New Federal Short Sale Rules Could Bring Assistance To Homeowners

March 17, 2010 By Leave a Comment

With underwater mortgages and layoffs rampant these days, many people are looking at a short sale as a solution to their financial woes. Waiting for your lender to agree to a short sale can be frustrating, however. Now there is help on the horizon for homeowners. The Home Affordable Foreclosure Alternatives Program, or HAFA, will provide new short sale rules. This new Federal short sale program should assist in taking a lot of the confusion and frustration out of short sales and can help prevent short sale deficiency judgments.

New Federal short sale program – HAFA

The HAFA program was developed by Congress to put an end to the unpredictable short sale process by making a standard short sale process for all lenders, home owners and home buyers to follow.

  • At present, short sales are confusing, haphazard and inconsistent in lender response time and policies.
  • Some lender turn times are 30 days, others are as long as 90.
  • Potential buyers often get frustrated and move on to another property.
  • Homeowners shift back and forth from relief to panic: relief as they see a way out of their housing and credit dilemma and panic as their lender declines their short sale request.

Short sales from the lender’s perspective

Currently in Arizona, there is no deficiency judgment on a first mortgage, but one can be filed for a second mortgage if it was taken out after the first mortgage. The lender can also send a 1099-C to the seller and the seller must pay taxes on and report their short sale loss.

Effects on homeowners

If you receive a 1099-C from your lender, remember that the Mortgage Forgiveness Debt Relief Act of 2007 allows a waiver for this income if the you meet the guideline criteria. IRS Form 982 is the work sheet used to apply for the waiver.

The home seller’s credit will take a hit from a short sale, and there is a waiting period for most home sellers who go through a short sale before they are eligible to buy a home again. The waiting time is less than a Foreclosure or Deed in Lieu of. Fannie Mae’s waiting period is 2 years for short sales (4 years after a short sale if downpayment is less than 20%, and mortgage insurance is needed), 4 years for Deed in Lieu of, and 5 years for a Foreclosure. FHA now requires a 3 year waiting period whether the home buyer has had a short sale or foreclosure.

How HAFA can assist homeowners

As mentioned, in April the Home Affordable Foreclosure Alternatives Program (HAFA) goes into effect (it retires in 2012). This Federal initiative establishes uniform standards for all lenders. HAFA lays out the timetables, forms to be used, and expectations for the lenders, sellers and buyers. Provisions of HAFA prevent lenders from pursuing deficiency awards. Additional HAFA benefits include relocation incentives, standardized realtor compensation, and assistance with settling subordinate liens, just to name a few.

Short sales can be a good solution for troubled homeowners. The sale prices accurately reflect the market for the neighborhood, and home sales place a new homeowner onto the tax rolls while the property is in good condition. If HAFA can streamline this cumbersome process, it makes it a winning combination for all involved.

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Time Is Running Out To Cash In On The $8,000 Tax Credits

March 9, 2010 By Leave a Comment

7 weeks remain for the Home Buyer Tax Credit ExpirationIn November, Congress extended and expanded the First-Time Home Buyer Tax Credit program to include a subset of “move-up” buyers — homeowners that have owned and lived in their home for 5 of the last 8 years.

The credit ranges up to $8,000 per buyer. There’s now just 7 weeks left to take advantage.

To be eligible, home buyers in Mesa, Arizona must be under contract for a new home no later than April 30, 2010, and must be closed no later than June 30, 2010.

In addition to meeting the deadline dates, there’s a basic set of requirements to be tax credit-eligible:

  • You can’t purchase the home from a parent, spouse, or child
  • You can’t purchase the home from an entity in which the seller is a majority owner
  • You can’t acquire the home by gift or inheritance
  • Each buyer in the purchase must meet eligibility requirements

There are other criteria, too.

For one, the sales price on the subject property cannot exceed $800,000. Homes sold for more than $800,000 are ineligible for the tax credit. Furthermore, households earning more than $125,000 as single-filers, or $225,500 for joint-filers, are ineligible.

You can read the complete eligibility requirements at the IRS website, or, you may just find it simpler to speak with your accountant about it. There are some nuances in qualifying for and claiming the tax credit on your returns and getting a professional’s opinion is always wise.

And lastly, don’t forget that government’s tax credit program is a true tax credit. It’s not a tax deduction.  This means that a tax filer whose “normal” tax liability is $3,500 and who is eligible for $8,000 in credit will receive a $4,500 refund from the U.S. Treasury.

If you’re currently in the House Hunt, mark your calendar for April 30, 2010. It’s 7 weeks away and you can be sure that as the date gets closer, buyer traffic is going to increase.  You may find sellers more willing to negotiate today than several weeks from now.

