You Can't Fix LTV

There's a comedian on TV who's gig is

"YOU CAN'T FIX STUPID". 

Is it Ron White?  I think so.

I've never seen him.  Not for any other reason than I don't get a chance to watch much TV.

LTV isn't stupid.  This has nothing about stupid.  It's about LTV or Loan to Value. 

 

It's a ratio of what the property you live in is worth by what you owe expressed as a percentage.  Zero % would mean you own your home outright.  100% would mean you have no equity.

LTV has nothing to do with your intelligence.  A low LTV doesn't mean you are smart, and a high LTV doesn't mean you are stupid.  I prefer not to call anyone stupid anyway.  It must be the father in me.

But high LTV can kill your ability to refinance or purchase.  On a purchase, the remedy to High LTV is simple.  Put more down.  or put the same down on a cheaper house.  I know that might not be simple to do but it's simple to explain.

On a refinance, your options are even simpler.  Unless you actually have and want to come to the closing table with cash there is only one thing that you can do.  Wait.  What are you waiting for?  Appreciation. 

I don't have to tell you that appreciation is somewhat scarce these days.  The problem with appreciation is that it's dependent on your neighbors.  Appreciation is comparative.  If your neighbors home goes up in value, so does yours.  That's the rub.  If your neighbors house goes down in value so in turn does yours.

The problem is that your "neighbor", not Old Mr. Wilson next door, but the ones that live within a radius of your home.  Yeah, those people you don't know. 

Almost a year ago I wrote "The LTV Crunch".  I followed that 2 days later with "The Foreclosure Crunch".  It's two of the highest traffic / linked posts I've written.

Let's draw a 1/4 mile circle around your home.  Now, everyone in that circle who is in foreclosure, who has already foreclosed, who is in a short sale situation, or needs to really sell their property will all have a profound effect on dropping your value.  That drop in Value raises your LTV.

Here's a chart showing a little street in Concord.  It's called Mohr Lane.   Currently there are 140 distressed properties on this map.  The Blue P means they have been served a Notice of Default (the first step in the foreclosure process).  The Purple B means they are bank owned (generally meaning they have already gone through foreclosure).  The Light Blue A stands for Auction properties.  You can easily classify them all as distressed properties.

 

What the chart doesn't show are the Short Sales.  These are MLS Listings that need to sell at a price lower than what is owed to the bank. 

Guess what?  Most short sales sell below their actual market value.  

If you live on Mohr Lane how long until your home starts appreciating?  We're going to have to sell the above homes before we can start thinking about that.

The Simple Way Out?????? is not a good "deed"

Written by Rosemary Brooks

STOP! Check out the whole Meaning, Procedure & Requirements of

Deed-in-lieu of Foreclosure

because......

Remember: The simple way out, is not that simple!

Although you hear a lot about whatever is hot at the time, when it comes to the foreclosure process it is wise to take a step back and really check out what the different terms mean and how it will affect the seller, lender and the agent(s). Read the fine print, look for the curve balls, don't be blind sided. Remember: The simple way out, is not that simple! There are several factors involved in a Deed in lieu of foreclosure. It is not just as simple as getting it over with now, mail the lender the keys and the deed and it will be all over.

Let's clear up some differences in foreclosure vs Deed in lieu of Foreclosure - Lets see what the process is and what is involved in the "simple way out" ---

Deed in lieu of foreclosure:

• A deed in lieu of foreclosure (deed-in-lieu) is a voluntary deed signed by all owners of record of a mortgaged property in foreclosure, or about to be placed in foreclosure, that transfers ownership of the mortgaged property to the lien holder/servicer and thereby avoids the lien holder/servicer's actions to foreclose.

Hardship:

• A hardship is an event of series of events that are generally beyond a borrower's control and that resulted in a reduction of income and/or increases in expenses.

Property Marketing:

• The secured property should be formally listed with a real estate agent/attorney for a period of at least ninety (90) days as evidenced by a signed listing agreement.
• The listing real estate agent/attorney should have territory that includes the area in which the secured property is located.
• The listing real estate agent/attorney must hold a valid state license
• The listing real estate agent/attorney should have listed the secured property with the local MLS (Multiple Listing Service) thereby ensuring that the secured property had fair exposure to all potential investors/buyers.

