President Obama on preventing home foreclosures

Education is the next strategy the Federal government will use to prevent foreclosure to homeowners who can’t keep up with their mortgages. It is felt that the more informed the homeowner is the better their housing decision will be.

The Advertising Council, the U.S. Department of Housing and Urban Development (HUD) and the U.S. Department of the Treasury announced this Wednesday the launch of a new public service announcement (PSA) campaign designed to encourage homeowners struggling with their monthly mortgage payments to reach out to the government for help through the Making Home Affordable foreclosure prevention program.

The program, first established and introduced in February 2009, offers free help resources to eligible homeowners through the Federal Government. Since its inception, Making Home Affordable has offered help to over 1.5m homeowners, 1.3m of which have started a trial plan.

“We are proud to partner with the Treasury and HUD on this critical campaign to educate Americans about free resources available to help them prevent foreclosures,” said Peggy Conlon, president and CEO of the Ad Council. “We hope Americans who are struggling will be empowered by these compelling PSAs and take simple actions to help them stay in their homes.”

The PSA campaign comes after a long list of other government implemented funds and programs to keep homeowners in their homes such as the Hardest Hit Fund and the Home Affordable Modification Program (HAMP). iServe Servicing CEO Richard Cimino said that defaults and foreclosures drive the market price of the homes down. So keeping Americans in their homes with mortgages they can afford would limit the amount of both defaults and foreclosures, driving market prices up.

The Ad Council plans to distribute this educational programs to over 33,000 media outlets nationwide, including television, print, radio and web-based. Although the Ad Council did not state exactly when the PSAs will be aired, the videos are currently available for view at the Making Home Affordable Programs official website.

Housing markets that experienced the greatest inflation in house prices — including certain metro areas in sand states California, Florida, Arizona and Nevada — will not see a return of peak-level home prices before 2025, according to financial services technology provider Fiserv.

According to the Fiserv Case-Shiller indices measuring historical home price data and forecasts for more than 375 local markets, scattered metropolitan areas could recover home prices before 2013 (highlighted below, in blue):

The Fiserv Case-Shiller data points to a further 7% decline in home prices through the end of this year, with a prolonged recovery beginning early in 2011.

Other factors besides a run-up in house prices are dragging down recovery times in the industrial Midwest — including Michigan, Indiana and Ohio — where steep job losses in the manufacturing sector could keep housing demand low for some time.

A number of trends that defines initial signs of recovery in the housing market, such as rising home sales, has been occurring in selected areas. Areas such as Pittsburgh, PA; Columbia, SC; and several metropolitan areas in Texas, Washington and upstate New York. These areas could see peak-level home prices return within the next few years.

As reported by The Associated Press  07/20.10:

Home construction plunged last month to the lowest level since October as the economy remained weak and demand for housing plummeted. But driving the June decline was a more than 20 percent drop in condominium and apartment construction, which makes up a small but volatile portion of the housing market. Construction of single-family homes, the largest part of the market, was down slightly. It dropped 0.7 percent.

Overall, construction of new homes and apartments in June fell 5 percent from a month earlier to a seasonally adjusted annual rate of 549,000, the Commerce Department said Tuesday. May’s figure was revised downward to 578,000. Homebuilders are struggling to compete with a glut of homes on the market, many of them foreclosures or deeply discounted properties.

The number of foreclosures could rise even faster, according to a new report on the Obama administration’s flagship effort to help those at risk of losing their homes. More than 40 percent of those of those who have enrolled have dropped out of the program, the Treasury Department said Tuesday.

One bright area of the new home construction report was an increase in building permit applications, which are a sign of future activity. They rose 2.1 percent from a month earlier to an annual rate of 586,000, however this was also driven by apartment construction. A slumping job market and competition from foreclosed properties have forced builders to limit construction, especially after tax credits that spurred sales expired at the end of April.