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Pending Home Sales Index Shows Decline, But Should Recover For Spring

March 5, 2010 By Leave a Comment

Pending Home Sales (July 2008-Jan 2010)

Fewer homes went under contract in January as the housing market continues to limp through the winter months.

According to the National Association of Realtors®, the Pending Home Sales Index fell to its lowest level in 3 quarters this January. By contrast, in October 2009, the index had touched a 3-year high.

The Pending Home Sales Index measures the number of homes that have gone under contract to sell, but have yet to close nationwide. It’s compiled using data from more than 100 regional listing services and 60-plus brokerages  — the sample set encompasses 20 percent of all home resales in a given month.

Economists have come to rely on the Pending Home Sales Index because of its high correlation to actual home sales. 80% of all home marked “pending” close within 60 days. Many of the rest close within 120.

Therefore, when we see Pending Home Sales show weakness like it did in January, we can infer that home resales will remain weak through the spring.

But will they really?

  1. Fewer sales should drag down home prices, bringing more buyers into the market
  2. Mortgage rates are still very low, but are poised to rise in just a few weeks
  3. The home buyer tax credit requires buyers to be in contract by April 30, 2010

In other words, there’s a confluence of factors that could lead to a rush of sales in Gilbert and around the country over the next two months, reversing the housing market’s recent momentum.

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Sales Of Existing Homes Drop Due To Cyclical Trends

March 2, 2010 By Leave a Comment

Existing Home Sales Jan 2009-Jan 2010The winter months have not been kind to home sales. Weather may not have the effect on sales in the Metro Phoenix area that it does in other parts of the country, but other trends may still drive down home sales.

In recent months, Existing Home Sales plunged, according to the National Association of Realtors®. An “existing home” is a home resold by a previous owner (i.e. not new construction).

In looking at the annualized, adjusted Existing Home Sales data, we find:

  1. Sales volume is at its lowest levels since June 2009
  2. Sales volume fell below its 12-month rolling average
  3. Home supplies are at a 5-month high

These are similar findings to the New Home Sales data issued by the government.  That report put new home sales at a 40-year low and showed new homes supplies higher by an entire month.

But don’t think housing rebound has halted! Home sales are cyclical and there are outside forces on today’s market.

For one, the market is still feeling the after-effects of the original First-Time Home Buyer Tax Credit. Sales spiked in the months leading up to the original November 2009 expiration date. A pull-back is natural and expected.

Looking at the long-term trend, Existing Home Sales volume appears right in line.

Furthermore, weather across much of the U.S. was awful in January. That, too, can impede home sales as homes are neither shown nor negotiated when weather is extremely inclement.

Anecdotal evidence is showing sales activity higher through February and into March. And, although it’s unlikely we’ll see a spike through April like we did last November, buy-side demand for homes should remain strong. The good news of the sagging sales reports is that today’s buyers may find home prices are lower and sellers are more willing to negotiate.

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National Home Price Index Not A Good Indicator Of Local Markets

February 26, 2010 By Leave a Comment

Monthly changes in Home Price Index Since April 2007

Earlier this week, the private-sector Case-Shiller Index showed home prices slightly lower between November and December.  Thursday, the public-sector Home Price Index showed the same.

Publishing on a 2-month lag, the Federal Home Finance Agency said home prices fell by 1.6 percent nationally in December.  And that’s an average, of course.  Some regions performed well in December as compared to November, others didn’t.

  • Values in the Middle Atlantic states improved slightly
  • Values in New England were essentially unchanged
  • Values in the Mountain states sagged, down 3.5%

These aren’t just footnotes. They’re an important piece toward understanding what national real estate statistics really mean. In short, “national statistics” are just a compilation of a bunch of local statistics.

For example, if we dig deeper into the FHFA Home Price Index 70-page report, we find that cities like Terre Haute, IN, Buffalo, NY, and Amarillo, TX posted year-over-year home price gains. You won’t see that in a “national” report.

Furthermore, it’s a sure bet that those same cities, you could find neighborhoods that are thriving, and others that are not.  Just because the city shows higher home values overall, it won’t necessarily be the case for every home in the city.

Every street in every neighborhood of every town in America has its own “local real estate market” and, in the end, that’s what should be most important to today’s buyers and sellers.  National data helps identify trends and shape government policy but, to the layperson, it’s somewhat irrelevant.

So, when you need to know whether your home in Gilbert is gaining or losing value, you can’t look at the national data.  You have to look at your block — what’s selling and not selling — and start your valuations from there.

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