Finding Foreclosures:

Homeowners in trouble are getting ripped off, big time. “Rescue scams” are at an all-time high. Desperate for a light at the end of the tunnel, homeowners think they see one–but it’s an oncoming train.

In many cases, the “rescuer” promises to take over payments in exchange for temporary deed to the home until the owner can afford to pay again. Only problem is, the owner never gets the house back.

Another scam is telling the homeowner that the new loan he or she is signing will pay off the old loan. The scammer gets the money and doesn’t pay off the old loan. Or, worse yet, the scammer temporarily take ownership of the house, then doesn’t give it back.

There are also scams on the buyers’ side… companies promise foreclosures for 50 percent off for $10,000 seminars, only to lead buyers to auction houses where the company is getting 5 percent in kickbacks.

Here are some tips to avoid being scammed:

1. If it sounds too good to be true, it most likely is.

2. The only entity that can remedy your home-loan situation (if you don’t refi) is your bank. If your lender is WaMu, for example, you need to call WaMu.

3. Many of these companies promise to refinance. In almost all cases, going to a broker isn’t in the best interest of the homeowner. Go directly to a lender if you want to refi; then you know you won’t be scammed. Lenders must disclose all costs up front.

4. Don’t wire money or use any method other than escrow companies to send money regarding your home, ever! Legitimate escrow companies act as third parties that make sure issues like what is noted here don’t occur.

5. Anyone who says he or she can repair your credit is likely not being honest. If that is part of the deal, walk away immediately. A foreclosure does not “come off your credit” as easily as a 30-day late payment on a credit card does. It just doesn’t work like that.
And finally,

6. Ignore anything you find on the internet. The internet is hard to regulate, and by the time the FBI catches on, the site is down and hundreds of people have been ripped off. Dont respond to e-mail solicitations or click on any links pertaining to rescue scams.

Dani

The abandoned homes in areas such as Detroit and Stockton are hurting neighborhoods–badly.

But they’re helping some poor, remarkably enough.

There is a bright spot for some of these abandoned houses.

Many of these homes, usually foreclosures, experience transients moving in, stealing power, tearing apart walls for copper plumbing and setting fires to make drugs or heat the home. Police are struggling in many neighborhoods to keep this under control (Source: Yahoo Real Estate). There is a consistent problem with crimes and thefts in foreclosed homes. In the past, these thieves would steal from the outside of the home; now they steal from inside, too–with little repercussion. Even the local humane society shelters are over capacity with pets left behind.

However, there is a bright side here–finally.

Some charities, such as Habitat for Humanity, are buying the homes, fixing up the abandoned properties and taking advantage of the low-prices for the homes–basically shells by the time they’re robbed and stripped of valuable wiring and plumbing. Charities are now starting to get these shells for rock-bottom prices and using volunteer labor to turn them into housing for the poor.

Dani

The Fed chairman on Friday, March 14, outlined what the Fed is proposing to alleviate the housing crisis. Here are the highlights and the resulting negative outcomes as I see them. Government, stay out if these are going to be the plans!

1. Prohibiting lenders from issuing loans that borrowers cannot repay. Big problem here. We have no accurate way of assessing this. The traditional method, FICO scores, is no longer accurate. The FICO doesn’t take into consideration mortgage resets and is fairly easily manipulated by people who fix credit. FICO says plans are in the works, but a new algorithm won’t be released until 2009. Also, more people today earn nontraditional income–income working from home on 1099s and so forth. These people are often highly qualified but may not be able to get a loan.

2. Making lenders verify income and assets. I have no problem with verifying assets. But it’s difficult to verify the income of many of today’s workers. For instance, many of us work off of 1099s and take business deductions. This makes it nearly impossible for the bank to see how much we really make.

3. Requiring escrow accounts for high-priced loans. This sounds great, but it’s a ripoff for the consumer! People are better managers of their money than institutions are. If they aren’t, they pay a price. Here is a fact. Take a $1 million home, the “low end” price for many areas in Southern California. If we had to put even 1 percent into escrow, that is $12,000/year. That is money we could have invested and earned interest on. Unless the bank is going to fork over the interest we could have earned by investing it ourselves, forget it!

