October, 2011 Forclosure List

August 15th, 2011 Forclosure List

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July 15th, 2011 Forclosure List

Research looks at how mortgage delinquencies affect scores

How much impact does a short sale have on FICO® Scores? How about a foreclosure? Since I frequently hear these questions from clients and others, I thought I’d share new FICO research that sheds light on this very subject.

The FICO study simulated various types of mortgage delinquencies on three representative credit bureau profiles of consumers scoring 680, 720 and 780, respectively. I say “representative profiles” because we focused on consumers whose credit characteristics (e.g., utilization, delinquency history, age of file) were typical of the three score points considered. All consumers had an active currently-paid-as-agreed mortgage on file. 

Results are shown below. The first chart shows the impact on the score for each stage of delinquency, and the second shows how long it takes the score to fully “recover” after the fact.

All in all, we saw:

• The magnitude of FICO® Score impact is highly dependent on the starting score.
• There’s no significant difference in score impact between short sale/deed-in-lieu/settlement and foreclosure.
• While a score may begin to improve sooner, it could take up to 7-10 years to fully recover, assuming all other obligations are paid as agreed.
• In general, the higher starting score, the longer it takes for the score to fully recover.
• Even if there’s minimal difference in score impact between moderate and severe delinquencies, there may be significant difference in time required for the score to fully recover.

This study provides good benchmarks of score impact from mortgage delinquencies. However, it is important to note that research was done only on select consumer credit profiles. Given the wide range of credit profiles that exist, results may vary beyond what’s in the charts above.

Mother Nature put on quite a show this winter and some homes took a beating.  Here are some things to look for as you assess what damage may have been caused by the wind, rain and snow.

Curb Appeal. Check steps, decks and porches for wood rot and peeling paint.  You may want to use some elbow grease or invest in fresh paint on the porch and a power wash to get rid of the winter grime and dust.

Leak Alert. Check beneath the house to see if there is any accumulated water.  Even if it is raining outside, it should be dry underneath the home.  If not, first eliminate the possibility of leaks originating from inside the house by checking the underside of the floor for dripping water or water stains.

If an inside leak is not to blame, look next for seepage from outside the house.  Determine the source to prevent any future damage.

Foundation for the future.  Inspect the area where the home’s foundation meets the ground for spots where the earth slopes toward the house.  Fix any sloping earth so that it directs water away from the house. 

A deal is in the works to allow distressed borrower’s to sell their homes for less than owed.  The agreement with major banks is part of a broad settlement of federal and state investigations into botched foreclosure paperwork.  The agreement would force mortgage services to reduce the amount some homeowners owe on their loans for short sales.

The goal of the short sale is twofold.  First, to provide a quicker and more economic way for banks to dispose of distressed properties.  Second, it is hoped the short sales will stabilize the real estate market by clearing backlogs of defaulted mortgages.

The latest proposal is among those to be discussed in Washington, March 30, 2011 amongst Bank of America, Wells Fargo, JP Morgan Chase, Citigroup and Ally Financial.

In Southern California short sales accounted for 19.8% of sales in February, 2011.  Combined with foreclosures, these so called distressed sales amounted to more than 50% of all southland sales in February.

As the economy struts along, cash sales for California real estate are on the rise.  Cash sales in January 2011 have accounted for 30.9% of all residential sales.  An increase, since over the past decade cash buyers on average made up only 13.9% of real estate sales.  There may be several reasons for the rise in cash sales including investors entering the real estate market, the increased number of trustee sales (Foreclosures) going to auction, which are always cash; and more difficulty in obtaining mortgages do to stricter regulations and qualifications.

During The Great Depression, California legislators made the decision that losing your house was enough punishment.  They did not want lenders nagging borrowers for the difference in what the former owner owed and what the house was worth, an amount called the deficiency.  Thus, in California there can be no deficiency judgment on purchase money loans dating back to the 1930’s.

As the market heated up in the mid 2000’s, homeowners used their homes as pig banks for vacations, college tuition, cars, boats, and just about anything you can imagine.  Many of the homeowners ended up struggling after the crash and are losing their homes to foreclosure and are facing deficient judgments.  If a homeowner refinanced to get a lower interest rate or to get cash out, the loan is no longer a purchase money loan and is subject to a deficient judgment.

A new bill introduced by the real estate lobby has passed the California Senate which would give some relief to foreclosed homeowners.  The Senate bill will not allow a deficiency on a refinanced loan up to the amount that was paid for house, a substantial change from the current law.  For instance, if a homeowner refinanced a home which was purchased for $500,000 and the new loan was for $600,000, the deficiency judgment could only be applied to the $100,000.  If that $100,000 was used to make improvements to the house, the amount spent on the home improvements would also be exempt from a deficiency judgment.

Much lobbying by real estate agents and Banking groups have changed the original bill which now must pass the California legislator.  Expect more lobbying, for instance bankers do not want the bill to be retroactive as passed by the Senate.  Bankers want the new law to apply to only new loans.

The argument from real estate agents say those who lost their houses should not be burdened by debt so they can move on and hopefully buy consumer goods and homes in the future.  Bankers on the other hand, believe borrowers should be liable for what they owe.

In reality, according to The New York Times, this is a fight over something that is not happening, at least yet.  Lenders in California rarely chase foreclosed borrowers for deficiency judgments.  Pursuing such cases is an arduous process and few of those in foreclosure have assets or income to make it worthwhile.

  The California Senate will take this bill to a committee the week of June 28.

Some more significant changes are in the works this summer concerning FHA loans.  Currently FHA allows seller’s concessions to the buyer of 6% of the selling price, but not for long.  A rule change expected this summer will allow a 3% seller’s concessions.  The logic to this change seems simple.  If the buyer is putting down the minimum down payment of 3.5% and they receive a 6% seller’s concession, the FHA is considering the buyer to be under water from the first day of ownership.  The FHA also believes the 6% incentive encourages inflated appraisals to cover the cost of the concessions.

Whatever you may think of the existing seller concession rules, the fact remains:  Concessions of 6% will be allowed until the FHA announces otherwise. Buyers and sellers who need the 6% concessions  to conclude a transaction need to know the time is ticking, thus creating a motive to purchase now especially  to a  buyer or a seller entertaining offers with  a minimum 3.5% FHA loan.

  Please give me a call at 760-831-5996 if you are contemplating using FHA for a purchase for a sale.  I know FHA.