REO’ Short Sales and Whatnot
Short Sale, REO and Loan Modification Agreements are the current real estate buzzwords not 4.75% for 15, 30-year amortization due in 5, or an option arm with a teaser and neg am due in 5. We have replaced our vernacular with some not-so-pretty terms. In addition the papers are full of information about Fannie Mae and Freddie Mac and how they are trying to deal with the current crisis. They are the top two sources for the mortgage market and they have recently increased their loan limits. They will accept up to $662,500 for Sonoma County loans. FHA also has raised its limits to $662,500. That is indeed good news but getting one of these loans will be more costly and difficult to qualify for. They will cost up to 1.25 points above conforming loans and some qualifying ratios have been tightened. Sunday’s paper (Kenneth Harney, Chronicle) stated that the two lenders would stop anyone who ‘walks away” from one of their loans from receiving another one from 5-7 years and they will require 10% down and a FICO score of 680 on their next loan. Not exactly draconian but stiff in contrast to the last few years.
FHA allows a borrower to reapply for a loan 3 years after a foreclosure. The worst thing to affect your credit is a foreclosure but the implications on a short sale are not so clear at this moment. For certain, when you have a foreclosure there is the issue of debt forgiveness. Generally, if you have a purchase money loan (used to initially acquire your home-not a rental) the government has passed laws that forgive this debt loss. In the past this loss could be taxed as income-which would be an unwelcome surprise after losing your home. If it is refinanced or an equity line then you may have some obligations for this debt relief. Make sure you ask your attorney and accountant about these issues before doing anything. Bank of America has stated they will not forgive equity lines and have up to 4 years to collect. Many homeowners tacked on equity lines after buying their homes and used the money for a variety of things. This is called recourse financing and simply stated lenders have recourse to pursue you beyond the monies received from sale of your home.
Loan modification agreements are a popular topic among government officials and many who are looking for a simple solution to this housing crisis. At a recent seminar, the speaker stated that 1/10th of 1% of loan modification applications go through. It just doesn’t happen. There just isn’t the manpower to accomplish this and often times borrowers are so upside down a modification is just a very short-term band-aid.
Our market at present has a tremendous amount of REOs and Short Sales (the number was recently placed at 40%) so we still have our work cut out for us.
I recently closed a couple of homes in the Grace Tract area so there is business going on…a little tougher than the recent past but it is going on.
As always if I can be of some help please give me a call or recommend me to a friend or relative. Your referrals are greatly appreciated. Have a great summer!
Mike Grace, Broker
Grace Properties 1982-
707-579-9540