Fannie and Freddie Principal Reductions...or lack thereof.

Weitz: I often have clients approach me and ask about the possibility of a principal reduction to allow them to stay in their home - my response is always the following: who actual owns your note? If its Fannie Mae or Freddie Mac, you've got a better chance of winning the lotto. As of today, there have been 0 principal reductions by these large GSEs since the crisis bagan. Below are some excerpts on the topic from a recent Seattle Times article:

Nongovernment holders of delinquent mortgages are offering more payment plans with debt forgiveness as Fannie Mae and Freddie Mac resist, according to the U.S. Office of the Comptroller of the Currency.

Principal reductions were granted in 8.5 percent of the 116,153 delinquent mortgages that received permanent modifications in the fourth quarter, according to a report by the unit of the Treasury Department.

Weitz: 8.5% - that's pathetic; unless banks and Fannie and Freddie get more aggresive with this, the foreclosure numbers will continue to mount.

That's up from 8.1 percent in the prior three-month period.

Debt forgiveness was included in 16 percent of loans held by private investors, 25 percent of loans held in bank portfolios and in none owned by the government-run companies.

"Principal modifications can be a tool in the overall arsenal," said Bruce Krueger, a senior mortgage expert with the comptroller's office, said in a conference call.

"It just makes sense for homeowners who have been significantly underwater to take a principal writedown," he said.

Lenders have struggled to find ways to reduce losses as 12.1 percent of mortgages were delinquent or in foreclosure at the end of last year, down from 12.4 percent a year earlier, according to the comptroller's report.

About 5 million homeowners have lost their property through foreclosure or other forfeiture actions since 2006, according to RealtyTrac.

Fannie Mae and Freddie Mac, the mortgage financiers under government conservancy since 2008, haven't granted principal reductions because it would cost the taxpayer-funded companies almost $100 billion, Edward DeMarco, the acting director of the Federal Housing Finance Agency, said in a Jan. 20 letter to Congress.

Weitz - here is a perfect example of the short-sightedness of these companies. They look at the losses of doing the modifications...they SHOULD be looking at the loses they are going to incur when theses properties go to foreclosure because a modification was not executed.

The agency oversees Freddie and Fannie.

Private investors may have acquired the mortgages at a discount or been forced to write down the value of the loans to comply with U.S. banking regulations, making it easier for them to offer debt forgiveness, Krueger said.

Principal deferrals, which reduce payments by delaying rather than forgiving debt obligations, were offered on 20 percent for loans held by Freddie Mac, 26 percent by Fannie Mae, 30 percent by private investors and on 39 percent of mortgages in bank portfolios.

"We haven't been able to determine whether principal-reduction modification works better than principal deferral modification," Krueger said.

Delinquent loans that received payment reductions greater than 10 percent have had a lower re-default rate than plans with smaller discounts, Krueger said.

The number of permanent modifications fell 44 percent in the fourth quarter from a year earlier and 16 percent from the prior three-month period, according to the report.

Weitz - not sure how to interpret this number - are we improving in the Real Estate market or the modifications becoming less successful - I would guess a little bit of both.

At the same time, the number of homes seized through foreclosures rose 22 percent to 116,060 and the number of short sales, when lenders agree to sell for less than the debt on the property, increased 29 percent from a year earlier to 63,257.

Owners of 768,773 homes had active mortgages modified under President Obama's Making Home Affordable program as of Jan. 31, the most recent data available from the Treasury Department. That included 44,058 loans with principal modifications, with a median debt reduction of $68,063.

For more information on your rights with Foreclosure, Short Sale or Loan Modification, consider seeking the Guidance of Seattle Foreclosure Attorney.

Our Firm:

Weitz Law Firm, PLLC
520 Kirkland Way, Ste 103
Kirkland, WA 98033

425.889.9300

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Washington Foreclosure Fairness Act - Bad Faith Determination

The foreclosure fairness act is now playing a big part in Washington foreclosures. The big component of the bill is that all parties must act in good faith, but what does that mean and why does it matter? Below is a very basic overview of the law and the potential ramifications of getting a bad faith determination at mediator.

General Rule. RCW 61.24.160

A violation of a Duty to Mediate in Good Faith include:

a. failure to timely participate in the mediation without good cause
b. failure to provide the following documents to the borrower at least ten days prior to mediation:
      - accurate statement of loan balance
      - copies of note and Deed of Trust
      - Proof the beneficiary is the owner of the promissory note
      - estimate of arrearages
      - payment history for past 12 months
      - NPV analysis
      - explanation regarding any denial for loan modification or other foreclosure alternative
      - most recent BPO or appraisal
c. Pool Servicing Agreement that prohibits modification
d. Failure of a party to designate representatives with adequate authority to fully settle, compromise or otherwise reach resolution

What does it mean if the bank gets a failure to act in Good Faith?

If mediator issues a certificate that beneficiary failed to act in good faith, it would constitute a defense to a non-judicial foreclosure - the most common type of foreclosure in Washington.

A mediator certificate that the NPV (Net Present Value) of a loan modification exceeds the NPV of a foreclosure, it would constitute a basis for enjoining the foreclosure.

For more information on your rights in Foreclosure, Short Sale or otherwise, consider seeking the guidance of a Seattle Foreclosure Attorney or a Seattle Short Sale Attorney.

Our Firm:

Weitz Law Firm, PLLC
520 Kirkland Way, Ste 103
Kirkland, WA 98033

(425) 889-9300

Weitzlawfirm.com

HARP 2.0 for Washington Homeowners

A recent AP article regarding the new HARP program:

The most ambitious federal mortgage program to date aimed at millions of underwater homeowners is poised to take off in the coming two weeks, yet some key issues could hinder borrowers' participation. One of them involves something most owners know nothing about: Who was your mortgage insurer on your underwater loan?

Weitz - We all know that the original HARP was a failure. Hopefully, the 2.0 version will be more productive - time will tell. Here are some basics of the program.

Though it was announced by the Obama administration late last year, the so-called "HARP 2.0" — the second version of the Home Affordable Refinance Program — will only hit full stride around the middle of this month, when Fannie Mae and Freddie Mac finish tweaking their automated underwriting systems to accept applications, and lenders and mortgage-insurance companies start handling large volumes of requests.

The revisions are crucial for owners who have outstanding mortgage balances in excess of 125 percent of the current resale values of their homes.

Under the second version of HARP, there is no upper limit on permissible loan-to-value ratios (LTVs). You can owe twice or even three times the value of your home and still qualify for a refinancing at today's low interest rates. The earlier version imposed a limit of 125 percent, which cut out millions of the hardest-hit victims of the real-estate bust.

Weitz - this is a major and necessary change from the previous version of the HARP program that will hopefully help out many more homeowners than the previous version.

The latest HARP also comes with streamlined underwriting — no requirement for physical appraisals in many cases, speedy processing and elimination of some of the deal-breaker fees imposed by Fannie Mae and Freddie Mac in recent years.

The objective, federal officials say, is to get it right this time around by removing the previous obstacles to widespread participation by lenders and severely underwater borrowers. Industry studies estimate that as many as 6.9 million loans could fit the broad requirements for refinancing, but that far fewer — somewhere around 2 million borrowers — are likely to qualify on all the detailed eligibility criteria.

Among the key rules:

• Only loans owned or guaranteed by Fannie Mae and Freddie Mac are eligible. Underwater borrowers who have FHA, VA or other types of mortgages are not. Both companies' websites — www.fanniemae.com and www.freddiemac.com — offer "look up" features that tell you whether they own your loan.

• Your mortgage must have been purchased or securitized by either company no later than May 31, 2009, and must have an LTV ratio in excess of 80 percent.

• You must be current on your loan with no 30-day late payments during the six months preceding application and no more than one late payment during the last 12 months.

If you think you qualify, you can apply to your mortgage servicer and ask how to proceed. Once the fully automated program gets going in a couple of weeks and your LTV is higher than 125 percent, you should also be able to shop around among other lenders who are large enough to run servicing operations of their own.

But be aware of a little-noticed glitch that has arisen in the program that could hamper your opportunity to refinance. Some lenders may not want to proceed with your application because of a detail buried in your loan documents that was always beyond your control — the name of the mortgage insurer on your current loan.

If it is United Guaranty, they may set your application aside because that firm alone has not agreed to adhere fully to the streamlined procedures other insurers accepted as part of the basic deal with the White House, Fannie and Freddie to kick-start the revised refi program.