4. Ban repayment penalties including loan flipping. While Id love to be able to refi my primary residence without a prepay penalty, the truth is that loans with prepays often come at cheaper interest rates because the bank knows it will get X dollars from the consumer. Ban penalties, and the banks will offset this income with higher rates. Period. Bottom line: None of these is an answer to the housing crisis.

The Fed endorsed rules on Tuesday that would “protect” homeowners against shady lending practices. Apparently the government feels the need to find another “in” to create a nanny state. There are substantial problems with this that may hurt the entire market.

The proposal applies to all new loans made by all lenders, including banks and brokers. Finalization is expected next year sometime.

Note: While there is a relevant reason for each one noted below, I also noted the reason it is a problem for the buyer. In the end it’s going to make it substantially harder for people to buy homes - period. That will hurt the market overall when we already have ten months worth of inventory!

Here is what is proposed, the reason the government feels it will protect homeowners and the reason it won’t. It will hurt more than it helps. Another reason to keep the government out of private enterprise.

1. Restrict lenders from penalizing some subprime borrowers who pay off their loans early (This is known in the industry as a prepayment penalty, and almost always is a result of refinancing).

• Why is this relevant to homeowners? Many who need to refinance can’t because the cost is so steep in prepays.

• Why is this a problem? The prepays are risk-based and help offset the risk-associated costs of doing business with subprime borrowers.

2. Force lenders to make sure subprime borrowers set aside money for taxes and insurance (This is known in the industry as impounds).

• Why is this relevant? Taxes and insurance that go unpaid force lender-created insurance, and late taxes go on record as tax liens that, when the home is foreclosed upon, also must be paid off.

• Why is this a problem? Some homeowners have flexible income; that is, it isn’t steady. It might be commission-based, for instance. Salespeople, for example, may wait until their end-of-year bonuses to pay taxes. Forcing them to impound could be a monthly hardship.

3. Keep lenders from making loans in which they don’t have proof of borrower’s income.

• Why is this relevant? It protects the lenders from lending to people who are using stated income loans as liar loans.

• Why is this a problem? Some homeowners have flexible income and they work off of bonuses or sales comp checks. People using this loan legitimiately may run into problems that are unfair–they won’t be able to use a loan designed for them. This may keep anyone on commission-based income from buying a home.

4. Prohibing lenders from lending without considering a borrower’s ability to repay a home from sources other than the home itself.

• Why is this relevant? The lenders are using something other than property to securitize it. While this is great for them, it’s a probem:

• Why is this a problem? The general rule has been that you need six months of monthly payments in the bank. That existed throughout the 2000s. To have another source of income or collateral you must have to be able to buy the home negates the entire way our market is set up–that the home is self-securing. It may make sense for lenders to do this to investors, but not for average homebuyers. This is going to make it tougher for people to buy homes in the future.

Dani

Is Bush’s plan enough to save homeowners? Perhaps not some, but it may delay the inevitable and create worry in the markets.

This plan is for homeowners who were making payments at lower introductory rates but have had a harder time at the adjusted rate.

The “plan” is a result of talks between U.S. Treasury Secretary Henry Paulson and other banking execs, regulators and mortgage investors–along with consumer groups–to try to stop the estimated 2 million new foreclosures by the end of the year.

The plan will apply to borrowers who made loans between the start of 2005 through January 30 of 2007, with rates that are scheduled to increase between January 1, 2008, and July 31, 2010.

Some groups wanted a seven-year freeze; others (banks) were looking at one to two years. The five-year plan appears to be a compromise.
This is really designed to help those who are going to have resets they cannot afford. It will freeze their rate, not allowing it to increase, for that five-year period.

The problem is, we may just be creating a situation where we’re delaying the inevitable. The worry over what will happen when all of these people who got their rate stabilized have to begin paying the full amount may hurt the markets. I think the goal is much like an on-ramp with a light–to let people on slowly (or to go into foreclosure slowly) rather than have a huge wave of them all at once, so prices can stabilize a bit. Perhaps we should leave the markets to do their thing, and let’s take the drop in price and the high foreclosure rate now. Banks don’t want to own homes; they will work with homeowners with or without government intervention.
To really look at this, a mortgage typically running around $1,200 per month would add $300 per year in payments by rate resets if you got a mortgage in 2006. The goal would be for borrowers to negotiate into a fixed rate plan. The hope is that by the time these people then have their rates reset (again), the market will be better equipped and there will be less inventory and more money back into the credit markets to handle the new wave of foreclosures. Will that occur? I’m not so sure it’s in the best interest of the markets and may just drag out a problem that could resolve on its own more quickly.

