Mike Mueller, Social Media.ist

I have a client who is dire need of a Short Sale to get out from under her mortgages. She's upside down primarily due to the reasons I explained in my post, "You Can't Fix LTV". In simplest terms, her homes value has dropped dramatically because the homes around her have drastically dropped in value. Yes, she has no income.  Yes, she has no chance to loan modify.  Yes, she bought at the market high with the wrong loans and little to nothing  down.  But as I started looking at the "other" reasons why the neighborhood is in such decline and found a horrid tale that can only be described as Ugly, Ugly, Ugly!  How Ugly is UGLY? There are currently 82 REOs in the neighborhood. There are 139 NODs (soon to be REOs) How about the record high HOMICIDES last year? What about the other nicer crimes?  How does 631 separate incidents in the last 90 days sound? My package includes over 300 recent news stories about this neighborhood. I don't know about you, but if I was a Loss Mitigation Specialist and had an offer presented that would keep my company from owning this potential soon to be REO, I'd take pretty much anything that came my way. We shall see.  The Listing Agent has a couple of real offers and I'm putting the Short Sale Package together today.

 

There's a comedian on TV who's gig is

"YOU CAN'T FIX STUPID". 

Is it Ron White?  I think so.

I've never seen him.  Not for any other reason than I don't get a chance to watch much TV.

This has nothing about stupid.  It's about LTV. 

Loan to Value.  It's a ratio of what the property you live in is worth by what you owe expressed as a percentage.  Zero % would mean you own your home outright.  100% would mean you have no equity.

LTV has nothing to do with your intelligence.  A low LTV doesn't mean you are smart, and a high LTV doesn't mean you are stupid.  I prefer not to call anyone stupid anyway.  It must be the father in me.

But high LTV can kill your ability to refinance or purchase.  On a purchase, the remedy to High LTV is simple.  Put more down.  or put the same down on a cheaper house.  I know that might not be simple to do but it's simple to explain.

On a refinance, your options are even simpler.  Unless you actually have and want to come to the closing table with cash there is only one thing that you can do.  Wait.  What are you waiting for?  Appreciation. 

I don't have to tell you that appreciation is somewhat scarce these days.  The problem with appreciation is that it's dependent on your neighbors.  Appreciation is comparative.  If your neighbors home goes up in value, so does yours.  That's the rub.  If your neighbors house goes down in value so in turn does yours.

The problem is that your "neighbor", not Old Mr. Wilson next door, but the ones that live within a radius of your home.  Yeah, those people you don't know. 

Almost a year ago I wrote "The LTV Crunch".  I followed that 2 days later with "The Foreclosure Crunch".  It's two of the highest traffic / linked posts I've written.

Let's draw a 1/4 mile circle around your home.  Now, everyone in that circle who is in foreclosure, who has already foreclosed, who is in a short sale situation, or needs to really sell their property will all have a profound effect on dropping your value.  That drop in Value raises your LTV.

Here's a chart showing a little street in Concord.  It's called Mohr Lane.   Currently there are 140 distressed properties on this map.  The Blue P means they have been served a Notice of Default (the first step in the foreclosure process).  The means they are bank owned (generally meaning they have already gone through foreclosure).  The Purple BLight Blue A stands for Auction properties.  You can easily classify them all as distressed properties.

 

What the chart doesn't show are the Short Sales.  These are MLS Listings that need to sell at a price lower than what is owed to the bank. 

Guess what?  Most short sales sell below their actual market value.  

If you live on Mohr Lane how long until your home starts appreciating?  We're going to have to sell the above homes before we can start thinking about that.

 

"I plan on buying a home that is in foreclosure and flip it, But I just heard the seller (homeowner) has a 2 year right of rescission. What does that mean? Do I have to hold the property for two years before I can sell?"

As I mentioned, I had to look this up to make sure I had the correct information.
Here's what I found...

Once the sale has closed, the investors title is subject to the seller in foreclosure's Two Year Right of Rescission due to any unconscionable advantage the Investor might have imposed on the transaction.

So does that mean the homeowner can get their property back?