The issue is technical and complicated — United Guaranty has refused to waive its rights to force lenders to repurchase what it considers badly underwritten loans, and is requiring additional underwriting in some cases. All other private mortgage insurers have waived their rights.

The net effect of United Guaranty's policy, say lenders and federal officials, is to disrupt the intended fast and efficient processing of HARP refi applications — potentially denying lower interest rates to as many as 10 to 15 percent of underwater borrowers who might otherwise qualify.

Some major lenders, such as Quicken Loans, said in interviews that they will have to either set aside or reject HARP applications where the original loan carries United Guaranty insurance. United Guaranty, a subsidiary of giant insurer AIG, said in an email statement that it "fully supports the Obama administration's efforts" in revising HARP, and that only a "minority" of its insured mortgages should be affected by its policy disagreement with the rest of the industry.

Bottom line for you if you're deeply underwater and interested in a HARP refi: Proceed with your application anyway, but be aware there are tripwires and snares that could derail you

For more information on your rights with Distressed Real Estate, consider dicussing with a Seattle Foreclosure Attorney.

Our Firm:

Weitz Law Firm, PLLC
520 Kirkland Way, Ste 103
Kirkland, WA 98033

(425) 889-9300

weitzlawfirm.com

Washington Foreclosure Settlement - What it means to you

As some of you may or may not be aware, there was a recent settlement between 5 of the large banks and the State Attorney Generals regarding the Foreclosure practices and on-going servicing of their loans.

Below, I will provide a detailed overview of the settlement and provide my take on what it means for Washington Homeowners.

The Settlement:

The $25 Billion settlement will provide financial ‘relief’ to an estimated one million at-risk borrowers.

The pact, as agreed upon by Bank of America, Wells Fargo, Chase, Citi and Ally Bank will offer reduction in loan principal and other assistance to qualified homeowners. $17 Billion will go to at-risk homeowners.

Weitz - Let me translate: these 5 banks only hold 20% of mortgages (note the difference between owning the loan and servicing the loan – they service a much higher percent, but only own 20%).


The pact allows for potential re-financing for people current on payments even if they are underwater on their homes.

Weitz - there were no specific details given who gets re-financing and under what terms.

Additionally, the deal will potentially provide $1500 to $2000 to people who have previously been foreclosed upon.

Washington Specific Information:

Washington stands to get $648 million under the $25 billion national settlement with five of the nation's biggest mortgage servicers announced Thursday.

The biggest chunk, $525 million, is aimed at helping those who are financially underwater on their mortgage because their home's value plunged: $455 million will go for reducing the loan principal of homeowners who are delinquent on payments, and $70 million for refinancing the loans of homeowners still current and paying higher-than-market interest rates on their mortgage.

Other moneys Washington state will receive under the settlement include:
• $45 million for foreclosure relief programs, including housing counselors, free legal assistance and mediation.
• $5 million to the state Attorney General's office to recoup its costs.
• $5 million in civil penalties, which will go to the state's treasury

How long will it take to get help?

Over the next 30-60 days (From Feb. 10, 2012), settlement negotiators will pick an administrator to handle the logistics of the deal. Over the next 6-9 months, the parties will work to identify which borrowers will get help.

It is expected that servicers will reach out to borrowers in the coming weeks, but they techinically have 3 years to provide help.

Each bank will have their own toll-free number and website and a national clearing house will be established at nationalmortgagesettlement.com.
• Ally/GMAC: 800-766-4622
• Bank of America: 877-488-7814
• Citi: 866-272-4749
• JPMorgan Chase: 866-372-6901
• Wells Fargo: 800-288-3212

What are the rules of the principal reduction program?


1) Borrowers must be a. behind on payments or b. at imminent risk of default
2) This does not cover loans owned by Fannie and Freddie Mac – this is important has a majority of loans are in-deed owned by Fannie and Freddie.
3) It will apply to both 1st and 2nd mortgages (if they are owned by the banks).

** Expect this to apply mostly to the 2nd loans that should reduced anyways.

What about the Re-Finance Program?

The re-finance program will apply to loans owned by the banks (rare).
Further, borrowers must be current on their loan payments and owe more than their home is worth. The interest rate can be reduced to as low as 5.25%

Weitz - Ha!!. Note the 5.25% - that’s only about 1.5% higher than current market rates – thank you, Banksters! ….Way to solve the problem with way above market interest rates.


Post –Foreclosure Help:

Apparently notices will be mailed to eligible borrowers. (Weitz – not sure how they are going to get those mailing addresses of people post-foreclosure).

What’s my take?

Let me translate what the banks have negotiated:
Don’t call us. We’ll call you. We’ll send you a letter if we think that you are eligible for help and we’ll decide (arbitrarily) in ‘awhile’ who is eligible for help.

My opinion: The devil is in the details. I see no real way in which to hold banks accountable to the pact. In fact, I think they benefitted tremendously as the threat of future legal recourse has now been alleviated.

Now that the banks no longer have to worry about ‘robo-signing’ lawsuits and other procedurally driven complaints / lawsuits, I expect the number of foreclosures to begin to rise again at least modestly, if not substantially.


For more information on your benefits and pitfalls of foreclosure and/or short sale, please consider contacting a Seattle Foreclosure Attorney or a Seattle Short Sale Attorney.

Our Firm:

Weitz Law Firm, PLLC
520 Kirkland Way, Ste 103
Kirkland, WA 98033

(425) 889-9300

Seattle Real Estate: Is now the time to buy?

A recent well-written article in the Seattle Times about ‘Testing the Real Estate Market’ in Seattle – obviously, I’ve got plenty to say on this one.

Despite declining prices — or is it because of them? — last year is shaping up as the Seattle area's best year for home sales since the real-estate market tanked in 2007.

Weitz- “Best since 2007” …. Not a very high bar to exceed!

Through November, closed sales of houses and condos in King and Snohomish counties were running 10 percent ahead of 2010's pace, according to Northwest Multiple Listing Service statistics (December's numbers are expected Wednesday).
That's still barely half the peak pre-bust volume. But market-watchers say the improvement is encouraging, especially considering 2011 was the first year in the past three with no federal-stimulus tax credits to entice buyers.

Weitz - ½ of the pre-bust levels – let me interpret…..still dreadful.

So who bought last year? And who's likely to be buying in 2012?
Renters who've decided low prices and interest rates now make buying more attractive than renting, brokers and other industry insiders say.

Weitz - For the first time since the crash, I have actually started to say that there are ‘SOME’ opportunities in the market place. Where are they, you ask? The low end of real estate has obviously been hit hard. We are seeing investors buying properties and easily being able to rent them and cash flow – namely, places like Everett and Tacoma seem to make sense with a lot of Single Family Homes and Condos falling to less than $150,000.

Investors who sense opportunity in deeply discounted distressed properties. Folks whose changing life circumstances — a new job, a growing family — dictate a move.

And, perhaps most important, people willing to live with the possibility that their home's value may go down still farther before it goes up — because they don't plan to sell anytime soon.

Weitz – while this can make sense, I don’t agree with this theory for a lot of folks. If you can rent and save a significant amount of money on a monthly basis, you are much better off waiting for opportunities in the housing market. It is my opinion that Real Estate has yet to bottom in the Seattle area in most areas – even if I am wrong on this fact, I find it hard to believe that rapid appreciation will be seen in the near future. As the only saying goes: ‘you don’t want to be the one to catch a falling knife’.

Buyers aren't purchasing homes as short-term investment vehicles anymore, says principal Jeff Bell of Cobalt Mortgage in Kirkland, and that's a huge shift.

"The whole system is different now," he says. "We're going back to the way real estate was 20 or 30 years ago."

Seattle economist Matthew Gardner, who analyzes the market for Windermere Real Estate, concurs.

Before the bust, he says, "it wasn't, 'This is my home.' It was, 'This is going to make me money.' "

Among buyers today, Gardner says, that expectation is all but gone.

No big change

Weitz – below are some ‘industry experts’ discussing the market – I’m going to comment on all their opinions, and then point out the obvious for everyone.

For the most part, industry observers don't expect any dramatic changes in the local real-estate scene in 2012. "The market's probably going to be struggling for a while overall," says Glenn Crellin, director of the Washington Center for Real Estate Research.

Weitz – agreed – with the amount of distressed Real Estate in the market, there is an incredibly high possibility of continued struggles.
"We'll be bouncing along the bottom," OB Jacobi, Windermere's president, told a recent industry gathering.