“The housing market remains the Achilles heel of the recovery,” said M. Cary Leahey, a senior economist at Decision Economics. “It is hard to imagine confidence recovering to healthy levels until the housing market experiences much less distress.” The lackluster housing report contributed to an early sell-off on Wall Street. The Dow Jones industrial average fell 120 points in morning trading.

In a typical economic recovery, the construction sector provides much of the fuel. Not this time. While developers have cut back on construction and the number of new homes on the market has fallen dramatically, they still must compete against foreclosed homes selling at deep discounts.

Builders may be turning their attention away from new projects to complete those already in progress. Housing completions rose 26.2 percent in June, noted John Ryding and Conrad DeQuadros, economists at RDQ Economics. That could be a positive sign for future activity.

“Our best guess is that housing construction activity continues to bottom out at low levels and that we will see some very modest growth in the second half of the year in new housing construction,” they said in a note to clients.

The National Association of Home Builders said on Monday that its monthly reading of builders’ sentiment about the housing market sank to 14 — the lowest level since March 2009. Readings below 50 indicate negative sentiment about the market. This is causing builders to feel increasingly pessimistic.

The rate of home building is still up about 15 percent from the bottom in April 2009, though it’s down 76 percent from the last decade’s peak in January 2006. New home sales in May dropped 33 percent to the slowest pace in the 47 years records have been kept. The drop-off came immediately after the tax incentives to sign a contract on a home ended on April 30.

Recently Congress passed two bills to extend the home buyer tax credit closing deadline and reauthorize the National Flood Insurance Program. Both bills, strongly supported by the National Association of Realtors®, NAR, cleared the House earlier and is now head to President Obama for his signature. The tax credit closing deadline and the NFIP reauthorization were extended to September 30. Extending the tax credit closing and flood insurance deadlines will help provide additional stability to real estate markets across the nation.

The passage of H.R. 5623, the Homebuyer Assistance and Improvement Act, applies the homebuyer tax credit closing deadline extension only to homebuyers who have ratified contracts in place as of April 30, 2010, but could not close before June 30. The legislation is designed to create a seamless extension of the new closing deadline for eligible transactions to September 30. There will be no gap between June 30 and the date the president signs the bill into law

About the Extended Home Buyer Tax Credit

As part of its plan to stimulate the U.S. housing market and address the economic challenges facing our nation, in November 2009, Congress passed legislation that:

1.   Extended the First-Time Home Buyer Tax Credit of up to $8,000 to first-time home buyers until April 30, 2010.

2.  Expanded the credit to grant up to $6,500 credit to current home owners purchasing a new or existing home between November 7, 2009 and April 30, 2010.

Most home buyers today are not aware of a report that is available to them through their lender that will allow them to take precise actions that will result in a significant increase in their credit score based on precise action taken on their part. Credit action reports are available at minimal cost through all three of the main credit repositories; TransUnion, Equifax and Experion.

In the past, it was a loan officer’s “best guess” as to which credit action would produce a credit score increase and then if it did, the amount of the increase was uncertain. These loan officers would proposed actions such as those outlined below:

1.    Pay down the balance on a credit card or revolving account to an amount lower than 25% of the limit.

2.    Pay off a small medical collection for $88 and have the paid off account reported as paid.

3.    Remove a disputed late payment from the past 12 months of history on a current automobile loan.

Any of the above three credit actions will almost definitely produce some sort of positive credit score benefit but the benefit to taking this action may not be enough. Many lenders who offer FHA loans are requiring a 640 minimum credit score as the borrower’s middle score (of the three repositories mentioned above).  In fact, FHA now requires a minimum score of 620 and by now, all FHA lenders are requiring this as well.

A hopeful borrower who has had some credit difficulty in the past and finds his middle score at 545 right now would normally be given a few “hints” from a lender and told to call back when he has taken care of them.

Today a tool exist called the credit action report, which tells the borrower exactly which credit actions to take, in which particular order and estimate the actual numeric credit score benefit that will likely be seen with each one.

