Realtors® are the face of the housing market, the focal point of information, involvement and inventory, and the Federal Housing Administration is committed to help them be successful, FHA Housing Commissioner Dave Stevens told more than 1,000 Realtors® at a gathering here today.
“You help to stabilize the community, and without homeownership, there can be no stability in communities,” Stevens said. “Together, we must never let overexuberance overtake the housing market again, and interrupt the housing market and the lives of untold millions of Americans. Our goal must be nothing less than to craft a solid, sustainable housing market, a market with a secure foundation for the future.”
Stevens said he and Shaun Donovan, secretary of the Housing and Urban Development, recognize that the National Association of Realtors has been at the forefront of efforts to address the housing crisis, and he has met with NAR on several occasions to consider their concerns. FHA has taken direct action on a number of those concerns.
Stevens announced that effective Monday, Nov. 16, FHA will no longer require a second appraisal on high-balance loans for properties in declining markets. “We did not find our previous policy to be particularly helpful and were very concerned about the additional burden on lenders and consumers,” Stevens said. He noted the policy change will bring industry alignment, streamline loan processing and reduce costs to consumers.

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Should homeowners who are behind in their mortgage be allowed to just walk way from the payments? A University of Arizona law professor suggests that maybe they should.

While not recommending that homeowners forgo their responsibilities, Professor Brent White told CNBC Monday that there is a different set of rules for the business community and homeowners.

“There’s a double standard when it comes to banks and homeowners,” said White. “Businesses often walk away from bad contracts, but homeowners can’t. The banks need to modify bad loans.”

White recently issued an academic paper saying that he’s surprised that more of the 15 million US homeowners who have underwater mortgages—or mortgages that are worth more than the value of the house— are still continuing to pay.

White said he was not advocating what homeowners should do, but raising a key issue—that homeowners need to think what’s best for them.

Somewhat predictably, those within the real estate industry are not endorsing White’s point of view.

“It’s not a responsible thing to do (not pay a mortgage),” National Association of Realtors spokesman Walter Maloney said. “He’s making assumptions about property values that are not correct. Values are starting to stabilize. More important, it’s not ethical to walk away from the mortgage.”

But White, in his paper, is throwing ethics right out of the equation. He says, people are too worried about the feelings of shame and embarrassment of a possible foreclosure and “ignore the powerful financial reasons for doing so.”

White attacks the banks in his thesis for “being slow to modify troubled mortgages and reluctant to reduce principal debts” with falling housing prices. He says homeowners have to think about themselves and what’s do right for them.

And White says the penalties for skipping mortgage payments are “not as bad as people think.” He says that “if you stay current with other creditors, one can have a good credit rating within two years. Most individuals should be able to plan in advance for a few years of limited credit.”

But having a bad credit rating even just for a couple of years, should not be a goal, says Diane Saatchi, vice president of Corcoran Realty, in East Hampton, New York. “I grew up knowing your most valuable asset is your credit rating,” Saatchi says. “It’s foolish to deliberately make credit rating worse. If you can’t or won’t make the payments, get in touch with lender, and work it out.”

In his paper, White laid out his strategy for the non-payment program: homeowners would buy the items they’ll need, like a car or even another house, over a couple of years just before they stop making mortgage payments and are eventually forced out of the home.

But that’s not much of a plan says Greg McBride, senior analyst at Bankrate.com.

“Buying a home is long term investment, it’s not a get rich quick scheme,” says McBride. “If you can make the payments you should, unless there’s a major event, like a job loss or transfer that makes things worse. If that happens, you can negotiate with the bank.”

While White’s ideas are mostly considered extreme within the housing industry, there is an alternative to stopping mortgage payments if you want leave a house that is “underwater’, says Johnny Martinelli Broker owner of Levy Mart Real Estate in Norman, Oklahoma.

“It’s called deed in lieu,” says Martinelli. “Say your house is worth $140,000 and the mortgage is valued at $200,000. You could go to the bank and say here’s the deed. If the bank agrees, they would take over the house. But you would have to claim the difference of the $60,000 on your tax returns. That’s considered income. Of course, you have to find another place to live.”

The tax rules can vary at times, due to recent changes in guidelines. (Details here)

Martinelli says this type of deal is better than a foreclosure and wouldn’t hurt a homeowner’s credit rating as much. Advantages to a lender include a reduction in the time and cost of a repossession, which can take months. Not all banks might accept such an offer, but there are some that do, says Martinelli.

Most analysts agree that if a homeowner can pay the loan, do so even if the value has dropped. If the owner can’t afford the payments, go to the lender to try and work out a lower payment. Not all lenders will, but experts advise trying.

There’s also a short sale if the house must be sold. That’s where the mortgage lender agrees to discount a loan balance because of an economic or financial hardship on the part of the homeowner. The homeowner sells the property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender.

Whatever action a homeowner is contemplating, they should think long and hard before doing something that could be short sited says Diane Saatchi.

“Blaming the bank is a losing proposition and could have long term consequences,” Saatchi says “Don’t think by not paying your mortgage you’re able to get ahead financially. It’s a risky idea and not worth it.”

Source: By: Mark Koba Senior Editor 2009 CNBC.com

The recession has created “a perfect storm” for many luxury homeowners.  An increasing number are in default. Many are “underwater,”  in financial distress, and need to sell.  As a result, luxury home short sales are an important (and growing) opportunity for upper-tier agents.

Upscale property is not immune to the current housing crunch. Limited loan availability, higher interest rates for jumbo loans than for conforming loans, and stringent loan qualifying requirements caused sales of luxury properties to slow starting in the fourth quarter of last year.  The trend has continued.  As a result, the national inventory level of homes priced above $750,000 rose from 18 months worth in 2007 to 41 months worth by this summer. The National Association of Realtors also reported that as of October 2008, the foreclosure rate on jumbo loans was more than double the foreclosure rate on conforming loans.  As a result, expect to see growing numbers of luxury homeowners in default.  These consumers not only need your help, they represent an important opportunity.”  Laurie Moore-Moore

Geoffrey Gyrisco:  In Dane County, for sales closed between January and August 31 of this year, those properties under $150,000–of which there are far more on the market than just a couple years ago–were selling briskly.  Also selling well were those priced at $150,000-250,000.   At about the $325,000 price point, there is considerable market resistance and  sales activity declines sharply.  For properties priced at $750,000 and above, only 20 sales closed between January 1 and August 31 of 2009 leaving 178 on the market in September.  Jumbo mortgages are hard to obtain; those moving from pricey market such as California may be arriving in Madison after taking a loss on their home instead of several hundred thousand dollars in their pocket as they did several years ago; and other investments held by many high net-worth persons have also dramatically declined in value.

So if you want a luxury home and have the resources to buy one, the market situation is excellent.