Weitz – note that OB is a Broker – Brokers will generally be overly optimistic as their paychecks gain as Real Estate gains.

Prices may slip a little more, experts say, or at best hold steady. Interest rates should stay at or near their record lows.

Weitz – Agreed.

Inventory probably will remain depressed — in part because so many homeowners are underwater on their mortgages, says Tim Ellis, who writes the Seattlebubble.com real-estate blog: "People who might otherwise be selling can't afford to."

Weitz – Agree with Tim (as usual) – check out his blog Seattle Bubble: it’s a great resource for Seattle Real Estate.

Tougher lending requirements probably will continue to short-circuit a significant number of sales, brokers say — financing obstacles are depressing sales by 10 to 15 percent, says John L. Scott Real Estate Chairman and CEO Lennox Scott.

Weitz – Agree with Mr. Scott for perhaps the first time ever.

Finally, observers say, foreclosures — which helped drive sales up and prices down in 2011 — will continue to play an influential role.

Weitz – Again – I agree.

Weitz – Note that you have a handful of experts in Seattle Real Estate indicating that things will not be improving (and most say that tougher times will be ahead). So please tell me why NOW is a good time to buy?

Sales of bank-repossessed homes were up substantially last year. They accounted for 17 percent of all King County sales in October, up from less than 10 percent in October 2010, according to Seattle-based real-estate marketplace Zillow.com.

Those homes sold not only for significantly less, but also at steeper discounts than other properties compared to a year earlier. The median price of repossessed houses sold in King County in November was down 18 percent from the same month in 2010, according to an analysis by Washington Property Solutions, a short-sale negotiating firm.

For nondistressed houses, the year-over-year drop was less than 3 percent.

Weitz – I’m not sure why ‘distressed’ and ‘non-distressed’ numbers always get separated. The reality is that a buyer has equal access to both. ‘Distressed’ homes are not some distinct sub-category of the market. They are the new reality.

The foreclosure pipeline probably won't dry up anytime soon, most analysts say, despite a recent slowdown in auctions and repossessions they consider merely a pause.

Weitz – Correct, the New Foreclosure Fairness Act has been a great ‘stalling’ aide for foreclosures. The FFA, coupled with the Recontrust issues (Bank of America’s Trustee for Foreclosures), has led to a recent slowdown in Foreclosures – don’t expect that trend to continue.

The percentage of Washington homeowners at least 30 days delinquent on their mortgages has nudged up from 7.1 to 7.5 percent over the year, according to the Mortgage Bankers Association.

And, according to Zillow's latest data, 29 percent of King County single-family homes with mortgages have "negative equity" — their owners owe lenders more than the homes are worth.

That's likely to keep foreclosures elevated, says Stan Humphries, Zillow's chief economist.

But their impact on prices doesn't reach across the board, he adds: Higher-priced houses, which face less competition from foreclosures and short sales, have declined much less in value over the past year than lower-priced stock.

Weitz – this has been true; however, it leads to my prediction for 2012: while the high end has fared better thus far, I expect that the lack of buyers will eventually lead to sellers doing more ‘strategic defaults’ and thus lowering the prices of those properties as well.

That's among the signs of stability in the Seattle market that Humphries says he finds encouraging heading into 2012.

"It's not a terrible time to buy," says Ellis, the blogger. "It depends on your situation."

He bought his first house last year, a short sale in Everett, after looking on-and-off for five years.

That's what Crellin, the real-estate researcher, concluded. He moved recently from Pullman to Seattle when his center switched affiliations from Washington State University to the University of Washington.

He's 61, headed toward retirement. When he considered what the real-estate market might do between now and then, Crellin says, he wasn't certain he'd recoup his investment if he bought.

Considerations like that drove buying decisions in 2011 and will continue to drive them in 2012, experts say.

"It's not 'Buy because you're going to get 10 percent appreciation over the next couple years,' " says Bell, the mortgage broker. "It's not what it used to be at all."

He plans to buy a new house this year — and stay there 15 or 20 years. "I'm not looking for the house to appreciate," he says. "I'm moving for my lifestyle."

Another likely 2012 buyer: Zillow's Humphries. He's not looking to make money, he says. He just wants a bigger back yard.

"With three kids, that's important," the economist says.

Weitz – bottom line: I tell clients the key in deciding whether to purchase a property (from a purely objective standpoint) is to focus on cash flow. If you can buy for the same amount or less of renting, then I think it’s a fine time to buy. If that is not the case, patience is a virtue and will be rewarded.

For more information on your rights in Foreclosure or Short Sale, consider seeking counsel from a Seattle Foreclosure Attorney.

Weitz Law Firm, PLLC

520 Kirkland Way, Ste 103
Kirkland, WA 98033

425 889-9300

weitzlawfirm.com

Large year over year housing price drop in Seattle

AP: Excerpts from a recent Seattle Times article:

King County home prices tumbled to a new post-boom low in October, and no one is sure exactly why.

Weitz – no one can figure out why?!....hmmmm?.... Perhaps the greatest Asset Bubble in the History of America that we experienced in Real Estate is imploding? Perhaps the excessive un-employment? Perhaps the constantly rising cost of commodities because we continue to thrash the dollar via the Federal Reserve's QE programs? Perhaps the decreasing incomes for most of America? I can’t place my finger on it... Someday, we’ll figure it out.

As real-estate insiders offered a host of possible explanations for the drop Thursday, they also debated whether it's a harbinger of a new, long-term decline — or a one-time statistical blip.

The median price of houses that sold last month was $320,000, down nearly 15 percent from October 2010, according to statistics released by the Northwest Multiple Listing Service.

Weitz – 15%! That’s a large number. I’ve been writing on this for some time and don’t recall Seattle posting a YOY decline that bad.

The previous low, $334,000, came this March. The median had fluctuated in a narrow range, between $345,000 and $350,000, since then.

October's median condo price, $178,500, was down even more sharply year-over-year — 23 percent.

Weitz – Wow – a ¼ drop in 1 year –scary.

Single-family-home prices in Snohomish County were down 13 percent, to $235,000.

Glenn Crellin, director of the Washington Center for Real Estate Research at Washington State University, said he expects prices will continue to slip for another year.

"There's little pressure on buyers to be active, especially with interest rates not expected to rise for some time," he said. Mortgage rates have been at historic lows — even dipping below 4 percent for a 30-year term — for much of this year.

Compared with the same month in 2010, sales volumes were up in October for the fifth straight month. Buyers closed on 14 percent more houses and 30 percent more condos in King County, and 37 percent more houses in Snohomish County.

Weitz – that’s an odd dichotomy - Sales are up dramatically, but prices are down dramatically. Clearly, there is a dis-connect in the market. My conclusion: the high end is not selling. Conversely, cash buyers are coming in and collecting investment properties they can immediately cash flow with.

But those gains were overshadowed by the big decline in prices. King County's single-family median sales price was off more than 33 percent last month from its July 2007 peak.
The last time it was lower: March 2005.

Some possible causes of the October drop:

1) Tighter limits on "jumbo" loans: On Oct. 1 the limit on federally backed mortgages dropped from $567,500 to $506,000. That left buyers of higher-priced homes with fewer financing options, OB Jacobi, Windermere Real Estate's president, said in a prepared statement.

"It's only natural that this would cause downward pressure on October's median price," he said.

But Ellis, who also is a researcher for online brokerage Redfin, said homes likely to be affected by the new limit account for less than 4 percent of the King County market.

Weitz - I'm with Tim. I think it played a role (and will continue to play a role), but there are much bigger issues going on here.

2) "Distressed" properties: Bank-repossessed homes tend to fetch less from buyers, as do "short sales" for less than the seller owes its lenders.

Together, they made up about 31 percent of all King County single-family-home sales in October. That's about the same share as the last few months.

Weitz - this isn't going away - it's impractical to call this an excuse for a bad year. This is the new reality.

3) Cash offers: More buyers, especially investors, are making all-cash offers, Crellin said — and buyers are accepting them, although they often are lower, to avoid the uncertainties of financing.

Sellers of higher-priced homes also are starting to drop their asking prices, he added, and that could be pushing the median sales price lower.

4) Apples and oranges: The 1,489 King County houses that sold for a median price of $320,000 this October can't be compared accurately with the 1,309 houses that sold for a median price of $375,000 last October, some argue, because the mix has changed.

