Bill McCord's Blog

I won’t try to explain the pro’s and con’s of any of these options, but will strongly suggest that whichever of them you choose, you consider working with a REALTOR. My reason for this specific advice is as follows:

 

1. There are more than Half a Million Licensed Real Estate Agents in California. This is the minimum required qualification for the job.

2. Only 165,000 of them are REALTORS who have voluntarily agreed to subscribe to a strict Code of Ethics, and are paying members of their Local, State, and National Associations of Realtors.

Amongst many other services Realtors provide to the public is the web site Realtor.com. the most popular of all on-line Real Estate sites. Check out http://www.realtor.com/.

The Administrations well meant efforts to make it possible for many homeowners to avoid foreclosure has stirred up a hornet’s nest among some media commentators.

The Plan described at http://www.makinghomeaffordable.gov/ uses up to $75 billion to provide incentives to holders of FANIE MAE and FREDDY MAC loans to work with Borrowers to refinance, or modify existing problem loans, rather than simply go ahead and foreclose.

This is a classic version of the glass ½ full, or ½ empty. Typically, in our current exclusively partisan media, the answer is dictated solely by political affiliation regardless of the facts.

This is unfortunate because there are legitimate reasons for supporting, opposing, or, better still, improving the current process.

One the one hand it is a legitimate effort to try to help Joe Public get through a situation brought about by failures in our economic systems. Given the Trillions of dollars being ploughed back to the very people who caused this situation, the $75 Billion allocated to this program is peanuts.

On the other hand there is a valid argument to be made that subsidizing refinances, or modifying problem loans, is simply putting off an inevitable final default. This can often hurt the very people it purports to help by having them use up scarce funds in a doomed attempt to save an impossible situation, rather than simply give the property back to the Lender and getting  on with life.

The December report on the status of this program provides ample ammunition for both schools of thought, and the regulators have shifted emphasis to try to deal with the problems showing up.

The summary shows that 728,000 loan modifications are already in the required trial phase. Unfortunately only 31,382 have completed that phase and have become permanent, saving homeowners an average of $550 per month. The low rate at which Trials become Permanent  is a serious problem raising concerns that a significant number of these modifications are simply allowing the Banks to delay acknowledging the number of bad loans on their books and to avoid taking the losses on to their Balance Sheets.

If that is true then the inevitable result will be a longer period of foreclosed properties coming to market as these failed modifications fall apart.

As with most things there is not a simple answer, but on balance I come down on the side of giving the program a fair shot. This is based mostly on my view that given the countless billions we have poured into supporting the financial institutions that caused the problems,  a little effort to give similar assistance to the victims is not unreasonable.

A small but very welcome glow of sanity from a historically well run Bank.

After acquiring $117.3 billion dollars worth of option adjustable rate mortgages (ARMs) in its acquisition of Wachovia last year, banking giant Wells Fargo is now practicing a rare but effective loan modification strategy: the cramdown.

Through September of this year, Wells Fargo has forgiven an average of $46,000 on approximately 43,500 high-risk loans in its portfolio. The typical debt reduction is around 20% of the loan principal, though in rare cases Wells Fargo has cut as much as 30%. Reports put the six-month default rate of loans modified by Wells Fargo at 15-20%, less than half the current rate of 40% suffered by the rest of industry’s extend-and-pretend modifications.

Debt reduction is only one of many tools Wells Fargo is using to aid its distressed borrowers, and is currently not being used as a blanket fix for all underwater homeowners.

My Opinion: While this is a national story and certainly only a very small slice of the current problem pie, a mortgage lender taking into account the need for principal reduction is a big acknowledgement that the underwater state of many homeowners’ mortgages require this type of treatment. This is something other lenders and Congress need to understand when considering the mortgage quandary. Continuing to “kick the can down the road” with “extend and pretend” modifications will do nothing to solve the massive negative equity problem. The fact that the small glimmers of hope — in the form of cramdowns — are coming from a lender and not the regulators really speaks to the hands-tied, head-buried-in-the-sand mentality which must be overcome if we are to move ahead with a recovery.

Re: Wells Fargo Cuts as Much as 30 Percent in Principal from the Wall Street Journal

An increasing number of Listings are stating that they will not accept offers from FHA or V/A Buyers.

When questioned the Agents usually claim that these loans impose additional costs on the Seller. This was true up till a few years ago, but no longer. In fact, they have a huge advantage in today’s world.

 When questioned they claim that these loan impose additional costs on the Seller. This was true up till a few years ago, but no longer. In fact, these loans have a huge advantage in today’s world.

The following explains why this is so:

First a little clarification regarding current appraisal procedures is required.

1. As of July 2009,  for all Conventional loans, the selection of the appraiser is governed by the much despised HVCC (Home Valuation Code of Conduct) guidelines from Fannie Mae. These require that no-one involved in the transaction has any control over the appraiser chosen. This must be done by a 3rd party Appraisal Management Company (A.M.A.) who will collect the full cost of the appraisal plus some profit for themselves. There are no requirements regarding the qualifications of the chosen appraiser except for having the required state license. As the A.M.A. gets to keep the full amount of the appraisal fee, they have a strong interest in giving the job to the lowest bidder regardless of where they live and work, or whether they have any knowledge of the market conditions where the property is located. In recent times I have had one appraiser come from Tracy to value a property in the Hayward Hills, and another come in from Benicia to Tracy. In both cases they brought in a valuation 20% lower than the agreed purchase price and blew the deal away. Both prpoerties went back on the market and closed with FHA Loans using a local appraisor.

2. For Government Loans (FHA, V/A) the appraiser can still be selected by the Lender, The agent, or the Buyer as has always been the case. This ensures that the appraiser will be local to the property and therefore have current knowledge of the neighborhood in which the property is located.

Result is that the appraiser can be selected on their merits and qualifications, rather than based on how cheaply they agree to do the job.

NOTE: There are a limited number of circumstance where FHA & V/A loans cannot be used due to the short time between the last time the property sold and the current date. These a typically “Flippers” bought at foreclosure sales, quickly updated, and put back on the market for an easy profit.

This situation is currently the subject of Bills in both houses of Congress and will most certainly result in new guidelines resulting from law, not in response to pressure from one politicslly motivated State Attorney running for Govenor.