DCPropertyDeals

Are Principal Reductions the Answer? 
Real estate investors are coming to the same conclusion that housing activists reached at the beginning of the crisis — forgiving principal on underwater loans may be the best way to deal with the problem.

“Principal reduction is the only answer,” says Laurie Goodman, a senior managing director at mortgage-bond trader Amherst Securities Group L.P. 

Some activists and investors are asking banks to consider principal reductions so that the amount borrowers owe on underwater loans can be sharply reduced. They say this offers the best incentive for borrowers to continue to make their monthly mortgage payments. 

Even though principal reductions are complicated transactions for lenders, even the largest of them are beginning to accept the idea. 

"Everybody's realizing there is a place for principal reductions to a much greater extent than before," says Jack Schakett, a senior Bank of America Corp. executive involved in loan workouts.

Micah Green, a partner at law firm Patton Boggs LLP, who represents some of the largest investors in mortgages, shrugs the idea that write-downs are unfair to those who continue to make their payments. "Everybody's going to have to give a little for it to work," he says.

Source: The Wall Street Journal, James R. Hagerty (02/09/2010)

Here is the story from Bloomberg.

The Obama administration may expand efforts to ease the housing crisis by banning all foreclosures on home loans unless they have been screened and rejected by the government’s Home Affordable Modification Program (HAMP). The proposal, reviewed by lenders last week on a White House conference call, “prohibits referral to foreclosure until borrower is evaluated and found ineligible for HAMP or reasonable contact efforts have failed,” according to a Treasury Department document outlining the plan. “It is one of the many ideas under consideration in the administration’s ongoing housing stabilization efforts,” Treasury spokeswoman Meg Reilly said in an e-mail. “This proposal has not been approved and there are no immediate planned announcements on the issue.” She confirmed the authenticity of the document, which hasn’t been made public. At present, lenders can initiate foreclosure proceedings on any loan that hasn’t been submitted for HAMP eligibility. Under current HAMP rules, foreclosure litigation can proceed while borrowers are under review for the program or even in a trial modification. The proposed changes would prohibit lenders from initiating new foreclosure actions before loan screening by HAMP and would require lenders to halt existing proceedings for borrowers once they are in a trial repayment plan. ‘Improved Protections’ The Treasury Department will soon release guidance “which will include a set of improved protections for borrowers” in HAMP, Phyllis Caldwell, chief of Treasury’s Homeownership Preservation Office, said today. in testimony prepared for a House Oversight and Government Reform subcommittee. She didn’t provide details.

Here is the story from Bloomberg News.

The Obama administration may expand efforts to ease the housing crisis by banning all foreclosures on home loans unless they have been screened and rejected by the government’s Home Affordable Modification Program (HAMP).

The proposal, reviewed by lenders last week on a White House conference call, “prohibits referral to foreclosure until borrower is evaluated and found ineligible for HAMP or reasonable contact efforts have failed,” according to a Treasury Department document outlining the plan.

“It is one of the many ideas under consideration in the administration’s ongoing housing stabilization efforts,” Treasury spokeswoman Meg Reilly said in an e-mail. “This proposal has not been approved and there are no immediate planned announcements on the issue.” She confirmed the authenticity of the document, which hasn’t been made public.

At present, lenders can initiate foreclosure proceedings on any loan that hasn’t been submitted for HAMP eligibility. Under current HAMP rules, foreclosure litigation can proceed while borrowers are under review for the program or even in a trial modification.

The proposed changes would prohibit lenders from initiating new foreclosure actions before loan screening by HAMP and would require lenders to halt existing proceedings for borrowers once they are in a trial repayment plan.

‘Improved Protections’

The Treasury Department will soon release guidance “which will include a set of improved protections for borrowers” in HAMP, Phyllis Caldwell, chief of Treasury’s Homeownership Preservation Office, said today in testimony prepared for a House Oversight and Government Reform subcommittee. She didn’t provide details.

Fed Mortgage Purchase Program Ends March 31

Another important note for the week - Pending Home Sales for December were up significantly from November's reading, and up a healthy 10.9% over December 2008, as homebuyers take advantage of today's low rates and tax incentives. And speaking of low home loan rates, the Federal Reserve purchased $12 billion in Mortgage Backed Securities last week, bringing the total to $1.173 trillion since the program began in January of 2009...which leaves just $77 billion in purchases to be made over the next eight weeks until the program ends on March 31^st. While home loan rates improved very slightly during this volatile week - don't forget that when the Fed is done buying, home loan rates will be very susceptible to moving higher. Please reach out to me to discuss how you or someone you know might benefit from current low rates, or the Homebuyers Tax Credit. The clock is ticking on both these fronts - so why wait?