For instance: Ellis said that while Redfin's research also shows a big year-over-year drop in the median sales price last month, the price per square foot fell much more modestly.
That suggests "for whatever reason, people bought smaller houses," he said.

Weitz - See my comments on this below.

The geographic mix also shifted. Listing-service statistics show King County's lowest-priced areas — Southwest, Southeast and North King County — saw the biggest increases in sales last month. They also experienced the biggest price drops, and that brought the countywide number down.

In higher-priced Seattle and the Eastside, price declines were in the single digits.

Weitz – If I had to make a prediction, I expect the lower tier will continue to drop, but will be the first part of the market to recover as it simply makes sense to purchase these properties that can immediately provide cash flow via renters. Conversely, it is my opinion that the high end market will be much slower to drop (as has been shown), but will nevertheless drop and it will have a difficult time finding a bottom in the foreseeable future as incomes stay stagnant and the cash flow analysis vs. renting a similar property is way off – time will tell.

Our Firm:

Weitz Law Firm, PLLC
520 Kirkland Way, Ste 103
Kirkland, WA 98033
(425) 889-9300

Weitzlawfirm.com

New Foreclosure Review Program in Washington State

Weitz- a new agreement was announced in which servicers (Banks) have agreed to provide “thorough” reviews of the foreclosure process for millions of homeowners. As usual, I’ll provide thoughts throughout.

WASHINGTON — More than 4 million borrowers who have faced foreclosure since early 2009 will have the chance to have their cases reviewed for potential wrongdoing, federal regulators and some of the nation's largest mortgage servicers announced last week.

The reviews stem from a deal earlier this year in which 14 servicers agreed to hire independent consultants to evaluate whether borrowers suffered financial injury during the foreclosure process. If a review finds errors or abuses by the financial firms, the consultants will determine what recompense wronged homeowners deserve.

Weitz – Note that the “Independent Contractors” are hired by those that they are conducting reviews of – how’s that for a conflict of interest?! You think these “Independent” contractors will have the incentive to be harsh on those writing their checks?

On Tuesday, servicers began mailing letters to the estimated 4 million borrowers whose loans were in the process of foreclosure between Jan. 1, 2009, and Dec. 31, 2010, detailing how to request a review of an individual case.

Officials at the Office of the Comptroller of the Currency (OCC), which crafted the April servicer agreement along with the Federal Reserve, said the mailings would continue through the end of the year and be accompanied by a large-scale marketing campaign to make borrowers aware of the effort.

Additional information is available at www.IndependentForeclosureReview.com or 1-888-952-9105.

Requests for review must be received by April 30.

"There is no cost to the borrower for this review," said Joe Evers, deputy comptroller for large banks at the OCC.

Under the agreement, the servicers are required to foot the bill for the outside consultants conducting the reviews. Evers and other OCC officials said Tuesday that "a great deal of effort has been taken to ensure that the independent consultants are truly independent" and that the servicers will be prohibited from influencing the findings.

Weitz – Riiiiiiight.

While eight consultants are working on behalf of the servicers involved, officials said they had spent months developing a common website and call center, as well as common branding and marketing materials, in an effort to make the process equitable for each eligible borrower.

Examples of financial injury might include unwarranted or miscalculated fees charged to borrowers, a foreclosure that happened while a borrower was already in bankruptcy protection, or a property that underwent a foreclosure sale even as the borrower was awaiting word on a loan modification from the servicer.

Details about how long it will take to conduct the reviews, what sort of redress homeowners stand to gain, and what rights they might have to sign away in exchange for compensation remain unresolved.

These will be thorough reviews, reviewing every aspect of the foreclosure," Evers said. He said officials hope to complete the reviews in a matter of months after the final deadline, but he acknowledged the mountain of work involved

OCC officials on Tuesday also said no decision had been made yet about what type of compensation borrowers will be entitled to if the reviews show they were the victims of errors or misrepresentations.

Weitz – another major pitfall of the program. How do you quantify an improper foreclosure? You can’t just get your house back – someone else is now the rightful owner of it. The only compensation will be monetary in nature and I’m guessing that the banks are not going to be proactive in writing large checks.

It also remains unclear whether borrowers might be required to waive their right to sue the financial firms involved in exchange for compensation.

The April deal also imposed a host of other requirements on the servicers involved, including that they provide a single point of contact for struggling borrowers, many of whom have complained of getting the runaround when they try to get help.

Weitz – Despite all my criticisms, I will still encourage clients to pursue this option if they have been foreclosed upon. Its free to apply and its certainly possible there will be some compensation involved.

For more information on your rights in foreclosure, short sale or other distressed property situations, consider contacting a Seattle Foreclosure Attorney.

Our Firm:

Weitz Law Firm, PLLC
520 Kirkland Way, Ste 103
Kirkland, WA 98033
(425) 889-9300

Weitzlawfirm.com

New HARP Guidelines overview

The Home Affordable Refinance Program (“HARP”) was created to assist troubled homeowners in refinancing their loans to reflect current conditions within the housing market. Under the program, qualified homeowners were often permitted to refinance their mortgages at lower rates.

Restrictions on qualification and the general costs involved with HARP application lead to very few homeowners seeking relief under this program. In order to make HARP more accessible, the White House and federal regulators are implementing modifications to homeowner qualification requirements and reducing the costs associated with application this program.

Below is a brief outline of qualification requirements, the announced modifications to such requirements and the limitations of HARP:

(1) Who is eligible for HARP?
- Those whose loans are owned or backed by Fannie Mae or Freddie Mac, which the government took control of three years ago. Homeowners can determine whether their mortgage is owned by Fannie or Freddie by going online:
Freddie’s loan tool is at freddiemac.com/mymortgage;
Fannie’s is at http://www.fanniemae.com/loanlookup/

To qualify under HARP, a loan must have been sold to Fannie and Freddie before June 2009.

- Homeowners must be current on their previous six mortgage payments. One late payment within six months, or more than one in the past year, would automatically disqualify the homeowner from eligibility.

(2) What modifications have been made to HARP?- Previously, HARP only permitted homeowners who owed less than 125% of their homes fair market value to qualify for the program. Now, there is no restriction on how much value the home has lost in order to qualify if all of the other requirements are met. It should be noted that additional qualifications still exist if there are multiple mortgages on the property.

- Under the original program, many fees associated with closing, processing and appraisal were necessary costs borne to the homeowner. The modified program will eliminate certain fees for closing, title insurance and lien processing, making the refinance cheaper.

Additionally, loan fees will drop and will be waived for homeowners who reduce their loan term, and fewer homeowners will be required to have their homes appraised prior to seeking a refinancing. Lenders will also benefit in some instances because they won’t have to buy back the mortgages from Fannie or Freddie, as they previously had to when dealing with some risky loans.

- HARP was originally scheduled to terminate in June 2012. The modification has extended this program an additional 18 months, through 2013.

(3) The Major Limitation of HARP

Homeowners interested in HARP need be aware that lenders will remain free to reject a refinancing even if the homeowner meets all of the programs requirements, limiting the ultimate impact of this program.

For more information in your rights in modification, or other options including foreclosure, short sale, or bankruptcy, consider contacting a Seattle Foreclosure Attorney.

Our Firm:

Weitz Law Firm, PLLC
520 Kirkland Way, Ste 103
Kirkland, WA 98033

425 889-9300

weitzlawfirm.com

Washington State Emergency Home Loan Program

Weitz - below is the my summary of the Department of Housing and Urban Development (HUD) Emergency Homeowner Loan Program. My initial thoughts are 1) that it is arguable a huge waste of taxpayer dollars that favors the banks more than anyone; and 2) for the right client, its a great opportunity to get some easy government money - I will explain in more detail below.

I found the picture to the right assuming for this topic - while amusing, its not too far from the truth.

Click here for actual report.

The Dodd-Frank Wall Street Reform and Consumer Protection Act provided $1 billion to HUD to implement the Emergency Homeowners Loan Program (EHLP) Program. The program will offer a declining balance, deferred payment “bridge loan” (non-recourse, subordinate loan with zero interest) for up to $50,000 to assist eligible homeowners with payments of arrearages, including delinquent taxes and insurance plus up to 24 months of monthly payments on their mortgage principal, interest, mortgage insurance premiums, taxes, and hazard insurance.

Weitz: Let me paraphrase for the government: “Come get your free money!” We will pay up to $50,000 of your arrearages and assist with future payments with a loan that is 1) secured by your property; but 2) NON-RECOURSE (this means that if you stop paying, they can not pursue you for the debt).