This tool is very precise and gives the borrower confidence that taking these actions will produce the result of increasing his/her credit score to the desired number.

Other ways of using this tool include getting better rates on conventional loans for both refinancing and purchasing; as well as increasing your standing with insurance companies that use credit scores as part of their method for evaluating risk and premium levels.

Put it on your list to talk to your local lender and request a “credit action report”.  Make the improvements now before you need them – it could save you both time and money

Mortgage rates are the lowest they have been in more than 50 years making this a great time to buy a home. Mortgage-backed securities prices, which drive mortgage rates in the opposite direction, continue to perform well driving mortgage rates down even more. Panic about economic conditions at home and overseas, particularly in Europe, is credited with helping MBS prices and mortgage rates remain low.

FreeRateUpdate.com’s  research of  lenders’ rate sheets shows the following:

1. Conventional 30-year fixed mortgage rates are still at 4.25% for well-qualified borrowers paying 1 point origination and 15-year financing is available at 3.75%. Both fixed conforming interest rates are at all-time record lows.

2. Rates for FHA loans are just as good; however, APR on an FHA mortgage with the same note rate as a conforming loan is significantly higher because of MI and other FHA fees.

3.  Jumbo 30-year fixed mortgage rate is at an all-time record low as well, 5.25%.

4. Wells Fargo, the #1 originator of mortgages in the United States, is offering on their website a conventional 30-year fixed rate of 4.625, with an APR of 4.812%.

Another tip from Ira Freireich, an Exclusive Buyer Agent serving the Queens and Long Island, New York, EXCLUSIVELY FOR HOME BUYERS

All real estate agents want to know that you are a “willing and able home buyer” and can afford to purchase the home that you would like them to show you. They would like to know that you are serious enough to have already gone to see a lender and have been either preapproved or pre-qualified (see definitions for these terms below).  But providing that letter to a seller’s agent or a buyer’s  agent in a listing firm may not be in your best interest unless you do it my way.

How could it count against you?

If the asking price of the home is less than the amount stated on the letter, is it possible the seller will be reluctant to reduce their price, or at least be very resistant to lowering their price?  After all, you can afford the asking price.  Or what if the asking price is just a bit more than the amount on the letter?  You may be able to afford it, but the seller may be a little uncomfortable about accepting your offer and taking their home off the market if you are ‘borderline acceptable’.

So what SHOULD you do?

1.      You should get a pre-approval, not a pre-qualification letter, it carries more weight

2.      The letter should have the maximum amount of money that the lender feels you can borrow

3.      Make a copy of the letter and white out all loan amounts and interest rates before you provide it to the agent

4.      Let the agent know that you are a valid willing and able buyer and you would never exceed what you can afford, and the pre-approval letter contains that amount

5.      Call your lender (I hope it is not the lender that the real estate agent supplied) and remind him/her that s/he works for you, not the agent, and that the only question they should answer if they get a call from a real estate agent is: Can you afford the home.  They should ask the agent, “What price did my client agree to pay?”.  Their answer should be “Yes, they can afford it” or “No, they cannot afford it”.  Please instruct the lender to provide no additional information to any agent or seller

6.      Tell the agent that AFTER you have negotiated an acceptable price, you will provide the original letter with all information

Pre-qualified means a loan officer has spoken with a prospective home buyer and asked questions regarding income, employment, savings, investments and expenses, and, in his opinion, he feels that the borrower is credit worthy and financially able to qualify for a certain loanamount.

Pre-approval means a loan officer has sight verifies a prospective home buyers personal financial information which include, but may not be limited to, the following; income, employment (income, length of time with current employer, and prior employer history), at least 2 months of bank statements, two (2) years of income tax documents, investments and expenses.  A letter from a lender should contain a statement that the borrower’s credit, bank references and employment have been verified. The letter is not binding on the lender because it is subject to other conditions such as an appraisal of the property, but carries substantial weight with a seller because it shows the seller that the buyer is serious.