Not quite. Assuming the investor has already sold the property to an unknowing buyer, the remedy would be a recovery of the money the original homeowner was out.

That figure would be determined by the value of the property at the time of resale, less the old loan amounts, less any funds received (good faith money) in the original transaction from the investor.

Interestingly, if it was a sale rent back,

where the homeowner never left but instead started to pay the new owner rent,

they will not be able to recover any of the rent paid - NONE.

They will however, get paid 10% interest on the equity they lost from the start of the violation.

Where did I find this information?
California Civil Code 1695.10 and 1695.14

Buying a foreclosure and planning on living in it?
These rules don't apply to you.

Remember, always work with a professional. Always!

 

I mentioned HUD, Median House Prices, MSA's, High Cost Areas, Rates, Pricing, Fannie and Freddie.  I should also have thrown in the OFHEO.  They all play an important part in slowing down the enactment of this new law.  Here is your cliff notes version of the players and what role they play.  Let's take them one at a time.

HUD - This is the federal department that oversees the big picture of Housing and Urban Development (hence the initials).  According to the new law they have up to 30 days to construct something called "revised median house prices and principal obligation limits".  To you and me this is a table of who gets to be bumped higher and who get's a little nudge.  Here's a sample of hat the table might look like:  LINK

 

Median House Prices - Median means the middle.  It doesn't mean the average. 
In the following sequence of numbers,   3          5         16         99         1,288 
The number sixteen would be the Median.  So HUD needs to look at complex metropolitan areas, do some math, and construct the above mentioned table.  When you have an area like Palo Alto sitting next to East Palo Alto the Median can be somewhat skewed.  What is HUD to do?  They back up.  Instead of making determinations by city, or zip code, they've divided the country up into MSA's.

MSA's - Metropolitan Statistical Areas.  A fancy name for looking at bigger areas.  The boundaries are determined by the census department.  Our MSA here is # 41860.  It includes the greater bay area.  Here's a list of all the MSA's: LINK

High Cost Areas - Once the determination of Median and MSA has been made they will the law sets forth the determination of High Cost Areas.  This is important.  According to what we all think is going to happen, the Bay Area is going to be labeled a High Cost Area.  Nearby Sacramento Area isn't going to be so lucky.  The best guess is that the maximum loan amount in the Bay Area will be $729,750 (which is the max provided by law).  Poor Sacramento will only bump up from $417,000 to $419,630.  No Joy in Mudville.
Can you see why it's so important?

Rates and Pricing - I'll lump them together.  Fannie and Freddie will probably add something to formula on the new jumbo conforming loans.  Here's how it might work.  If the loan is above $417,000 they'll still do the loan, but there will be an add to the rate or it might cost a you something in points to get that loan.   This is nothing new.   They do this already.  You might have an add for your credit score or your loan to value.  You can bet that the will add something for the increase risk the new loans contain.

Fannie and Freddie - They are a GSE (Government Sponsored Enterprise).  You didn't go to them for your loan.  They didn't lend you the money to buy.  But they set the rules (guidelines) that the underwriter who approves your loan has to abide by.  Once HUD does their thing - they need to update their guidelines for the new limits.

OFHEO - hang on a second!  Nobody mentioned the OFHEO yet.  They are the governing  body of both Fannie and Freddie.  Remember it was the head of the OFHEO, James Lockhart who said, "We are very disappointed in the proposal to increase the conforming loan limit as we believe it is a mistake to do so in the absence of comprehensive GSE regulatory reform."  That was before the law was signed.  He's still pissed.  The OFHEO  has yet to rule if ARM loans are included or duplexes, or interest only loans are to be included.

Summary

So as of right now - NOBODY knows anything for certain. 

SunTrust Mortgage, (a big conforming lender) put out this to their reps,

"If we layer on the likely guideline and product restrictions (e.g. 90% LTV, no IOs, etc.), based on industry data as well as our own, we estimate that around 15% of current non-agency volume would be eligible."

Doug Duncan, chief economist for the Mortgage Bankers Association, says it will take lenders three to six months to make technical changes so their systems can process the larger loans.  Six months from now it'll be August!