While I hate the ideology of the program because I truly think it simply 'kicks the can down the road' for many and there are considerable issues with ‘fairness’ in who qualifies and who does not, I would always encourage clients to take a $50,000 INTEREST FREE, NON-RECOURSE loan.

Looking big picture, I also hate the idea because the parties that benefits the most are the banks as they will be paid with taxpayer money IN FULL.

Below are the details of the program, its qualification, and other important issues.

Qualifications:

Income Thresholds: The homeowner a total pre-event household income equal to, or less than, 120 percent of the Area Median Income (AMI), which includes wage, salary, and self-employed earnings and income.

Significant Income Reduction: The homeowner has a current gross income that is at least 15 percent lower than the pre-event income.

“Pre-event income” is defined as the income prior to the onset of unemployment, underemployment, or medical emergency, while “current income” is the income at the time of program application, as well as income during the period that the homeowner continues to receive assistance from the fund.

Employment type: Both wage and salary workers and self-employed individuals are eligible.

Delinquency and Likelihood of Foreclosure: the homeowners must be at least 3 months delinquent on payments and have received notification of an intention to foreclose. This requirement can be documented by any written communication from the mortgagee to the homeowner indicating at least three months of missed payments and the mortgagee’s intent to foreclose. In addition, the homeowner can self-certify that there is a likelihood of initiation of foreclosure on the part of their mortgagee due to the homeowner being at least three months delinquent in their monthly payment.

Ability to Resume Repayment: Has a reasonable likelihood of being able to resume repayment of the first mortgage obligations within 2 years, and meet other housing expenses and debt obligations when the household regains full employment, as determined by: The homeowner must have a back-end ratio or DTI below 55% (principal, interest, taxes, insurance, revolving and fixed installment debt divided by total gross monthly income). For this calculation, gross income will be measured at the pre-event level.


Principal Residence: the homeowner must reside in the mortgaged property as principal residence. The mortgaged property must also be a single family residence (1 to 4 unit structure or condominium unit).

Termination of Monthly Assistance: Assistance is terminated and the homeowner resumes full responsibility for meeting the first lien mortgage payments in the event of any of the following circumstances:

1. The maximum loan ($50,000) amount has been reached;
2. The homeowner fails to report changes in unemployment status or income;
3. The homeowner’s income regains 85% or more of its pre-event level;
4. The homeowner no longer resides in, sells, or refinances the debt on the mortgaged property; or
5. The homeowner defaults on their portion of the current first lien mortgage loan payments.

Income re-evaluation: After initial income verification at application intake, the homeowner shall be required to notify the fiscal agent of any changes in the household income and/or employment status at any point throughout the entire period of assistance.

Forms of Assistance

Use of Funds for Arrearages: On behalf of the homeowner, the fiscal agent shall use loan funds to pay 100% of arrears (mortgage principal, interest, mortgage insurance premiums, taxes, hazard insurance, and ground rent, if any).

Homeowner Payments: Homeowner contribution to monthly payment on first mortgage will be set at 31 percent of gross income at the time of application, but in no instance will it be less than $25 per month.

Use of Funds for Continuing Mortgage Assistance: The fiscal agent will make monthly mortgage payments to the servicer of the first lien mortgage in excess of the payments made by the homeowner.

Duration of Assistance: If at any time the household’s gross income increases to 85% or more of its pre-event level, assistance will be phased out by the fiscal agent over a two month period. In any event, assistance with monthly payments may not continue beyond 24 months.

Repayment Terms

Transition Counseling: The designated counseling agent shall contact each homeowner that is approaching the last months of program eligibility and remains un/underemployed (3-6 months before the assistance ends) and require the homeowner to meet with a HUD approved counseling agent to explore other loss mitigation options, including loan modification, short sales, deeds-in-lieu of foreclosure, or traditional sale of home.

Repayment of HUD Note: Following the last payment on behalf of the homeowner, the fiscal agent will process the homeowner’s “HUD Note” and record a mortgage with a specific loan balance. The note and mortgage will be in the form of a five year declining

Repayment Terms

Transition Counseling: The designated counseling agent shall contact each homeowner that is approaching the last months of program eligibility and remains un/underemployed (3-6 months before the assistance ends) and require the homeowner to meet with a HUD approved counseling agent to explore other loss mitigation options, including loan modification, short sales, deeds-in-lieu of foreclosure, or traditional sale of home.

Repayment of HUD Note: Following the last payment on behalf of the homeowner, the fiscal agent will process the homeowner’s “HUD Note” and record a mortgage with a specific loan balance. The note and mortgage will be in the form of a five year declining 5 balance, zero interest, nonrecourse loan, and the mortgage shall be in the form of a secured junior lien on the property.

Terms for Declining Balance Feature: No payment is due on the note during the 5 year term so long as the assisted household maintains the property as principal residence and remains current in his or her monthly payments on the first mortgage loan. If the homeowner meets these two conditions, the balance due shall decline by twenty percent (20%) annually, until the note is extinguished and the junior loan is terminated.

Weitz – NO PAYMENT IS DUE FOR 5 years! In fact, it may never actually have to be paid back!

Events Triggering Note Repayment: The homeowner will be responsible for repayment of the applicable balance of the HUD note to the fiscal agent or its successor, if, at any time during the five year repayment period, any of the following events occur:

1. The homeowner rents out the property to a 3rd party;
2. The homeowner defaults on its portion of the current mortgage; or
3. The homeowner receives net proceeds from selling or refinancing debt on the home.

Net proceeds - after paying outstanding applicable brokers fees, first balances (and second lien balances, as applicable), and an allowance of $2,000 to the homeowner for relocation expenses when the home is sold -- will go towards paying down the HUD note. In the event that proceeds of a sale or loan refinance are not sufficient to repay the entire HUD note, the remaining applicable balance of the HUD note shall be considered to have been met, and the lien against the property shall be released.

Provisions for Underwater Homeowners: At all stages of the program, “underwater” homeowners2 will be encouraged to explore participation in short sale or short refinancing programs offered by their servicer and/or the federal government (i.e. Home Affordable Foreclosure Alternatives)3, which will not trigger repayment of the HUD note.

Note: Washington State received $56 Million dollars for this program!

For more information on your rights in Foreclosure or other alternatives, I would encourage you to discuss with a Seattle Foreclosure Attorney, or a Seattle Bankrutpcy Attorney.

Our Firm:
Weitz Law Firm, PLLC
520 Kirkland Way, Ste 103
Kirkland, WA 98033

425.889.9300

www.weitzlawfirm.com

The HARP Program - the skeletons within

Visit msnbc.com for breaking news, world news, and news about the economy

An overview of a terrific segment from the Dylan Ratigan show (video above):

1) Home prices down 3.8% from 12 months ago
2) The Government unveiled the HARP program today in Las Vegas (more on this soon)
Update: click here for further information on the new HARP program.
3) 11 Million homes (25%) are underwater (at least this many according to Mr. Black)
4) the government program will assist less than 10% (LESS THAN TEN PERCENT!!)
5) the deal gives the Banks a 'free out' from past liabilities

Our Firm can help guide you. If you are looking for a Seattle Foreclosure Attorney, Seattle Bankruptcy Attorney or a Seattle Short Sale Attorney, consider contacing us:

Weitz Law Firm, PLLC
520 Kirkland Way, PLLC
Kirkland, WA 98033

425 889-9300

New Government Mortgage Modification Plan

A great interview with Beau Biden (the Attorney General of Delaware)

Visit msnbc.com for breaking news, world news, and news about the economy

Here is the new Mortgage Plan Facts:1) its speculative right now; and 2) it applies to less than 20% of loans as 80%+ are owned by Fannie Mae and Freddie Mac

* Mr Biden has some other great facts regarding the current mortgage mess including some tough questions about Fannie and Freddie.

Why are Fannie and Freddie not doing more?
- they are 'owned' by the government as a Government Sponsored Entities (GSEs)
- thus, we the taxpayers have control over our mortgages - why are Fannie and Freddie not doing more to prevent foreclosure?...your guess is as good as mine.

Weitz - as usual, the 'government plan' falls dreadfully close and is misleading at best as most mortgages are even going to be considered

For more information on your rights in Short Sale or Foreclosure, consider contacting a Seattle Short Short Attorney or a Seattle Foreclosure Attorney.

