A few years ago, few people in the housing market had ever heard of a short sale.
Mention the term today and people, whether they are homeowners or real estate agents, just roll their eyes.
The practice, which involves selling a property for less than the amount owed on the mortgage, has grown in popularity as an exit strategy for financially strapped homeowners because it doesn’t ding a credit report as deeply as a foreclosure. But because the transactions have to be approved by first and second lien holders, they are languishing. Some real estate agents try to steer clear of them entirely and even specify in their listings that a property is not a short sale.
The Obama administration is aware of the frustrations. In mid-May, Treasury Secretary Tim Geithner announced plans to streamline the process by offering financial incentives to mortgage servicers and investors that accept short sales, much in the same way that they are rewarded for refinancing or modifying troubled mortgages.
Four months later, homeowners, real estate agents and lenders are still waiting for specific details of how the plan would work. A Treasury Department spokeswoman said an update on the program is expected in a few weeks.
Meanwhile, homeowners like Dallas O’Day are in limbo.
O’Day, a Chicago attorney, and his family relocated from California in June 2004 and bought a Mediterranean-style home in Chicago’s Beverly neighborhood for $395,000. They rewired the house, stripped and refinished the wood floors and the woodwork and did other work to restore its charm.
Last year, personal circumstances prompted them to list the home for sale just as the housing industry’s meltdown was picking up steam. With no takers and no longer even expecting to break even on his investment, O’Day relisted the 2,700-square-foot home in January as a short sale.
Four months and three price reductions brought the house down to $384,900, at which point a potential buyer made an offer in late May. O’Day accepted it and submitted the paperwork to the lenders holding first and second mortgages on the home.
He has yet to receive a response. Meanwhile, the family has moved into a North Side apartment, the refrigerator has broken in the home and there’s evidence of mold in the basement.
“The only thing we keep hearing is they keep wanting current payroll stubs, bank statements and taxes,” said O’Day’s real estate agent, Pam Decker at Prudential Biros Real Estate in Evergreen Park.
“What has astonished me is that in the presence of one of the softest housing markets I can remember, we’re hitting up on four months and they’ve just had a person assigned to look at it, that they would move at such a glacial pace,” O’Day said. “My expectation is I’ll be renting until whatever blemish is gone. I’ve just accepted the fact that at some point it’ll be foreclosed upon because I just don’t think the banks will pull it together. I feel like I’ve done everything I can do.”
During the second quarter, 14 percent of all home sales were short sales and they were made primarily to first-time buyers who may have more flexibility to deal with the long wait times, according to a survey by Campbell Communications. The sales volume could be much greater. Two out of three short sales never close.
“In general, you have to have three offers for every completed short sale,” said survey designer Thomas Popik. “The first offer, the buyer walks before they get a yes or no. On the second offer they walk a good part of the time. The third offer is the charm because it’s been in process long enough at the lender that [the lender] knows they want to do this.
“Home buyers are now putting in half a dozen verbal offers, hoping that on one of them the lender will say yes. What this is doing is bogging down the approval [process] at the mortgage servicers. It’s just gotten to the point that everyone has started engaging in unproductive behavior. It’s a vicious cycle.”
The process of getting a short sale approved involves a packet of documents that includes bank statements, tax returns, letters explaining any other sources of income and a hardship letter explaining why a short sale is being sought.
After the packet is submitted to a mortgage servicer, it has to be entered into the system, a person has to be assigned to it, and an appraisal has to be ordered for the property. On average, it took loan servicers 9 1/2 weeks to respond to a short sale offer, Campbell’s survey found.
“You’ve got to stay on top of these banks,” said James Orrico, a real estate agent at Professional Residential Brokerage LLC in Oak Brook. “I call on my files every day. If you don’t stay on top of them, you’ll lose it.”
But not every real estate agent is willing to deal with the process. Online realty company Redfin doesn’t show or write offers on short sale properties “because of the slim chance that you’ll get the home,” according to its Web site.
A number of factors are contributing to the delay. Lenders say their top priority is keeping people in their homes, and their own and the government’s loan modification programs are taking the bulk of their resources.
“The modification [program] was just like an atom bomb that dropped on [servicers],” said Matt McCabe of National Short Sale Center, a company that acts as a negotiator between borrowers and mortgage lenders. “They had a really hard time reacting to that increased demand.”