Condition of Title/Property

• Borrower must contact all subordinate lien holders to secure written release of the liens in recordable form, prior to the transfer of title to Servicer. Included are mortgages, judgments, attachments, IRS liens, etc.
• Borrower must convey an acceptable, marketable title as evidenced by title search.
• The secured property must be vacant at the time of transfer of ownership to Servicer.
• The secured property must be inspected by a Servicer's representative prior to the date of transfer of ownership to Servicer.
• If the above-referenced account is in default, any and all collection activities, including foreclosure proceedings, will continue until Servicer has agreed in writing to accept a deed in lieu.
• The processing time for a deed in lieu review is thirty (30) calendar days from the date of receipt of the completed financial package.
• A complete financial package includes all documents Servicer has requested from Borrower and the listing real estate agent/attorney, including, but not limited to:
• >> A complete financial information from Borrower
• >> Written hardship letter from Borrower outlining his/her financial situation and the events that cause the financial hardship.
• >> Borrower's last two bank statements, checking and savings
• >> Borrower's last two paycheck stubs
• >> Borrower's last two statement from the senior lien holder(s), if applicable
• >> Borrower's most recent state and federal tax returns
• Servicer reserves the right to request additional documentation as may be necessary to verify a change in Borrower's financial situation and/or hardship or the status of the secured property prior to acceptance of a deed in lieu. Such documentation may include re-verification of Borrower's financial status at the time of loan origination.
• Servicer reserves the right to terminate the review of the deed in lieu request if Borrower fails to provide all requested documentation.
• Borrower's execution of a quitclaim deed will not automatically release him/her of liabilty. A quitclaim deed only releases an ownership interest in the property. Likewise the attempt to execute a deed in lieu with Servicer's consent will not automatically release borrower of liability.
• Servicer will require a valuation of the secured property based on an interior and exterio inspection. Borrower will probably be responsible for any appraisal.

It's not that simple from the lender's viewpoint.
If there are any other loans other than the foreclosing loan against the property, the lender accepting the deed in lieu will need to pay those off to obtain clear title. The same applies for any possible judgments that may have been recorded. Then there is the question of who is on the property title. Are all the owners interested in providing a deed-in -lieu? Do all those owners really understand exactly what they are giving up? Are they going to come back a year later and say they didn't understand?

There are 4 main conditions for a lender to consider a deed-in-lieu.
1. Foreclosure is imminent and unavoidable
2. The borrower is unable to sell the property.
3. There should be no other liens, or attachments to the property.
4. The property needs to be left in broom clean condition.

If those conditions have been, or can be met, some lenders will consider a deed in lieu of foreclosure, although most lenders will prefer the use of a compromise, or short sale. This is one of the least preferred alternatives to foreclosure and should be the last option explored.

HOT NOTES:

• Servicer will not change the historical payment record to reflect a payment history other than the actual payment history.
• Also lender/servicer may report information about your account to credit reporting agencies. Other defaults on your account may also be reflected on your credit report.
• IRS Reporting: Servicer will report any Deed in lieu transaction to the IRS as may be required by IRS regulations
• It is the Borrower's responsibility to consult with his/her tax advisor regarding any tax implications of a Deed in lieu transaction.

Remember: The simple way out, is not that simple!

Loss Mitigation and the Service Provider

Loss Mitigation and the Service Provider
by John Occhi, Hemet - San Jacinto Valley REALTOR
Hemet - San Jacinto CA Real Estate

The times are definitely changing for mortgage lenders and investors as they realize that they have a very real potential for a flood of REO properties to deal with. In order to prevent the foreclosure and pending inventory of REO properties, the industry is starting to grasp and focus more on loss mitigation techniques to creatively avoid the whole foreclosure mess.

The Center for Responsible Lending recently released a study predicting that 2.2 million American households are going to lose their homes. This study predicts that over 20% of all subprime loans originated in the 2005 -2006 period will fail amassing up to $164 Billion in foreclosures - just in the subprime market.

It has been reported over and over again that subprime borrowers received risky loans or ARM products and that many of the borrowers just do not understand the implications of their loans. Many sources will agree that 80% of all the subprime loans issued in this period were issued under risky conditions.As the ARMs reset, homeowners just won't be able to make their higher payments. I think when history looks back, this will be known as the decade of loss mitigation. Right now people are doing whatever they can to avoid foreclosure, utilizing many creative means.