Our Firm:

Weitz Law Firm, PLLC
520 Kirkland Way, Ste 103
Kirkland, WA 98033

425 889-9300

401k withdrawls to pay your Mortgage? Know the facts.

WASHINGTON — With hundreds of thousands of homeowners facing imminent foreclosure and estimates of 2 million or more in the wings, are there any financial tools available to distressed borrowers that haven't been tried yet? Equally important politically: Is there a way to help owners that won't rack up huge federal expenditures and add to the deficit?

Weitz - this is disgusting and I’ll tell you why: Did you know your 401k is entirely protected from creditors and in Bankruptcy? So your politicians (who probably are getting some rather large contributions from banks) are working to allow you to empty your fully protected retirement account so you can pay that money in the form of interest to a Bank for a loan that is likely more than what your property is worth.

Why don’t they simply tell you to go burn that money over a camp fire as that is essentially what you are doing if your property does not appreciate in the near future.

Anyone who is considering taking out money from a retirement account to pay their mortgage should seriously consider the pros/ cons of such a decision prior to acting. The reality is that there are many other options available if you can’t afford your mortgage that are worth exploring prior to liquidating your retirement account(s).

The Obama administration has been exploring options — including a new refinancing program expected later this month — but a concept has surfaced on Capitol Hill that might offer modest help with no revenue cost to the government: Amend the tax code to allow homeowners who have 401(k) retirement plans to pull out money to save their houses from foreclosure without the usual tax penalties.

The change would work like this: Under current rules, anyone making what's known as a "hardship" early withdrawal of funds from their 401(k) must pay the IRS a 10 percent penalty on top of ordinary income taxes. A new bill introduced Oct. 5 would waive the penalty if the purpose of the distribution is to make loan payments to avoid loss of a primary home to foreclosure.

Co-authored by Sen. Johnny Isakson and Rep. Tom Graves, both Republicans from Georgia, the bill would allow owners to pull out up to $50,000. The money could be used in a lump sum to pay down the delinquent mortgage balance or to fill shortfalls caused by reductions of household income. It could also be used as part of loan-modification agreements with lenders designed to avert a foreclosure. However the money is used to resolve the mortgage delinquency, it would need to be spent within 120 days of receipt and could not exceed 50 percent of the current amount of funds in the retirement account.

Owners would still be subject to income taxes on the amounts withdrawn, but would escape the penalty. Though neither of the co-sponsors claims the bill would actually raise revenues — they simply say it wouldn't cost the government anything — some pension-program experts say it might. Edward Ferrigno, vice president for Washington affairs at the Plan

Sponsor Council of America, a group that represents employers who offer workers 401(k)
accounts, said that by triggering taxable distributions from otherwise untouched, tax-deferred plans, the bill "should generate revenues." Ferrigno declined to comment on the bill overall, pending further review of its provisions.

Weitz – so let me get this straight – you take out your fully protected retirement money, you write and check to the bank so they don’t have to ‘write down’ the loss on the mortgage, and then you write a check to the IRS for the right to do it. Don’t do it, folks!

Titled the HOME Act, the proposal sheds light on the potential foreclosure-avoidance resources — and the drawbacks — connected with tapping employee pension accounts. Many, but not all, 401(k) plans allow for loans to participants, including for housing-related purposes. Retirement advisers generally recommend taking a loan from a plan because the money withdrawn is not taxed or penalized. Borrowers are required to pay interest on the loan, but in effect they are paying it to themselves to offset the earnings forgone on the balances taken out.

Many 401(k) plans also provide for "hardship" withdrawals. However, these come with much stricter rules, fewer eligible uses, plus the tax penalties. The Internal Revenue Code limits hardship distributions to situations where there is an immediate and urgent financial need, and there are no other funds available to meet this need. On top of that, the rules require that taxpayers must opt first for a loan from the retirement plan — if permitted — before pursuing a hardship withdrawal.

Though avoiding foreclosure is one of the permitted hardship uses under the code, the 10 percent penalty discourages potential users, Isakson and Graves argue. Their bill would remove that disincentive and provide an emergency escape hatch for owners sliding fast toward foreclosure.

Putting aside the potential positives, are there downsides to making a hardship withdrawal from your 401(k), even penalty-free? You bet. Pulling out 401(k) dollars early — with or without a tax penalty — is still an expensive way to raise money. Not only does it deplete the tax-deferred savings you've set aside, but in the case of hardship withdrawals, you are prohibited by IRS rules from making new contributions to your plan for six months.

Weitz – AND MOST IMPORTANTLY, THIS MONEY IS FULLY PROTECTED FROM CREDITORS!!
Even if the HOME bill makes it through Congress — and there's no assurance it will — taking the hardship route should never be your first choice. It should be your last resort, when there's nothing else that will save your house and you don't want to walk away.

However, also consider the pension plan alternative that may already be buried away in your plan documents: a save-the-house loan to yourself. If the numbers work, and you have a reasonable chance of avoiding foreclosure and repaying the loan, check it out.

It just might be your solution.

For more information on your rights in Foreclosure or Bankruptcy, consider contacting a Seattle Foreclosure Attorney or a Seattle Bankruptcy Attorney.

Our Firm:
Weitz Law Firm, PLLC
520 Kirkland Way, Ste 103
Kirkland, WA 98033

425 889-9300

Nationwide Foreclosure Update for Q3 2011

Some interesting stats:

1) The average foreclosure process in non-judicial states (like WA) is about 330 days.

2) In judicial states like Flordia, it is over 700 days!

3) the notice of default filings (the beginning of the foreclosure process) are up 14% year over year nationwide

For more information on your rights in Foreclosure or non-foreclosure options, consider contacting a Seattle Foreclosure Attorney.

Our Firm:

Weitz Law Firm, PLLC
520 Kirkland Way, Ste 103
Kirkland, WA 98033

425 889-9300

Mortgage Financing Update - retreat of Fannie and Freddie?

Three years after virtually nationalizing the U.S. mortgage market, the government has embarked on a pullback to see whether private industry picks up the slack.

Some people in the housing industry worry that Washington's move will cause fresh pain in many regions where demand has yet to recover amid the sluggish economy.

Weitz – this is a big issue that many may not consider. Obtaining a private loan has been increasingly difficult in the past 3 years. Should Fannie and Freddie exit the lending business, the ability to get financing will become even more difficult.

At issue are the loan limits that Congress expanded in 2008, allowing Fannie Mae and Freddie Mac to buy mortgages that exceeded the national cap of $417,000.

When the mortgage market melted down four years ago and sent private mortgage investors fleeing, interest rates rose sharply on "jumbo" mortgages—those too large for backing by Fannie, Freddie or agencies such as the Federal Housing Administration. That accelerated home-price declines in high-end markets throughout California and the Northeast, where many pricey homes couldn't be bought with a government-backed loan.

To stem the fallout in prices, Congress raised the loan caps to as high as $729,750 in markets such as Los Angeles and New York. It then passed a series of one-year extensions to keep the higher limits in place. But this year, Congress and the Obama administration opted against an extension.

As a result, the limits in hundreds of counties fell by 10% or more on Oct. 1. For loans backed by Fannie and Freddie, the limits declined to between $417,000 and $625,500 in about 200 counties.

More worrisome to real-estate agents are declines in the FHA limits, which fell to between $271,050 and $625,500 in 600 counties. Those changes are causing heartburn because the FHA allows buyers to make down payments of just 3.5%, and it has financed as many as half of all home purchases in recent quarters.

Weitz - Note that nearly half the loans issued as of late are 3.5% down FHA loans - if you take that government aide away, the demand side of the supply/ demand analysis will fall considerable - my estimate is that it will lead to further price declines.

Policy makers allowed the limits to fall because they want private companies to hold more mortgage risk, and dialing down loan limits is one way to carve out space for those investors. Fannie, Freddie, and the FHA currently back nine in 10 new mortgages. Taxpayers already are on the hook for $141 billion in losses at Fannie and Freddie, and the FHA's reserves have plunged to razor-thin levels.

Mortgages that don't qualify for government backing typically have higher borrowing costs, including interest rates around 0.75 percentage point above conforming loans.

Mortgage rates currently are very low, but jumbo loans also require bigger down payments—at least 20%—and can have tougher qualification rules.
"The net-net here is that the available pool of credit for housing is shrinking.

Prices will have to decline," said Christopher Whalen, co-founder of risk-management consultant Institutional Risk Analytics.