Dani

Just because a homeowner is in a “state of foreclosure” doesn’t mean he or she will lose his or her home. There is a process (judicial and nonjudicial, depending on the state the individual lives in) that determines how long before the person actually loses his or her home–and how long he or she has to try to get it back.
But new information is indicating that more and more homeowners are actually going all the way through to the foreclosure process and, in fact, losing their homes. Foreclosure activity hit a high in August in this past year, meaning that default notices are down for October. This means that perhaps lender intervention is working. Notices of default, often the first legal step after a missed payment and a sign that foreclosure could be imminent, were actually down 9 percent in October. However, reposessions–the bank actually taking back the home–were up 35 percent, meaning that more people who enter the process of foreclosure are losing their houses.

Nevada continues to dominate in foreclosures for the 10th straight month. Its average is 3.6 times the national average. Nevada foreclosures grew 20 percent over the previous month and have increased 300 percent since October of 2006.

California is second, but it has decreased 2 percent from the previous months.

Florida, ranking third for October, was down 9 percent in activity from the previous month, but up 165 percent from one year ago.

The other top states? They continue to be Ohio, Georgia, Michigan, Colorado, Arizona, Indiana and Illinois.

Another bit of news? Foreclosure totals–that is not the percent of homeowners in foreclosure but the actual number of homes in foreclosure–don’t look so good. California, Florida and Ohio round out the top three. Ohio is worrisome, with a 10 percent increase over the previous month. Ohio is also fourth among all states in per-household filings.

A state that has been somewhat worry-free, Texas, actually documented the fifth highest state total–but it is one in 735 households, which is lower than the national average. The volume is caused by the sheer number of homes.

What metro cities are worst?
California dominates in the top metro foreclosure rates, taking six out of 10 spots for October. Merced is now number one, replacing Stockton. The rate is one in every 82 households, or 6.7 times the national average. Stockton and Modesto are now in second and third; Riverside-San Bernardino and Vallejo and Fairfield are sixth and seventh. Sacramento has moved to ninth place.

Las Vegas is fourth in the nation for the month: One in every 120 households. Detroit is fifth. Cape Coral and Fort Myers, Florida, are eighth.

Cleveland has now moved into the number 10 spot.

Dani Babb

Source: Realtytrac Press Release Nov 29, 2007

I was perusing the blogs tonight, and I noticed this one:

http://www.soflahousing.com/2007/11/video-peter-schiff-on-fox-news.html

It features a video of Peter Schiff and me from Fox News this past week. It never ceases to amaze me that people do not want to buy low and sell high! Judging by the consumer spending on Black Friday, it doesn’t appear as though people feel the wealth effect too negatively right now. Thoughts? Are any of you not buying due to lack of equity in your homes? I’d love to hear numerous viewpoints on this.

Dani Babb

 Ever wonder what to do after you own the property? Check out this link! Many of you are unable to sell your homes, or bought foreclosures and aren’t quite sure what to do with them now. I’ve discovered this fantastic site to help landlords! Many of you are going to turn to landlording, which is not only a good option if your house isn’t worth much today and you need to move now, or you just want to buy up some good foreclosure properties and rent them out and hold them for a few years. You may want to consider this before hiring a property manager as I am doing now. Either way, excellent information and a lot of free forms!

Dani

 Needless to say, the recent fires across California have affected countless thousands of lives, having destroyed 1414 homes according to an article in the San Diego Union Tribune that I just read, titled Fire Facts: here is the link: http://www.signonsandiego.com/news/metro/20071026-9999-1n26facts.html

While countless other cities have also been affected, this is merely an illustration of the power that we have to assist those that have lost their homes; the concept works in Orange County, Santa Clarita, Riverside County, as well as the other cities that have significant foreclosure activity, as well as extensive fire damage.

First and foremost, the thought came to mind that the difficult lending environment is preventing current homeowners from being able to refinance due to lack of equity, combined with tightened lending standards, as well as creating an even tougher environment in which to sell a home. As difficult as it may sound, a financially challenged individual or family could easily invite another individual or family who just lost their home to a fire, to move in and rent a room or part of the home to prevent the foreclosure from moving forward. Desperate times call for desperate measures……what would you do to save your home?

