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Brent Houston's Blog

By Brent Houston | Managing Broker in Los Angeles, CA
  • Is the History of the Recent Housing Bust Doomed to Repeat Itself?

    Posted Under: Home Buying in Los Angeles, Foreclosure in Los Angeles, Credit Score in Los Angeles  |  July 13, 2011 2:09 PM  |  561 views  |  1 comment

     

    Say you’ve lost your home to foreclosure. On top of decimated credit, you’ve resigned yourself to the fact that you will probably never be able to finance a home purchase again.

    Amazingly, that may not be the case. A small number of private investment firms are stepping in to fill the gap. These investors are lending to borrowers who cannot meet banks requirements, yet are ready to become homeowners again and can prove the ability to repay a loan.

    Critics say these loans are dangerously similar to the subprime mortgages that fueled the housing boom and led to the devastating bust. The loans are often balloon loans, requiring the borrower to pay the balance after a term of 5 to 7 years or refinance. Two firms, Athas Capital Group of California and New Penn Financial are also making jumbo loans or loans that exceed $417,000.

    These firms believe they are taking a smart, calculated risk. Higher down payments, around 40% on average are necessary. While the investors are flexible when it comes to documentation, willing to accept pay stubs or bank statements rather than tax returns, they still demand proof that the borrower can repay. The loans also carry stiff interest rates, as much as 13% in some cases or roughly twice the cost for a traditional mortgage. This can be a lifesaver for those who are self-employed or were unemployed during the recession but are now returning to the workforce.

    This new sector of private investors could be on the verge of a boom as banks have been slow to extend to borrowers with damaged credit. Also banks are beholden to shareholders and heavily monitored by regulators.

    There is an old say in finance. Bankruptcy can affect your credit for 7 to 10 years but foreclosure is forever. But for borrowers who want to own their own piece of the rock once again, private investors could offer a chance to recover what once seemed an irreversible financial loss.

  • Yet Another Unnecessary Foreclosure

    Posted Under: Home Selling in Los Angeles, Foreclosure in Los Angeles  |  June 1, 2011 4:15 PM  |  456 views  |  1 comment

    We are a Los Angeles real estate company that specializes in assisting distressed homeowners with short selling their homes. Today, we lost a home to the bank needlessly. We have represented the homeowner for 9 months, held broker open and open houses. Due to our hard work and marketing efforts, we found a well qualified and ready buyer. So what went wrong? You tell us, as we are suspicious of this credit union’s actions.

    Western Federal Credit Union claims to be the holder of the first lien on the property and had issued a payout amount north of $1,200,000. Upon further research and investigation, there were a few questions regarding the servicing of the loan and the actual payoff amount.  Chain of title reflected total lien of approximately $650,000.  The servicer had mentioned that a corporate advance was made but at no time was a Notice of Default ever filed against the property.  With what appeared to be very questionable servicing practices, we decided to obtain legal help with the matter.

    The following items were requested by us and the attorney:

    • Copy of the Note and Rider
    • Copy of all the recorded Deed of Trust or Mortgage
    • Copy of the assignments (if any)
    • Copy of the Loan Modification (if any)
    • Copy of payment history
    • Any NOD or NOS filings
    • All notes regarding client communication
    • Origination paperwork (1003, credit, appraisal and final HUD-1)

    This request initially went unanswered by the servicer, then they responded by saying that the requested items were mailed to the borrower (never received), then they went on to say that the borrower had cancelled their listing contract with us and that we didn’t have authorization to speak with the lender (not true and immediately sent an updated letter of authorization).  Even with all of this, NextGEN still tried to work in good faith with the servicer to structure a true Win/Win with the investor.

     

    Western’s own internal valuation of the property placed a value of $880,000 on the home. An agent from another realty office brought us a buyer willing to pay $810,000. We had it in escrow for $810,000 for nine months. When we found out that Western’s internal valuation was placed at $880,000, we had further discussions with the selling agent and got the buyers to up their purchase price to $860,000.  You would think the short pay lender would accept this amount knowing that if the property went through foreclosure and if the lender took back the property as an REO, that their loss would well exceed the $20,000 difference.