On one side of the debate are mortgage investors who say the government needs to give the private sector more room to compete if a vibrant market for nongovernment-backed loans is to re-emerge. "The banking industry, flush with excess deposits, will fund those loans," said Mike McMahon of Redwood Trust, a real-estate investment firm in Mill Valley, Calif.

Assuming a 20% down payment, the new limits still allow homeowners in parts of California to qualify for a government-backed mortgage on a $780,000 home. Critics say there's little public policy rationale to subsidize loans for those borrowers, who need substantial incomes.

On the other side are real-estate agents and some economists who say sellers are in for a nasty surprise when they find that fewer potential buyers qualify to purchase their properties. They say the changes also could hamstring "trade-up" buyers who typically used home equity, which has plunged during the bust, as their down payment to move to a bigger residence.

Gisella Olivares closed on a home in Upland, Calif., on the day before the new loan limits went into effect. Without the FHA-backed mortgage, "there would be no way I could afford to get the house," said Dr. Olivares, who qualified for a $448,000 mortgage. In California's Inland Empire region, the metropolitan area an hour east of Los Angeles, the FHA loan limit fell to $355,350 from $500,000.

If Dr. Olivares, a 42-year-old physician, had to make the $100,000 down payment for a jumbo mortgage, she said she would have waited at least two years to buy a home.

The seller, meanwhile, was able to avoid foreclosure by completing a short sale, where the bank allowed the house to sell for less than the amount owed.

The loan limits wouldn't appear to have much of an impact on the overall housing market. In 2009, about 1.5% of home-purchase loans backed by government entities wouldn't have been eligible under the new limits, according to a study by the Furman Center for Real Estate and Urban Policy at New York University.

But the same study emphasized the outsize local impact. Some 9% of purchases would have been affected in San Jose, Calif., and 5% in San Diego.

Meanwhile, banks would have to increase the number of jumbo loan originations by 56% to make up the gap, "which the private sector could be hard pressed to fill," said Mark Willis, one of the study's authors. "If you want to get the market moving, why would you decrease the availability of credit for any part of it?"

Ultimately, the loan-limit issue shows the broader challenge in bringing back private capital and reducing taxpayer exposure: Housing markets are shaky, and the government is still offering better terms than private lenders.

Steps that raise borrowing costs could attract private investors, but if that pushes home prices down in the process, it may do more harm to the economy and to individual housing markets still reeling from the real estate bust.

Weitz - this is a tough issue - Do we want to continue to 'prop up' and 'subsidize' real estate to prevent further declines in prices, or do we want capitalism to take hold and see how far prices will fall - I guess the answer to that question depends on your perspective (property owners vs. non-property owners). Whatever your position, this lending issue is one to keep an eye on as it will inevitably play a big role in property values.

For more information on your rights in Foreclosure, or Short Sale, consider contacting a Seattle Short Sale Attorney.

Our Firm:

Weitz Law Firm, PLLC
520 Kirkland Way, Ste 103
Kirkland, WA 98033
(425) 889-9300

weitzlawfirm.com

Real Estate Debt and the General Economy

Visit msnbc.com for breaking news, world news, and news about the economy

A clip from the Dylan Ratigan show regarding the interplay between our Real Estate Debt problems and the general economy. Some high-lights include:

1) Trillions of dollars are trapped in the system in the form of debt in underwater mortgages

2) The root of our financial issues is an overwhelming amount of debt at the consumer level, the corporate level, and even the governments at all levels.

3) Fannie and Freddie became the primary source of financing to assist the housing boom as they issued loans with little or no capital requirements for borrowers – note that these governmental agencies warped the true capitalist economic principals.

Dylan discusses the potential of mass debt restructuring, which is an interesting idea that has been used in the past (Post Civil War, Post WWII).

Here is my take: there is simply no easy way to overcome the debt issues we face: in essence, we have two options, we can

1) print money to ‘monetize’ the debt – this is the route that we have choose thus far, and it negatively effects the dollars while spreading the printed dollars in an incredibly inequitable manner – to the banks and to the government – this does the people no good as while most of us will not benefit greatly, we see the negative effects of a depreciated currency at the gas pump, home energy costs, and at the grocery store; or

2) cancel debt at all levels – this would negatively effect the banks, but would it injure the American people? – it most certainly would be difficult and the unintended circumstances are uncertain, but I would argue that most people would probably benefit more from option 2 than option 1. At the end of the day, there is no easy way out of our mess. I believe the focus should be on focusing on a system that we can build from (rather than trying to save a financial system that is clearly broken and unsustainable).

Seattle Real Estate Update - hint...it was a bust

WASHINGTON (AP) –

The home-buying season was a bust.

March through August are typically the peak buying months. But this time, Americans bought fewer new homes in that stretch than in any other six-month period since record-keeping began a half-century ago.

And sales of previously occupied homes didn't fare much better. They nearly matched 2009's total for the peak buying months. And that was the worst since 1997.
Combined, total sales this spring and summer were the weakest on records dating to 1963. The figures underscore how badly the housing market is faring and suggest that a recovery is years away.

Weitz – even with depressed pricing, the home sales were the lowest in 50 years! That doesn’t include the population growth – which makes things even worse by comparison.

Because the economy is barely growing and unemployment exceeds 9 percent, many people see a home purchase as too big a risk. Some worry about losing their jobs.

Others can't afford the 20 percent down payment that most lenders now require.
Not even shrunken home prices and the lowest mortgage rates in six decades are convincing would-be buyers.

"The job engine has really sputtered out, and without jobs, Americans really can't purchase homes," said Celia Chen, a housing economist at Moody's Analytics.
Plunging stock prices and renewed recession fears have led many economists to push back expectations for a housing recovery.

Chen expects prices to bottom at the start of 2012. And she doesn't expect sales and prices to make a healthy recovery until 2015 at the earliest. In hard-hit areas such as California and Florida, it could take decades for prices to return to normal, she said.

Pierre Ellis, an analyst at Decision Economics, said that until wages increase and hiring picks up, sales will languish.

The "bad news is the evident absence of optimism that sales will pick up to any degree," Ellis said.

Roughly 168,000 new homes were sold from March through August, the Commerce Department said Monday. That's fewer than the 180,000 for the same period last year -- and last year's sales were boosted by a temporary buyer's tax credit. Over the same period in 2009, roughly 208,000 new homes were sold.

In a healthy six-month buying season, about 400,000 new homes would sell.

Among re-sales, about 2.8 million homes sold from March through August this year.

That's roughly as many as in the same periods in 2009 and 2010. In a healthy market, about 3.3 million would be sold in that six-month stretch.
Michael McGrew, who runs McGrew Real Estate in Lawrence, Kan., said many families won't buy until the economy strengthens. Even in Lawrence, which had a low unemployment rate of 6.4 percent in July and is home to the University of Kansas, people are worried, McGrew said.

What would help most would be a relocated company that's ready to hire in the Lawrence area, McGrew says. But hopes for the housing market to turn around soon are dim, he said.

"We're actually seeing more people trading down their home or trading out of our market entirely," McGrew said.

Nationally, prices are still falling. Prices for previously occupied homes have sunk more than 5 percent over the past year to a median of $168,300. New-home prices have fallen even further, by 7.7 percent, to $209,100.

That suggests builders and Realtors are slashing prices to compete with low-priced foreclosures and short sales. Short sales occur when lenders allow homes to be sold for less than what's owed on the mortgage.

Combined, foreclosures and short sales are selling at an average 20 percent discount. And they're lowering neighboring home values.

Weitz – the combination of unemployment, stock market fall, and lack of financing is leading to continued struggles. As I’ve said since I started this blog- we must go through the pain before we can truly recover. Unfortunately, I see the pain continuing for awhile given the weak demand demonstrated in these numbers and continued distressed owners.

For more information on your rights in Foreclosure, Short Sale or Bankruptcy, consider contacting a Seattle Foreclosure Attorney.

Our Firm:
Weitz Law Firm, PLLC
520 Kirkland Way, Ste 103
Kirkland, WA 98033
425 889-9300

Federal Housing Finance Administration (FHFA) Sues Bank

The FHFA is suing the banks for mortgage securitization practices. This is rather odd given that Fannie and Freddie (whom the FHFA's sole purpose is the regulator and oversee) are implicitly in bed with the banks as they have 'bought' (or been ordered to buy) trillions would of mortgage paper from the banks to help get the banks healthy.