Secondly, in any of these given markets, the sheer volume of homeowners requiring temporary living accommodations will create more pressure on the rental market, or may even benefit the local hotel community, whilst not providing the comforts of home that one has grown accustomed to.

So I decided to pull a real-time report from RealtyTrac for the San Diego market. The statistics are listed below:

Pre-Foreclosure

4517 Properties

Auction

1234 Properties

Bank-Owned

2569 Properties

Govt Owned

1 Property

FSBO

136 Properties

Resale Homes

482 Properties

New Homes

75 Properties

I specifically bolded the bank-owned properties, as there are twice as many bank-owned properties, than there were destroyed homes when comparing the Tribune’s data with RealtyTrac data.

The banks and other lending institutions that hold the inventory could turn these 2 tragedies: the Fires and the Foreclosures, into a shining example of Corporate Responsibility and Community Development. Needless to say, the insurance companies will assist their policy holders in rebuilding and getting their customers back on their feet with as little disruption as possible, and could even arrange to make payments to the bank directly to help offset some of the costs of holding the foreclosed properties on their balance sheets, which they are currently doing. This is a win for every party involved, with minimal risk to any involved party. Granted, the banks are not in the business of owning property, but again, desperate times call for desperate measures.

Additionally, countless families will show their long term appreciation to those that stepped up to the plate with assistance during an extremely difficult time.

What would you do??????

Bill Nazur

The new housing numbers for September are more scary than we thought, and the implications of the spiral are worse than some of us expected.

We have an interesting problem. If an individual files for Chapter 13 bankruptcy to restructure their debt over ten years, they may run into a glitch. The current code prevents mortgage lenders from changing loans on a primary residence, yet they can change terms on a vacation home, investment property, farms and businesses!

There are competing bills in the House and Senate that would allow bankruptcy courts to modify mortgage terms and extend repayment time frames. But as of now, primary homes cannot be modified. (WSJ)

It is suggested that if this modification is made, approximately 600,000 people who will be in foreclosure by the end of next year will save their homes. While it may keep foreclosures away for some, it may discourage lenders from borrowing to low income households. They also worry about what it will do to the loans they’ve turned into securities and sold to investors, because the terms of the loans, which investors paid a price for, could then be changed by the courts. There is, too, some worry that banks will make up the difference by charging everyone else higher rates.

Dani

It may seem counterintuitive, but many homeowners are turning to bankruptcy to stay in their homes and avoid foreclosure.

We already know from looking at Realtytrac’s data that many mortgage payment loans are in default. We have been hearing about the 100%+ increases in foreclosure rates, but what about bankruptcy rates? The WSJ reports this morning that bankruptcy filings increased 23% from one year earlier. During the first nine months of 2007? 44% increase, according to the American Bankruptcy Institute.

So how does filing bankruptcy keep you out of foreclosure? In some states, bankruptcy stops the foreclosure process. It is harder today than it was in 2005 to be granted a bankruptcy, but as homeowners find it harder to refinance and see their payments going up, many are turning to it earlier in the process.

Chapter 7 of the Federal Bankruptcy Code requires individuals to forfeit assets - including equity in their home - to pay off debts. Many who file Chapter 7 do lose their homes.

However, there is another option; Chapter 13. This stops the foreclosure process, and allows the homeowner to work out a play to pay debts - including your mortgage - over time. Usually this period of time is three to five years. To qualify, a person must have regular income and stay current on ther new bills. About 40% of today’s bankruptcy filings are under Chapter 13.

In some hot real estate markets like California, the WSJ reports that the number of Chapter 13 individual bankruptcy petitions went up more than 100% from one year earlier; and in the northern area of Illinois (including Chicago) this number is 40%. In Massachusetts, it is 70%.

Homeowners must be very skeptical though. There are a lot of scams out there where people are taking the money to ’start the process’ and running, particularly on the Internet. So homeowners in trouble need to be careful who they work with.

One downside? Chapter 13 stays on the credit for 10 years, which could cause problems if the person needs new credit. The new repayment plan often leaves very little money for anything else. If you have an emergency, job loss or illness, Chapter 13 may not work.

Dani