Financial Crimes Enforcement Network (FinCEN) latest report on 06/17/2010 shows the number of suspicious activity reports (SARs) from financial institutions related to foreclosure scams dramatically increased last year.

The report also noted that the type of foreclosure scams also evolved during the reporting period, which covered Jan. 1, 2004, through Dec. 31, 2009. FinCEN said foreclosure rescue scams increased substantially in the last eight months of 2009.

“The increase in reporting of suspected foreclosure rescue scam activity could mean that there is an increase in fraudulent activity, but it also reflects an increase in awareness among financial institutions of the fraud perpetrated,” said FinCEN Director James Freis Jr.

In addition to the increase in reported activity, the analysis shows that the nature of foreclosure rescue scams had shifted. Early SARs identified subjects pretending to be loan modification or foreclosure rescue specialists. and they target financially troubled homeowners with promises of help.

The scams involved the homeowners signing quit-claim deeds, and resulted in loss of equity in or title to their property. The scammers used straw borrowers, who misrepresented income, employment, or occupancy, or provided other fraudulent information to deceive a new lender into making a new mortgage loan.

The scams described in later SARs reflect an evolution into advance fee schemes, in which purported loan modification or foreclosure rescue specialists promised to arrange modification of a homeowner’s mortgage for more favorable repayment terms. Following receipt of large advance fees, scammers rarely, if ever, provided any service. A variation of the advance fee scam involved phony debt elimination programs in which the homeowners paid advance fees and were instructed to contact their lenders with specious assertions that the original mortgage debt was illegal.

The chart shows the top 10 metropolitan regions, ranked by the concentration of local subjects of all mortgage loan fraud SARs reported between Jan. 1, 2009, and June 10.

FinCEN, part of the Department of the Treasury, administers the Bank Secrecy Act. Its analysts research and analyze reports submitted under the Act. In addition, in the fall of 2009, FinCEN became a participant in the Obama Administration’s Financial Fraud Enforcement Task Force.

Of all of the foreclosures in the RealtyTrac online database, less than 50% have mortgages worth less than what is owed, said Rick Sharga, senior vice president at RealtyTrac, during a session at REO Expo, which concludes in Dallas  on Wednesday.

The RealtyTrac database covers foreclosure filings from notice of default to REO properties across more than 2,200 counties in the US. Sharga said while underwater borrowers are beginning to explore the possibilities of strategically defaulting, unemployment, not negative equity, is driving the current wave of foreclosures.

“We estimate there is one foreclosure to every six to 10 jobs lost,” Sharga said.

The overall unemployment rate dropped slightly to 9.7% in May, from 9.9% in April, mainly due to the labor force shrinking by 322,000, according to the US Department of Labor Bureau of Labor Statistics. This has caused foreclosures to increase in places previously thought safe from the crisis, including Provo, Utah and Portland, Ore.

There were 2.8m houses with foreclosure filings in 2009, and Sharga said that number would climb to 3.8m in 2010.

Even if underwater borrowers are not the main force behind the foreclosure wave, they remain a concern. The number of borrowers with negative equity declined slightly in Q110, but underwater mortgages and borrowers with less than 5% home equity accounted for 28% of all residential properties, according to the latest data from CoreLogic. Bank of America is even starting to forgive principal when modifying underwater mortgages eligible for the National Homeownership Retention Program (NHRP).

A Home Buyer Tip from Ira Freireich, an Exclusive Buyer Agent serving the Queens and Long Island , New York , home buyer:

After you have located “the home of your dreams”, spend some time on the internet finding out as much as you can about the address of the home. Below is an article about a “stigmatized property” (a home that has a negative history) that sold this past week. The point I am making is that New York State does NOT REQUIRE sellers to disclose if there was a murder or suicide on the property. Buyers should always research the property on google to find out if any negative information exists. (Check out what Pam Westhoff says) If you are not internet savvy, ask someone to do it for you.