Here is an interesting video from CNBC Realty Check:

MERS Update - its a bad argument

Mortgage Electronic Registration Systems (MERS), the operator of an electronic registry of mortgages, and lenders won a U.S. appeals-court ruling upholding dismissal of claims by Arizona borrowers challenging their lending and foreclosure procedures.

Note my previous post on the issue:Mers problem in plain english.

An excerpt:

“My guess: Just as we don't depend on horses to transport us anymore or cook our meat over an open fire, we must adopt to a new era of technology and adopt the MERS system (warts and all). I think its fairly obvious that the courts/ politicians will take the easy way out and alter the law rather than create a tidal wave of title issues that could cripple the national real estate market.

Of course, they must first "investigate the problem" as they are now doing in all 50 states. This is purely my opinion, but I believe the investigation is mainly a political ploy to appease the constituents”.

The federal court in San Francisco ruled Wednesday that a district court properly threw out a lawsuit filed by three borrowers alleging conspiracy and fraud.

In addition to MERS, defendants included Bank of America and JPMorgan Chase.

"The plaintiffs' claims that focus on the operation of the MERS system ultimately fail because the plaintiffs have not shown that the alleged illegalities associated with the MERS system injured them or violated state law," the three-judge appeals panel said.

MERS, a unit of Reston, Va.-based Merscorp, bills itself as a provider of "support services to the mortgage industry," specifically tracking the servicing rights and ownership interests in mortgage loans.

The company lets banks electronically register their sales of home loans so they can avoid trudging down to the county records office.

The Arizona borrowers, who are Hispanic and didn't speak or read English, had executed deeds naming MERS as the "beneficiary" and "nominee" for the lender.

After the borrowers defaulted on the loans, MERS recorded documents assigning its interest in the deeds to a bank appointed by the lender as trustee to foreclose on the properties, which were sold at auction, the ruling says.

The borrowers sued, alleging that MERS members conspired to commit fraud by using the registry as a sham beneficiary, promoting predatory lending practices and making it impossible for borrowers or regulators to track when their loans changed hands.

The Arizona district court dismissed the case without giving the plaintiffs an opportunity to amend the suit to add wrongful foreclosure claims related to MERS' procedures.

"This is a very good opinion for MERS," said Janis Smith, a company spokeswoman.
"The court found that borrowers were in no way injured by any action taken by MERS," Smith said.

Robert Hager, a Reno, Nev.-based lawyer for the borrowers, said that while "these particular plaintiffs were denied relief because of the particular facts and because they're in Arizona, there's a great deal of good analysis and law about MERS and the recording system in general that will help" other plaintiffs in the San Francisco-based appeals court.

Weitz – Until I see otherwise, I continue to believe that Attorneys attempting to utilize the MERS argument are wasting their client’s money. The only advantage I can see is that the law suit, however frivolous could delay a foreclosure proceeding.
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Seattle Real Estate Price to Income Analysis

Weitz – Below is an interesting article from the WSJ on the link between home prices, and median income. This is a very important data set in my opinion. First, I will outline provide the entire article, and then we’ll compare it to the local Seattle Market market and see how the theory applies.

AP - Home prices in some of the nation's hardest-hit metro areas have fallen far below pre-bubble levels, stirring concerns that properties in those markets are undervalued.

In a recent analysis, real-estate firm Zillow Inc. studied the correlation between home prices and annual incomes over the 15-year period that ended in 2000, before home prices began to surge.

For decades, price-to-income levels have moved in tandem, with a specific housing market's prices rising or falling in line with local residents' incomes. Many economists say that makes the price-to-income ratio a good gauge for determining whether housing is undervalued or overvalued for a given market.

Zillow found property prices in one-third of nearly 130 housing markets across the nation were undervalued, when compared with residents' current income and the pre-bubble trend.

Weitz – that seems amazing; the issue is that with more un-employed currently than is historically expected, and the lack of down payment ability for many, I would argue that 1) the needed demand for the excess inventory of housing is simply not available financially for many, and 2) the lack of financing availability will be an issue for years to come. The banks have gone in the complete opposite direction from what caused this mess – 5 years ago, a pulse was all that stood between a buyer and a bank loan. Now, standards have gotten extremely harsh and loans can be much more difficult - certainly much more difficult than in the boom.
"At a broad level, it is helpful to understand that if people in certain markets paid three times their average income in housing before the bubble, those markets are probably going to get back to that level," said Stan Humphries, chief economist at Zillow.

The analysis underscores a broader point: While the nation's housing markets largely fell and rose together during the housing boom and bust, they aren't likely to hit bottom and begin recovery at the same time or pace. The Zillow analysis shows that many markets still appear to be overvalued.

For the U.S. as a whole, home prices were around 2.9 times incomes from 1985 to 2000. But during the housing boom, values increased at a much faster rate than incomes. The price-to-income ratio peaked at around 5.1 in 2005. Home prices have since fallen so that on average, nationally, prices are around 3.3 times incomes, or about 14% above the historical trend.

Of course, prices have fallen much faster in certain markets. In Las Vegas, home prices are now 25% below their historic price-to-income trend of 2.7. During the housing bubble, that ratio more than doubled to 5.6. Home prices have been falling for the past five years, and by March, prices were just 2.1 times household incomes.
Home prices are undervalued by 35% in Detroit; by 18% in Modesto, Calif.; and 13% in Fort Myers, Fla.

"Values dropped so far that there are just great bargains," said Dan Elsea, president of brokerage services for Real Estate One in the Detroit area. For years, layoffs in the automobile sector contributed to a "total freeze on activity," he said. But over the past six months, as the industry has recovered, "you have this dam burst of people saying, 'We're ready to buy.'"

Elsewhere, prices are so low that more investors are scooping up foreclosed properties and renting them out. Since March, Ron Leis, a real-estate agent in Sacramento, Calif., has spent about $500,000 to buy four foreclosed properties that have been converted to rentals. Investors can cover their monthly costs and make an 8% to 12% profit "pretty easily," he said. "We haven't seen that in 20 years."

Prices could keep falling in "undervalued" markets that are struggling with an oversupply of foreclosures or where high unemployment limits the pool of potential home buyers. "There's no iron law that says a market will return to its historical average," said Mr. Humphries.

Housing also has grown more affordable thanks to mortgage rates falling to near their lowest levels since the 1950s. Last week, the 30-year fixed-rate mortgage averaged 4.32%, according to a survey by Freddie Mac.

Aaron Holley hadn't even thought about buying a home until he looked into consolidating his student-loan debts and saw how interest rates and home prices had fallen. "I never actually thought there was going to be the possibility of me owning a home in the state of California," said Mr. Holley, 29, who last month bought a three-bedroom home in Santa Rosa, Calif., for $260,000. He locked in a 4.38% fixed rate on a 30-year mortgage.

Zillow's report shows that home prices in Santa Rosa are around 4.9 times area incomes, down from a peak of 9.4 in 2005 and back to levels not seen since 1999. Prices are still higher than the 1985-2000 average of 4.1 times incomes. The prospect that home prices will decline further "bothers me a little bit," says Mr. Holley, who works as a concept artist for a videogame company. "But at the same time, I feel like I got a good deal."

Some of the most overvalued housing markets, according to the Zillow analysis, include Virginia Beach, Va.; Honolulu; and Charleston, S.C. In Virginia Beach, for example,prices would have to fall by 50% to hit their traditional relationship to incomes.

Other areas where price-to-income levels show that housing is still overvalued, such as Washington, D.C., may not see prices fall further due to structural changes in the economy. Second-home markets that have more out-of-market homebuyers also tend to have more volatile price-to-income levels.

SEATTLE ANALYSIS BASED ON Price = 3x Income

For the purposes of this analysis, let's assume household median income for King County is $66,000 based on the 2010 projections of the Washington Office of Financial Management. 2011 numbers are not posted, but I think its fair to say the incomes would be relatively close to 2010 numbers.

Turning to Zillow.com for our Seattle Median Home Price, we have an average home price of $348,000 as of 8/1/2011.

Clearly, numbers are easy to skew in any direction you'd like, but I think these are relatively un-bias numbers from independent sources.

Bottom line: if home values are historically 3x income, Seattle's range of approximately 5.2 (348k / 66k) is still far above that 3x average. In fact, for prices to get in line (based on these numbers), we would be looking at a 44% drop in Real Estate prices. I'm not sure I'm willing to predict further declines that excessive as we are already 33%+ off of the peak, but it is certainly something to think about, and I'm not willing to entirely rule it out given the number of foreclosures and distressed homeowners in the market today.