Highlights:

1. Lender has 10 days to respond. Response time used to be months.
2. Borrower has no obligation to repay the deficiency.
3. Borrower gets cash moving allowance. Here is the web address: http://www.youtube.com/watch?v=fkuXvFBYXVU

ForeclosurevsShortSale.pdf (87.10 kb)

The housing market is extremely active in price ranges from low to upper moderate. Well priced listings attract multiple offers within days of hitting the market. Recent examples I know personally include foreclosed properties in Silver Spring (8 offers) and suburban Baltimore (11 offers); and conventional non-distressed properties in North Cleveland Park (3 offers) and Chevy Chase (3 offers). Eagle-eyed agents and buyers are swooping in on the good deals, thanks to the internet. Buyers who think they can take their time and make lowball offers on the best properties and have any chance of success are finding out differently. Success comes to those who are prepared and educated and ready to move quickly when the right opportunity appears. Call me or my team for detailed information and guidance.

Go to http://bengelblog.com. Great video!

The US Congress has voted overwhelmingly to extend the deadline for the first time homebuyer $8000 tax credit.  Eligibility was also expanded. 

The legislation approved this week would allow the credit for couples earning up to $225,000 a year and individuals earning up to $125,000. That’s up from the current $75,000 limit for individuals and $150,000 for couples.

It would allow homebuyers who have owned their residence for at least five years to receive a $6,500 credit. Those who sell their new home or no longer use it as their main residence within three years would have to repay the credit. Homes worth more than $800,000 wouldn’t be eligible.

Many of the distressed properties I see have one or more environmental hazards.  Mold is the most common and the most obvious.  Black mold is toxic.  Sensitive individuals may have severe and/or long-term problems.

Asbestos is often present in many forms.  Did you know that the joint compound used on the corners of plaster walls and ceilings contains asbestos?  If water leaks from the roof and makes those seams come open, there is probably friable asbestos floating around in the air you and your agent are breathing when you view that property. Asbestos insulation has been demonstrated to be a causative factor in lung cancer.

Many buyers will view a distressed property shortly after their workday.  They will be dressed for the office or for their other appointments--not for protection from toxic environmental conditions.

The bank selling the distressed asset has an "as is" addendum designed to protect them from liability.  How are you protecting your own health?

After the sale closes, you, as the new owner, will probably have work done in the property.  Will you make sure that your workers use appropriate protective gear and clothing?  My experience is that it is often necessary to check in almost hourly to make sure workers are wearing masks, goggles, etc.  They find it inconvenient, to say the least. Workers who do not speak English do not know what the fuss is about.

What you can do and should do is this:  Take classes in environmental hazards. Protect yourself appropriately.  Schedule your viewings of distressed property so that you can wear appropriate protective gear and clothing.  Go change your clothes before and after the showing if need be.  Your life is worth it.  Hire contractors who are responsible and informed, and who will not take advantage of ignorant workers.

Contact your Representatives and ask them to pass legislation requiring banks and asset managers to remedy hazardous conditions before the property is exposed to the general public and vice versa.

Distressed properties are one result of the lending crisis.  A wave of serious long-term health problems among the buyers of those properties and the agents who showed them should not be.

Many of the distressed properties I see have one or more environmental hazards.  Mold is the most common and the most obvious.  Black mold is toxic.  Sensitive individuals may have severe and/or long-term problems.

Asbestos is often present in many forms.  Did you know that the joint compound used on the corners of plaster walls and ceilings contains asbestos?  If water leaks from the roof and makes those seams come open, there is probably friable asbestos floating around in the air you and your agent are breathing when you view that property. Asbestos insulation has been demonstrated to be a causative factor in lung cancer.

Many buyers will view a distressed property shortly after their workday.  They will be dressed for the office or for their other appointments--not for protection from toxic environmental conditions.

The bank selling the distressed asset has an "as is" addendum designed to protect them from liability.  How are you protecting your own health?

After the sale closes, you, as the new owner, will probably have work done in the property.  Will you make sure that your workers use appropriate protective gear and clothing?  My experience is that it is often necessary to check in almost hourly to make sure workers are wearing masks, goggles, etc.  They find it inconvenient, to say the least. Workers who do not speak English do not know what the fuss is about.

What you can do and should do is this:  Take classes in environmental hazards. Protect yourself appropriately.  Schedule your viewings of distressed property so that you can wear appropriate protective gear and clothing.  Go change your clothes before and after the showing if need be.  Your life is worth it.  Hire contractors who are responsible and informed, and who will not take advantage of ignorant workers.

Contact your Representatives and ask them to pass legislation requiring banks and asset managers to remedy hazardous conditions before the property is exposed to the general public and vice versa.

Distressed properties are one result of the lending crisis.  A wave of serious long-term health problems among the buyers of those properties and the agents who showed them should not be.