Wells Fargo Home Mortgage, which services more than 8 million mortgages, said it has cut the average 60-day response time on short sale offers to 30 to 45 days.
“We’re not satisfied with that number,” said Tamara Swain, senior vice president of real estate owned and short sales at the lender. “The current goal is 15 to 20 days. This has been a big learning process of a function that wasn’t very prominent a couple years ago.”
Also delaying the process is that if a home can’t be saved, servicers are keen on trying to recover as much as possible for what could be multiple investors and that requires a fair amount of due diligence.
“The challenge is buyers always want to pay as little as possible and sellers want to receive as much as possible,” said Tom Kelly, a spokesman for JPMorgan Chase, which services 10.3 million mortgages. “The bank is the server in the middle.”
From a prospective buyer’s standpoint, purchasing a short sale property can be preferable to a foreclosure because if the borrower stills owns the home, he or she is likely to take better care of it.
However, with so many distressed properties for sale, and other homes selling conventionally at drastically reduced prices, there’s a wealth of inventory available allowing buyers to get a quick yea or nay to their offer. Some buyers make offers on multiple short sales or write the offers so they can walk away if a lender doesn’t respond within a certain time frame.
Xia Zhao and her family thought they’d found their next home when they walked into a Jefferson Park townhouse that was listed as a short sale. It was large and near her son’s school. However, they walked away from the offer after a month because they still hadn’t received a response and were worried they wouldn’t be moved in by the time school started.
Instead the family bought a new town home with a price that was cut by the developer in the city’s Old Irving neighborhood.
“I guess we’re not people with extreme patience,” Zhao said. “What if you wait for a couple months and this goes away? You have to start all over again.”
“Most people really aren’t in a situation where they can deal with the uncertainty,” said Zhao’s real estate agent, Eric Rojas at Prudential Rubloff. “Even when you explain that it’s not accepted until the bank accepts it and you build these safeguards into the contract, people are dropping out, left and right. These sales would get done, but people just can’t wait.”
Chicagoan Marie Cabrera, a real estate agent at Baird & Warner, is hoping she has found a purchaser with some patience.
After being unable to sell her own condo in the luxury Palmolive Building, Cabrera decided she didn’t want to simply wait for her lender to foreclosure on it. Earlier this month she listed it as a short sale, priced at $1.15 million. Within a week, she had a cash offer of $1 million that she sent to her lender.
“I have no idea whether the bank will take it,” Cabrera said. “I have an offer that’s solid and they’re willing to wait.”
Copyright © 2009 Chicago Tribune,
Monday, September 21, 2009
Saturday, September 19, 2009
Homebuyer tax credit deadline nears
Time is fast running out for first-time buyers hoping to get a tax credit of up to $8,000, and Realtors say they’re seeing a marked upswing in interest as the deadline looms.
Real estate groups also are urging Congress to extend the credit beyond its current deadline and expand the tax credit to up to $15,000. Now, buyers must close on their purchase by Nov. 30 to be eligible for the credit.
Home builders and real estate organizations are concerned that letting the tax credit expire could knock the wind out of the current housing recovery. And failing to expand the credit could imperil efforts to get more move-up buyers into the market.
“Right now, the recovery is in the first stage and getting entry-level buyers in, but it’s having no impact on the move-up buyer,” says Richard Smith, CEO of Realogy, the parent company of Century 21, Coldwell Banker and others. “If we can expand the credit to go after that move-up buyer, we’ll be home free.”
The tax credit available to first-time homebuyers is already linked with an uptick in sales. For the first time in five years, existing home sales have increased for four months in a row, according to an August report by the National Association of Realtors (NAR).
Sales rose 7.2 percent in July from June, and pending sales are 5 percent above the pace seen in July of 2008
Many of those using the tax credit, however, are buying up foreclosed homes that are vacant. That does little to stimulate sales by homeowners looking to move up to more expensive properties. Getting more move-up buyers into the market is considered the second stage of the housing recovery.
And even though the tax credit doesn’t expire until Nov. 30, today’s home purchases take 45-60 days to close as the underwriting and appraisal process is taking longer because lenders are being more cautious. That means offers that will benefit from the tax credit really need to be in this month or early next month.