    Well today I’m sorry to say the lender decided to foreclose on the property and set the minimum opening bid at $1,217,893 knowing that no one was going to purchase this property at that price.

    I believe that this transaction was an inside job to defraud the borrower and the credit unions investors.  Chances are someone working for the credit union will probably purchase the property for under $800,000, then reach back out to our buyer in hopes to make a quick illegal profit and not have to pay our hard earn commissions.

    Turns out I was right. We got a call, from the buyers we had worked hard to find, telling us that the lender sold it to them for the very same price they had offered when we were handling the short sale. 

     I've contacted C.A.R. but there seems to be no protection for realtors from spurious banking practices like those detailed above. The lender foreclosed under very shady conditions, stole our buyer and has stolen our commission.

    If you have any similar horror stories with this lender or other banks engaged in the same practices, please reach out to. I would be interested in hearing your stories and getting your opinions.

     

     

     

  • Short Sale – An Investment Perspective

    Posted Under: Home Buying in Los Angeles County, Home Selling in Los Angeles County, Financing in Los Angeles County  |  May 3, 2011 10:10 AM  |  479 views  |  No comments

    Investors often tell me that they own a home, tenants left or are not paying their rent, and the property is not cash flowing (mortgage is more than the rental income). What is an investor to do? Most tell me that they have put in too much money to let the house go via short sale or foreclosure.  Without knowing the actual financials of a situation, it is worth considering whether the time value of money makes a short sale a better option than holding on until the market recovers. To illustrate, here is an example:

    EXAMPLE
    Investor buys a house for $350,000 in 2006.  The tenant pays $1500 per month, the mortgage payments on $300,000 is $2,250 with tax and insurance.


    The house is now worth $225,000.  The investor loses his job.  Tenant leaves and new tenant can only pay $1250.  The investor can’t afford to pay $1,000 out of pocket each month, which is the difference between the rent and the mortgage.  


    The investor tries for a loan modification and is denied; he tries again and is denied several times before he gives up.


    What does the investor do?
    If the investor can show true hardship, he can either (1) use up all of his resources to keep the home; of (2) attempt to short sale the home.


    Often investors will say, “I don’t want to lose the $50,000 I put into the property?” – they should consider the following.

     

    No Short Sale:  Starting $125,000 in the hole, the owner pays $1,000 a month for 5-10 years for the value comes back to 2006 level and owner’s equity to return.  Investor will have to pay $24,000 or more to keep the place from going to foreclosure (assuming 2 years without rent increasing).

    OR

    Short Sale: Sell the property and start over. If the lender will agree to waive any deficiency liability, the investor can walk away from $125,000 in unsecured debt.  Investor can clean up his credit and buy again in 2-3 years.  Instead of investing $24,000 to keep the payments up, the investor can use that $24,000 to invest in a property and at year 3 has $24,000 in equity in a new property that is appreciating instead of still being more than $100,000 in the hole.

     

    Please contact a NextGEN representative if you have any additional questions at 877.647.3911.

  • Banks Quaking at U.S. Treasury Oversight

    Posted Under: Home Selling in Los Angeles, Foreclosure in Los Angeles  |  May 2, 2011 11:03 AM  |  513 views  |  No comments

       Banks Quaking at US Treasury Oversight

    Finally, distressed homeowners and those looking to modify their loans are getting a chance to shake up the banks thanks to the US Treasury. Shock waves are rolling though the banking community as the Treasury Department causes fissures in the banks cavalier handling of underwater homeowners.

    Complaining to the Treasury Department forces the bank to expedite your request for a loan mod because the Treasury Department can shut a bank down. Your bank can be fined and is quaking over the idea that US Treasury agents could set up camp inside the bank eyeballing their every move.  For the banking community this is akin to a 9.5 earthquake on the San Andreas.

    To fight the banks, preparation is crucial. File your complaint with the Office of the Comptroller, a subsidiary of the US Treasury. Within 48 hours the executive office of the bank will send your mod request directly to one of their finest escalation teams. You will get an almost immediate response.

