stiff Penalty Likely For Strategic Default By Affluent Homeowners
![santacruz-103[1]](http://movetoredding.com/files/2009/11/santacruz-1031-300x199.jpg)
A strategic default is defined as a homeowner who is capable of making their mortgage payment but elects to let the property go into foreclosure because the mortgage is underwater or the property is no longer wanted. Second homes and rental properties are examples of properties purchased by affluent property owners which are likely to be let go if they owe more than they’re worth in today’s market.
A recent article in THE NEW YORK TIMES claims homeowners who decide to stop making payments on a property they no longer wish to keep could be denied a new mortgage for 7-10 years. Not only will their credit be damaged for a lengthy period of time, they could put themselves in a situation where the lender is suing them for the amount of money owed or lost (termed a deficiency) by the bank. Laws allowing a lender to pursue an owner for a loan loss vary from state to state.
In so-called “recourse”states, the lender may go after the home owner’s assets including their primary residence. Maine, New Jersey and Hawaii are examples of recourse states.
In “non-recourse”states, a lender must look only to the value of the subject property to satisfy the outstanding mortgage balance if they take the property through foreclosure, deed-in-lieu of foreclosure or agree to a short sale. However, these laws may only protect the homeowner if the loans were used to purchase the property as the borrower’s primary residence. Refinance, Home Equity Lines of Credit or loans on second homes and investment properties may not have this protection from pursuit for deficiency losses by the lender(s). Florida, Connecticut and Arizona fall into this category.
California, along with Idaho and New York, fall into a third category referred to as “single-action” states which allows the lender to foreclose on the owner or file a civil lawsuit for the full loan amount. I have heard this referred to as judicial or non-judicial foreclosure. Most foreclosures in California are non-judicial and can be accomplished in 4-6 months from start to finish. However, if the lender believes the seller has substantial assets or has intentionally damaged the security through vandalism or stripping the property of fixtures, they may pursue a judicial foreclosure which allows a judge to award a deficiency judgement.
Anyone considering a strategic default should consult with an attorney to discuss potential consequences legally and financially before stopping payments to their lender(s). Since every home owner’s financial situation is unique, consulting with a qualified expert is critical to determine the best course of action to unload an unwanted property.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN 27 YEARS LOCAL REAL ESTATE EXPERIENCE
Short Sales Short Circuited By “Game of Chicken”
INDUSTRY NEWS, SHASTA COUNTY, SHORT SALES
A recent article in THE WALL STREET JOURNAL highlighted a scenario I see in my day-to-day practice of real estate. A property seller, buyer and first lien holder all agree to accept a certain price only to have the second lien holder ask for more money. It’s noteworthy that the second lien holder would get wiped out and not recieve even a penny if the first lien holder forecloses, but nonetheless they demand thousands more than offered to sign off on the short sale deal.
The news article cites an example of a La Jolla condo owner with a cash offer from an investor. He was forced to try a short sale when the value of his condo sankwell below the amount owed to his lenders. He owed $260,000 to the first lien holder (now Freddie Mac) and $50,000 to the second lien holder, being handled by Specialized Loan Servicing, LLC. Freddie Mac has offered Specialized $3,000 to release their lien, an amount typical in the short sale transactions I’ve been involved with. SLS is holding out for $7,000.
The end result is a game of chicken, where the second lien holder tries to extract additional monies from the seller, buyer, first lien holder or real estate agents involved. Unfortunately, in many cases the game ends in a foreclosure, and the second-lien holder gets nothing.