“Buyers have more of a sense of urgency,” says Tony Middleton, a Realtor in Los Angeles with ZipRealty, of the expiring tax credit. “They’re serious about shopping for a home.”
There is legislation in both the Senate and the House that would expand the tax credit. A proposal by Sen. Johnny Isakson, R-Ga., would raise the credit amount to a maximum of $15,000 for any buyer of any home over the next year. It would remove the income caps that currently apply (those limits are now $75,000 for an individual and $150,000 on couples).
“I think we’ve got a realistic chance of doing this,” Isakson says. “Our problem is not with the first-time home buyer, it’s the move-up buyer.”
Lawrence Yun, chief economist at NAR, says extending or raising the tax credit would spur the housing recovery, which in turn would help bolster the economy.
Copyright © 2009 USA Today. All rights reserved.
Real estate groups also are urging Congress to extend the credit beyond its current deadline and expand the tax credit to up to $15,000. Now, buyers must close on their purchase by Nov. 30 to be eligible for the credit.
Home builders and real estate organizations are concerned that letting the tax credit expire could knock the wind out of the current housing recovery. And failing to expand the credit could imperil efforts to get more move-up buyers into the market.
“Right now, the recovery is in the first stage and getting entry-level buyers in, but it’s having no impact on the move-up buyer,” says Richard Smith, CEO of Realogy, the parent company of Century 21, Coldwell Banker and others. “If we can expand the credit to go after that move-up buyer, we’ll be home free.”
The tax credit available to first-time homebuyers is already linked with an uptick in sales. For the first time in five years, existing home sales have increased for four months in a row, according to an August report by the National Association of Realtors (NAR).
Sales rose 7.2 percent in July from June, and pending sales are 5 percent above the pace seen in July of 2008
Many of those using the tax credit, however, are buying up foreclosed homes that are vacant. That does little to stimulate sales by homeowners looking to move up to more expensive properties. Getting more move-up buyers into the market is considered the second stage of the housing recovery.
And even though the tax credit doesn’t expire until Nov. 30, today’s home purchases take 45-60 days to close as the underwriting and appraisal process is taking longer because lenders are being more cautious. That means offers that will benefit from the tax credit really need to be in this month or early next month.
“Buyers have more of a sense of urgency,” says Tony Middleton, a Realtor in Los Angeles with ZipRealty, of the expiring tax credit. “They’re serious about shopping for a home.”
There is legislation in both the Senate and the House that would expand the tax credit. A proposal by Sen. Johnny Isakson, R-Ga., would raise the credit amount to a maximum of $15,000 for any buyer of any home over the next year. It would remove the income caps that currently apply (those limits are now $75,000 for an individual and $150,000 on couples).
“I think we’ve got a realistic chance of doing this,” Isakson says. “Our problem is not with the first-time home buyer, it’s the move-up buyer.”
Lawrence Yun, chief economist at NAR, says extending or raising the tax credit would spur the housing recovery, which in turn would help bolster the economy.
Copyright © 2009 USA Today. All rights reserved.
Wednesday, September 16, 2009
NAR issues Call to Action: Extend $8K credit
The National Association of Realtors® (NAR) is calling upon its 1.2 million members to urge Congress to extend the successful homebuyer tax credit into next year.
Since the $8,000 first-time homebuyer tax credit's inception, 1.2 million new buyers have entered the market. Of those new homebuyers, 350,000 would not have purchased a home if the tax credit had not been offered, according to NAR. The credit is due to expire Nov. 30, 2009.
“Now is the time for Congress to keep this recovery going by extending the tax credit through 2010 and making it available to more homebuyers,” says NAR President Charles McMillan. “We have all seen how the credit has been a spur to bring homebuyers into the market, and have seen the beginnings of a real recovery in the housing market. Housing has always led this nation out of economic downturns and can do so again.”
NAR has asked all Realtors to write their U.S. senators and representatives to tell them of their successes with the tax credit thus far – and to press Congress to extend and expand it.
“The credit needs to be available for an additional period of time in order to sustain the progress that’s been made, so we can continue to see our markets fully recover,” McMillan says. “Uncertainty about the future of the credit will dampen consumer demand. The only way we can assure that the progress we’ve made can continue is to extend the credit and to do that now.”