Don't forget that the rates we are talking about are determined by Mortgage Backed Securities.  Those securities have investors.  What those investors are willing to pay determines the interest rates.  Right now, nobody has a clue as to what those investors are willing to pay.  Not even the Investors.

Yes, this is a long post.  But all those entities play a significant role in the final outcome.  And now you are more informed about those entities than all the other people around the water cooler. Good for you!

 

On February 13th, 2008 the President signed into law the Economic Stimulus Act of 2008, or as it was also known;  HR 5140

While this package contained verbiage about tax rebate checks the important to most people was the portion that detailed the increase to the maximum conforming limit that the two main GSE's, Fannie Mae and Freddie Mac.

The old limit was $417,000. 

The new limit is up to $729,750

"So what's my rate today for my $650,000 conforming loan?"

Not so fast.  Did you notice the "up to" ?  You see, the new limit is based on the median home prices for each MSA (metropolitan statistical area).  It isn't a blank, across the board increase.  HUD may take 30 or so days to do this. 

Once HUD does their thing, Fannie and Freddie can then do their thing, they need to update the guidelines (rules).  Guidelines determine what loans an underwriter approves and what they turn down.

So the Law is in place today but it may be tax day (April 15th)  before all the details are hammered out. 

Patience is a virtue...

 

Poor Stockton, CA.

We saw 60 Minutes, we read all the news, everyone knows or has heard that Stockton IS the

Foreclosure Capital of the U.S.

Is that because the good people of Stockton all got together and decided to call themselves that?  No.

Maybe there was a contest, poll or election? Nope.

It was the media that planted the moniker on the city.  I always assumed it was based on raw numbers.  Maybe it was.  I can't tell.

Yesterday I was working on a project and pulled the entire current list of Notice of Default filings for the entire State of California.  It was dated Feb 5th.

As I was compiling numbers I noticed something strange.

Stockton, and it's county (San Joaquin) seemed lower than what I expected to see.

By City: Antioch: 85 Bakersfield: 143 Elk Grove: 63 Fontana: 107 Hayward: 99 Modesto: 149 Oakland: 171 Sacramento: 326 Stockton: 110 Tracy: 50 Vallejo: 63

By County: Alameda: 460 Contra Costa: 339 Orange: 334 Sacramento: 512 San Joaquin: 212 Santa Clara: 174 Sonoma: 273 Stanislaus: 276

 

If the title wasn't bestowed upon them based on sheer numbers, maybe it was something else.

Was it Per Capita?
Per Capita would make perfect sense.  The number of foreclosures per person?  Maybe it was per household?

Stockton has an estimated 290,141 people (2006) according to CityData,
while Sacramento sits at 453,781 according to the same site.

Sacramento is slightly less than twice the size of Stockton, yet our state capital had 3 times the number of filings!

I realize this is only a one week sampling. I can pull a new list later today.

Is it just because the media thinks they are the proverbial Red Headed Step Child of the central valley?  There is a finite number of homes that can be foreclosed on.  That leads me to wonder...

Is Stockton actually running out of homes to foreclose on?

Just thinking.

If you pulled up Google news this morning and did an easy search for "Stimulus Package" you were served up a great visual.

 

 

How great is that?

So before you go off the handle let's see what really happened.

First of all let's remember we have two bodies of legislature that create law, the House of Representatives (Congressmen)  and the Senate (Senators).

Here's where the confusion started - Both the Congress and the Senate had their own different versions of the plan that they were working on. 

What happened that confused so many was that the Senate REJECTED their version, APPROVED the House version.

Today both sides are getting together to hammer out a couple of fine details. 

From there it goes to the President for signing.

You can get a synopsis of everything that goes on in both bodies in the Daily Digest

Now we can all refer to the Stimulus Package in a well defined way,  H.R. 5140

What's in HR 5140 for you?  It contains the Rebate Checks.

What's in HR 5140  for me?  I'm interested in the increase for Conforming Loan Limits.

Maybe you should be concerned about that as well.