Reasons cited by second lien holders for playing this game include:
- the mortgage payments are still current
- they wish to pursue the borrower for any deficiency but may relinquish that right by agreeing to a short payoff
- they believe they have nothing to lose since their loan is worthless anyways due to falling home prices
Here are some interesting stats quoted in the article:
- 11 million homeowners owe more than their homes are worth
- Another 2.5 million have 5% equity or less
- About 1/3 of the 1.33 million loans in some stage of foreclosure have second liens
- Second loans are typically owned by banks and credit unions
- Most first mortgages are held by Fannie Mae, Freddie Mac or investors in mortgage securities
- Loan servicers are overwhelmed trying to handle the short sale process
- Declining home prices create disputes over values used to approve short sales
- Lenders are wary of fraud, which the short sale process is subject to, by anxious homeowners
California law protects certain borrowers from being pursued by lenders who foreclosed or agree to a short sale. Purchase money loans for owner-occupied primary residences are usually exempt from lenders seeking deficiency debt repayment. However, California homeowners that refinanced or took out second loans usually lose all protections if they agree to a short sale. Lenders will release the lien so the property can be sold, but reserve the right to chase after the borrower for the loss they incurred.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN A QUARTER CENTURY LOCAL REAL ESTATE SALES EXPERIENCE
HUD Launches Comprehensive Housing Data Website
INDUSTRY NEWS, TIPS FOR BUYERS, TIPS FOR SELLERS
Yesterday, the U.S. Dept. of Housing and Urban Development (HUD) launched a new website that consolidates data
from regional, state and county agencies. The economic and housing market data is derived from the Census Bureau, Labor Department, State and Local governments, housing industry sources and HUD’s own economists. Here are some of the reports available:
- Market At A Glance-includes economic and housing data trends for metropolitan areas and counties nationwide. This data will be updated monthly and HUD econimists will tweak the data to reflect regional information.
- Regional Housing Market Profiles-extracted from the U.S. Housing Market Conditions Report detailing employment statistics, population changes, and building permit activity, housing rental and sales activity.
- Regional Narratives-broad overviews of housing and economic trends for ten regions of the U.S. using information from state and local government economists, housing industry sources and from their own investigations.
- Comprehensive Housing Market Analysis-a historical perspective comparing three different time periods: 1990-2000; 2000-as-of date of the analysis; and from the as-of date to up to three years in the future.
HUD Assistant Secretary Dr. Raphael Bostic touts the new website as “…a powerful new tool that’s easy to use, and offers the public a remarkable look at their local economic and housing markets.” He goes on to say “current and reliable data should not be hard to come by“ believing this tool will be helpful to state and local leaders, developers, the real estate industry and the general public.
To visit the website, click here: http://www.huduser.org/portal/regional.html
For a sample of Redding market statistics, click on the “Market At A Glance” tab and select Redding, Ca. from the pull down menu under State/County. Some Redding/Shasta County housing data is missing, but there is plenty of relevant market data including economic, population and housing market trends.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN 25 YEARS LOCAL REAL ESTATE EXPERIENCE
California Voters Just Say Yes To New Taxes?
INDUSTRY NEWS, LOCAL GOVERNMENT
The votes have been counted and 111 of 194 measures and tax bonds in last week’s election passed. Flying in the face
of calls for reducing big government, a majority of Californians have approved school bonds, hotel taxes, parcel taxes, utility taxes and local vehicle taxes. Another 20 measures are too close to call according to the California Taxpayers Association.
Here is a short list of voter approved measures:
- 43 of 63 school bonds (nine too close to call)
- 7 of 17 hotel taxes
- 12 of 12 marijuana sales taxes
- 13 of 44 parcel taxes (seven too close to call)
- 13 of 21 sales taxes
- 12 of 21 utility user taxes
- 5 of 7 local vehicle registration taxes
Defeated measures include:
- San Diego 0.5% sales tax increase (voted down by 70% of voters)
- $69/year school tax voted down by 59% of Santa Clara voters
- 1% sales tax in Half Moon Bay voted down by 53% of voters
The results indicate voters are willing to pass tax increases that benefit their local communities despite all the rhetoric about overspending by bureaucrats.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN 25 YEARS LOCAL SALES EXPERIENCE
New FICO 8 Mortgage Score Announced
HOME LOANS, INDUSTRY NEWS, TIPS FOR BUYERS
Credit scores are used as a tool by lenders to assess a borrower’s risk for many types of credit. FICO announced a new score developed specifically for analyzing prospective homeowners applying for mortgage loans. Dubbed FICO 8 Mortgage Score, this analytic technology provides a sharper assessment of a home buyer’s risk for possible loan default. The score can also be used by lenders to identify existing borrowers at risk for foreclosure allowing early intervention before an expensive foreclosure action is initiated.