There has recently been news that homeowners are not even keeping current with their home loans in the first 3 to 6 months. This is a bad sign that is costing the market and the overall economy a lot of money.

Perhaps the biggest cause for this slide is that mortgage brokers are more often than not selling loan products to borrowers that are beyond their means. There is also much fraud on this side of the industry - most of the time it is on a very small scale and then there are those who just want to drive a Mac Truck through the loopholes to take advantage of every single opportunity, to their fullest capability.

A popular product that has gotten more homeowners in trouble, than any other is the No Doc - Stated Income. Mortgage brokers thought this was their license to lie - however every document they fudged is an act of fraud - a fraud that lined their pockets and is now having a ripple effect through our national economy.

Certainly the mortgage lenders have to take their share of responsibility for making such an easy loan to get available to so many with bad to poor credit histories.

Hello, what were they thinking? Better yet, were they thinking?

Today, mortgage servicers are looking to technology to help manage the analysis of the foreclosure process. The key to a successful loss mitigation department is to work directly with the homeowner early on in the process. They need to profile the borrower, the home, the local market and score the loan accordingly.

Month to month fluctuations in the market make it necessary for the lenders to stay on top of the slow pay loans, as much of their success will depend on market knowledge. They have to use the available technology to help them keep track and understand the weight each property inspection carries and how valuations can change with the changes with the statistical data of the local marketplace for the very specific neighborhood as well as the overall region.

Mortgage loan servicers need to know the cost of foreclosure and what they stand to lose if the property goes REO. Today, with the help of technology, service providers can eliminate many foreclosures by either accepting a deed-in-lieu, approving a short sale or other loss mitigation methods that are available.

In order for a lender to really grasp what they stand to lose if a property is foreclosed on the lender must weigh and score the borrower's past delinquency history, analyze their credit history, understand the quirks of the geographical location of the subject property as well as understanding the local laws where the property is located - after all they need to know if they are working in a judicial or non-judicial foreclosure state. (California is a non-judicial foreclosure state.)

It seems as if the emphasizes that lenders have traditionally had is the volume of loans they can generate. This attitude has to do a reversal. It does no one any good if a loan made today cannot be kept current for the next three months. Lending should not be a game of volume but a game of quality. Non-performing loans are a drain on resources - both to the lender, the borrower and the national economy.

As a Realtor, working primarily in the Hemet - San Jacinto Valley, CA I regularly see the effect that loans in default cause local homeowners. I know the problem extends throughout Riverside County, the Inland Empire and the rest of California and most of the country as well.

I recognize that loss mitigation is an incredible tool for the homeowner in trouble who wants to and can afford to keep their home. Unfortunately, it doesn't always work for everyone - but those it can help think of it as a God send. In an effort to best service my local real estate market in Hemet CA I have recently aligned myself with a well respected national company that I believe in - Freedom Foreclosure Prevention Services (FFPS).

Freedom Foreclosure Prevention Services may be able to help if it is your desire to stay in your home. They guarantee their services and never charge a dime until they know what they should be able to do.

The new economy is producing many fraudulent investors that will try and take advantage of stressed homeowners when they are facing foreclosure. I can only warn for you to be careful with whom you are working with and do your own diligence before you ever commit to anyone and sign any documents that may put your home and your equity in jeopardy.

If FFPS cannot help you, then your choice is to sell the home outright to an investor or to market it through a REALTOR and try for the short sale option. This is where I come in and hope to be able to help. Please look through the links at the bottom of this page for more information on this important topic, before making any decision.

Now Have a Blessed Day,

John Occhi, Hemet CA REALTOR

Mission Grove Realty

Loss Mitigation Consultant

Other Articles of Interest by John Occhi, Hemet REALTOR:

How do Short Sales Affect the Economy?

What Is A Short Sale?

Why would a Lender Consider a "Short Sale"?

What Should a Homeowner Do When They are Behind?

How Foreclosure are Effecting the Market

Mortgage Fraud Can Have a Negative Ripple Effect

Please don't forget to add your comments below.