As the current deadline for the credit looms, potential homebuyers need to complete a contract, satisfy any contingencies, secure financing and go to closing by Nov. 30. In today’s market, NAR estimates that it generally takes between 45 and 60 days from contract to closing.
“That means potential homebuyers who qualify must act now, and so must Congress,” McMillan says.
Since the $8,000 first-time homebuyer tax credit's inception, 1.2 million new buyers have entered the market. Of those new homebuyers, 350,000 would not have purchased a home if the tax credit had not been offered, according to NAR. The credit is due to expire Nov. 30, 2009.
“Now is the time for Congress to keep this recovery going by extending the tax credit through 2010 and making it available to more homebuyers,” says NAR President Charles McMillan. “We have all seen how the credit has been a spur to bring homebuyers into the market, and have seen the beginnings of a real recovery in the housing market. Housing has always led this nation out of economic downturns and can do so again.”
NAR has asked all Realtors to write their U.S. senators and representatives to tell them of their successes with the tax credit thus far – and to press Congress to extend and expand it.
“The credit needs to be available for an additional period of time in order to sustain the progress that’s been made, so we can continue to see our markets fully recover,” McMillan says. “Uncertainty about the future of the credit will dampen consumer demand. The only way we can assure that the progress we’ve made can continue is to extend the credit and to do that now.”
As the current deadline for the credit looms, potential homebuyers need to complete a contract, satisfy any contingencies, secure financing and go to closing by Nov. 30. In today’s market, NAR estimates that it generally takes between 45 and 60 days from contract to closing.
“That means potential homebuyers who qualify must act now, and so must Congress,” McMillan says.
Thursday, September 10, 2009
First-time buyers race to qualify for $8K federal tax credit
First-time homebuyers have just 12 weeks to find and close on a home to qualify for the $8,000 federal tax credit by Nov. 30 – before the Dec. 1, 2009, deadline.
Those just beginning the process will have to beat the average time it takes to buy a home, a challenge that real estate professionals can help buyers meet even though it’s taking longer today to close most transactions today, according to Realtor.com officials.
On average, first-time buyers search 12 weeks to find a home, while closing can take up to 60 days, depending on individual circumstances and local regulations.
Additionally, the tax credit has proved to be extremely popular this year: studies show that taking advantage of the first-time homebuyer’s federal tax credit and relevant state incentives is the most important reason motivating 10.8 percent of buyers today. In fact, approximately 1.14 million buyers have already filed for the credit. Many more are expected to file for the credit when income taxes are due April 2010.
Historically high affordability is a major factor driving first-time homebuyers today, a growing group that accounted for one third of all purchases in July 2009, according to a survey by the National Association of Realtors®.
NAR’s affordability index in July 2009 was 36.0 percentage points higher than July 2008. Under these conditions, the typical median-income family can allocate 15.8 percent of their gross income to mortgage payments, well below the traditional allowance of 25 percent. Interest rates, which play a major factor in affordability, remain low, and averaged 5.22 percent in July for a 30-year fixed rate loan.
Realtor.com President Errol Samuelson said, “The national median home today costs approximately $174,100. By moving quickly to find and close on a home by Nov. 30, first-time buyers qualifying for the $8,000 tax credit can actually purchase this same home for only $166,100, an almost 4.5 percent discount off of the price of a typical new home. Because affordability this year is at its highest level in 28 years, and the market offers an incredible selection of homes within reach of most first-time buyers, we expect their numbers to grow as they pursue this once-in-a-generation opportunity to become homeowners.”
He added that by combining the effective use of technology for information-gathering with expert advice from local Realtors, today’s first-time home buyers can beat the clock and use the $8,000 federal tax credit, along with any available state-level credits, to purchase a home before the Dec. 1 deadline.
“By moving quickly, being prepared to make decisions in the face of increased competition, and using the expertise of a real estate professional, first-time homebuyers can still close on time and qualify for the $8,000 federal tax credit,” Samuelson said.
© 2009 Florida Realtors®
Those just beginning the process will have to beat the average time it takes to buy a home, a challenge that real estate professionals can help buyers meet even though it’s taking longer today to close most transactions today, according to Realtor.com officials.
On average, first-time buyers search 12 weeks to find a home, while closing can take up to 60 days, depending on individual circumstances and local regulations.