In the past, lenders use a general-risk FICO scores to predict the likelihood a loan will be repaid. The new FICO 8 score assesses additional data in a consumers credit file in an effort to specifically predict mortgage repayment risk. As usual, FICO will not provide details as to how or what information is used in their new credit scoring technique in order to prevent consumers from manipulating their finances to achieve a higher score.
FICO indicates the score will have the same 300-850 range. Additional codes will be developed as per the Fair Credit Reporting Act so lenders understand the reasons for the score and can explain the scores to credit applicants. The new scoring system is available to all three major US credit reporting agencies-Trans Union, Equifax and Experian. FICO claims the new score has demonstrated up to 15% higher predictive ability than the general-risk FICO score.
Since the housing bubble burst, minimum credit score thresholds to lock in the lowest interest rate and terms for mortgage loans has risen. Fannie Mae and Freddie Mac set the ground rules for lenders by setting minimum underwriting standards for loans they will purchase. If lenders fail to keep pace with their belt-tightening, the lender may be unable to sell their loans to the secondary market which in turns limits their ability to make additional loans. Today, borrowers in general must have a credit score of 720 or higher to qualify for the lowest rate and best loan terms. That’s nearly 80 points higher than the scores required just three years ago.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN 25 YEAQRS LOCAL REAL ESTATE EXPERIENCE
Halt To Foreclosures by B of A Could Impact Real Estate Values
Realtors are studying Bank of America’s decision to voluntarily stop foreclosures in California and have made some preliminary observations. Steve Goddard, President of the California Association of Realtors, summarized what is going on in a newsletter released Tuesday. Here are some of his points:
- Lenders and loan servicers began halting foreclosures voluntarily in late September and early October
- Only B of A placed a moratorium on foreclosures in California where most foreclosures are not processed through the courts (non-judicial)
- Recent foreclosure laws in California place specific requirements on lenders. For example, loans made between Jan.1,2003 and Dec. 31, 2007 require the lender to attempt to make contact with the borrower to discuss foreclosure avoidance options at least 30 days before filing a Notice of Default (NOD), the first step in the foreclosure process
- The halt to foreclosures by all lenders is voluntary and not mandated by state or federal government
- Realtors across California have already reported delays on escrow closings and removal of listed properties for sale
- Long-term effects of this move are unknown but in the short-term reducing inventory of available homes for sale could slow home sales and place upward pressure on prices (supply and demand)
- Even if the moratorium is lifted in a month or so, the move has created uncertainty in the minds of buyers considering a purchase of a foreclosed property
- Lenders estimate the process of reviewing their foreclosure procedures will take at least a few weeks to 30 days to complete
California is unique in that most lenders utilize Deeds of Trust (DOT’s) to securitize their loans while most other states use mortgages. A DOT is a three party instrument-trustor (borrower), trustee (neutral third party-usually a title company) and the beneficiary (the lender). The process and timeframe for foreclosing on a DOT is fast compared to a mortgage.
Mortgages, a two-party instrument (mortgagor and mortgagee) allow the borrower to redeem their ownership interest in the property for up to 1 year after the foreclosure if they can cough up all the money borrowed plus back interest, penalties and costs. DOT’shave no right of redemption nor can the lender chase after the borrower for any deficiency in most cases. The property itself, not the borrowers personal assets, is the only place the lender can look to to recover what was owed. However, if a borrower refinanced the property, or the property was an investment, the lender may be able to pursue any cash deficiency loss if the property does not sell for enough to cover the loan balance and costs. Short sale sellers could also be subject to pursuit for any loss the lender incurs as a result of agreeing to a short payoff.
This halt in foreclosures will certainly prolong the day we can close the book on this ugly chapter of the Great Recession.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN 25 YEARS LOCAL SALES EXPERIENCE
Arnie Vetoes Bill To Expand Short Sale Protections
INDUSTRY NEWS, REAL ESTATE LEGISLATION, SHORT SALES, TIPS FOR SELLERS
Last week, Governor Schwarzenegger vetoed SB 1178 (Corbett) which would have expanded anti-deficiency protections to homeowners that refinanced their purchase money loans. The bill was sponsored by the California Association of Realtors. Realtors sought protection for homeowners that refinanced their loans without realizing anti-deficiency protections were lost in the process.
Anti-deficiency laws were passed in the 1930’s during the Great Depression. The law limited the borrowers liability to the property value itself, not the borrowers personal assets. If the bank forecloses, resells the property and ends up taking a loss, the bank cannot then go after the borrower for any deficiency.
Unfortunately, the 1930’s era law did not anticipate thousands of borrowers refinancing their loans to secure a lower interest rate. Few borrowers realized doing so would make them personally liable for the entire amount of the new mortgage. And banks didn’t go out of their way to tell them. SB 1178 would have extended those anti-deficiency protections to those that refinanced their loans.
The law would not reward those that refinanced to pay bills or buy boats, cars or motor homes. In the event the refinance allowed the owner to extract cash equity, the homeowner would have to prove they put the extra money back into the property for remodeling, upgrades, swimming pool or adding on to the home.
Realtors feel Arnie misinterpreted the intent of the bill. In essence, the governor believed the bill would reward borrowers for bad decisons by interfering with an existing contract. Realtors were trying to close a loophole that allows lenders to also look to the borrower, not the property exclusively, for security for the loan granted.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN 25 YEARS LOCAL SALES EXPERIENCE
Foreclosure Relief Scam With A Twist
INDUSTRY NEWS, SHORT SALES, TIPS FOR SELLERS
The Federal Trade Commission (FTC) issued a warning to consumers regarding a foreclosure rescue scam designed to exploit financially struggling homeowners. The scam service offer promises to perform a forensic audit of your mortgage loan documents to determine if your lender complied with state and federal lending regulations. The “auditors” claim you can use the audit to:
- avoid foreclosure
- accelerate the loan modification process
- reduce your loan principal
- cancel your loan obligations
In reality, these scam artists are using half truths and outright lies to get the upfront fee of several hundred dollars according to the FTC. I have had clients from Redding/Shasta County ask me about these services and I actually spoke to one such “auditor” located in San Juan Capistrano. He wanted to charge my client several thousand dollars to conduct the audit. When I pressed him for details and a guarantee, he made it clear there was no guarantee they would find anything and the fee was non-refundable. I told my client to not pay this company a dime and we subsequently completed a short sale.
Red flags to look for and avoid include:
- guarantees to stop the foreclosure process-no matter what the circumstances are
- instructs you not to contact the lender, lawyer or credit or housing counselor
- collects an upfront fee before providing any services
- only accepts payment by cashier’s check or wire transfer
- suggests you rent your home so you can buy it back over time
- asks you to transfer your property title
- offers to buy your house for cash at an inflated price inconsistent with current market values
- pressures you to sign papers before you’ve had a chance to read them thoroughly
For legitimate help, call 1-888-995-HOPE for free certified housing counseling from HUD. The national hot line is open 24/7 to assist you in a foreclosure avoidance strategy.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL LIVING REAL ESTATE PROFESSIONALS
CORNER OF COURT AND PLACER IN REDDING
MORE THAN 25 YEARS LOCAL SALES EXPERIENCE
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