Additionally, the tax credit has proved to be extremely popular this year: studies show that taking advantage of the first-time homebuyer’s federal tax credit and relevant state incentives is the most important reason motivating 10.8 percent of buyers today. In fact, approximately 1.14 million buyers have already filed for the credit. Many more are expected to file for the credit when income taxes are due April 2010.
Historically high affordability is a major factor driving first-time homebuyers today, a growing group that accounted for one third of all purchases in July 2009, according to a survey by the National Association of Realtors®.
NAR’s affordability index in July 2009 was 36.0 percentage points higher than July 2008. Under these conditions, the typical median-income family can allocate 15.8 percent of their gross income to mortgage payments, well below the traditional allowance of 25 percent. Interest rates, which play a major factor in affordability, remain low, and averaged 5.22 percent in July for a 30-year fixed rate loan.
Realtor.com President Errol Samuelson said, “The national median home today costs approximately $174,100. By moving quickly to find and close on a home by Nov. 30, first-time buyers qualifying for the $8,000 tax credit can actually purchase this same home for only $166,100, an almost 4.5 percent discount off of the price of a typical new home. Because affordability this year is at its highest level in 28 years, and the market offers an incredible selection of homes within reach of most first-time buyers, we expect their numbers to grow as they pursue this once-in-a-generation opportunity to become homeowners.”
He added that by combining the effective use of technology for information-gathering with expert advice from local Realtors, today’s first-time home buyers can beat the clock and use the $8,000 federal tax credit, along with any available state-level credits, to purchase a home before the Dec. 1 deadline.
“By moving quickly, being prepared to make decisions in the face of increased competition, and using the expertise of a real estate professional, first-time homebuyers can still close on time and qualify for the $8,000 federal tax credit,” Samuelson said.
© 2009 Florida Realtors®
Tuesday, September 1, 2009
Making the buy vs. rent decision
To determine whether it makes more sense to rent or buy in the current economic climate, experts encourage people to examine the price-to-rent ratio, or the average cost of purchasing a house divided by a year’s worth of rent payments.
The ratio reached 24.7 in 2005, according to Economy.com, meaning that individuals could spend 24.7 years in a rental for what it would cost to buy a house. The ratio has fallen to 17.4, and Economy.com notes that the historical average since 1986 is 16.5.
While some believe falling house prices make homeownership a better choice right now, an Economy.com analysis of the price-to-rent ratios in 54 metropolitan areas shows that renting is a better deal than homeownership in 21 cities. Some of the so-called “renter –friendly” cities are Portland, Ore., Baltimore, Raleigh, Charlotte, Salt Lake City, San Antonio, Trenton, Philadelphia, Honolulu, and Seattle.
Center for Economic and Policy Research Co-Director Dean Baker says the price-to-rent ratio should not be the only consideration. People weighing whether to rent or buy also should consider that renting makes more sense if they plan to move in a couple of years, and renting allows them to live in neighborhoods where homeownership might be too costly. Additionally, they do not have to perform maintenance tasks if they live in a rental.
Source: Time (08/31/09) Kiviat, Barbara
© Copyright 2009 INFORMATION, INC. Bethesda, MD
The ratio reached 24.7 in 2005, according to Economy.com, meaning that individuals could spend 24.7 years in a rental for what it would cost to buy a house. The ratio has fallen to 17.4, and Economy.com notes that the historical average since 1986 is 16.5.
While some believe falling house prices make homeownership a better choice right now, an Economy.com analysis of the price-to-rent ratios in 54 metropolitan areas shows that renting is a better deal than homeownership in 21 cities. Some of the so-called “renter –friendly” cities are Portland, Ore., Baltimore, Raleigh, Charlotte, Salt Lake City, San Antonio, Trenton, Philadelphia, Honolulu, and Seattle.
Center for Economic and Policy Research Co-Director Dean Baker says the price-to-rent ratio should not be the only consideration. People weighing whether to rent or buy also should consider that renting makes more sense if they plan to move in a couple of years, and renting allows them to live in neighborhoods where homeownership might be too costly. Additionally, they do not have to perform maintenance tasks if they live in a rental.
Source: Time (08/31/09) Kiviat, Barbara
© Copyright 2009 INFORMATION, INC. Bethesda, MD
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