    To file, got to www.OCC.gov and on the home page click on Dispute Resolution on the right column, then click on Consumer Complaint and under Customer Assistance Group, click the Online Customer Complaint Form link and file your complaint. Then sit back and wait as tremors cause your bank to spring into emergency mode.

    Wait 30 days after making your written request for a loan mod before you file the OCC complaint or the bank will say that you did not give them enough time to address your request.

    OCC regulates all of the big National Banks. If your bank is not a National Bank, then it will be handled by the Office of Thrift Supervision at www.ots.treas.gov. The website has no online complaint form, so you will need to print, fill it out and fax or mail it.

    This strategy is extraordinarily effective as the bank can be fined $10,000 for lack of response within 60 days. If the bank receives 10,000 complaints from the OCC at $10 grand apiece that is a loss of $1OO million dollars per year.

    The little guy wields uncommon power now that you can create your own natural disaster for the banking industry.

     

     

     

  • The Meaning of Friendship

    Posted Under: Quality of Life in Los Angeles, Agent2Agent in Los Angeles  |  April 1, 2011 10:33 AM  |  781 views  |  No comments

    Many wise men and philosophers have ruminated upon the meaning of friendship. What does friendship mean to you? Below are a few thoughts on the meaning and the value of friendships through the ages.

    "The only reward of virtue is virtue; the only way to have a friend is to be one."
    - Ralph Waldo Emerson

    · Friendship has its own ebb and flow. In order to have a good friend, we all need to be a good friend. Friendship is knowing who to call and knowing they will pick up when it’s dark and scary and 2 o’clock in the morning. Friends will stand with you during the toughest times, just as they know you will stand by them.

    "If a man does not make new acquaintance as he advances through life, he will soon find himself left alone. A man, Sir, should keep his friendship in constant repair."
    - Samuel Johnson (1709 - 1784)

    · Cultivating friendships is an ongoing process. We must be sure to take care of our existing friendships in order to foster them. We must also keep our eyes open to the possibilities of new friendships. And to learn to extend friendship to those in need.

    "Associate yourself with men of good quality if you esteem your own reputation; for 'tis better to be alone than in bad company."
    - George Washington (1732 - 1799) US Statesman.

    · We are all judged by the company we keep. Keeping good company is also a function of being a good friend. If we experience a friend in trouble or foundering, this is an opportunity to be the kind of friend you would treasure.

    Whatever your own definition of friendship, friendship is instrumentally good. Friendship is life enhancing, promoting self esteem and satisfaction with one’s life. The institution of friendship is valuable not just to the individual but to the community as a whole. Let a good friend know how much they matter to you today.

     

     

     

  • Foreclosure Forum in D.C. Today With Big 5 Mortgage Companies

    Posted Under: Home Buying in Los Angeles, Home Selling in Los Angeles, Foreclosure in Los Angeles  |  March 30, 2011 4:51 PM  |  538 views  |  No comments

     

    Today, the Big 5 in mortgage servicing are meeting in Washington to discuss alternatives to foreclosure. One of the controversial options under consideration is requiring banks to facilitate the short sale process.

    Bank of America, JPMorgan Chase, Wells Fargo, Citigroup and Ally Financial will get together to try to pound out a settlement that could range from $5 billion to $25 billion. The settlement revolves around federal and state investigations into shoddy or fraudulent foreclosure paperwork. Banks may now be legally compelled to let delinquent homeowners sell for less than the loan amounts owed.

    In addition to requiring short sales, mortgage servicers may have to reduce the amount some homeowners owe on their loans. They would also have to dramatically change how homeowners are treated when they pursue a loan modification.

    Short sales provide a quicker and more economical way for banks to dispose of distressed real estate. Short sales also help stabilize the real estate market by clearing out shadow pending inventory, millions of homes that are on the brink of foreclosure. Short sales can  be used in situations in which borrowers are so underwater that the more costly and time-consuming process of foreclosure would seem to be the only option.

    This is the first official meeting since attorneys general from every state in the nation and Justice Department officials threw down the gauntlet and presented the banks with 27 pages of demands calling for broad changes to mortgage servicing and how these transactions are handled.

    The Big 5 have countered with proposed solutions including single point of contact for distressed homeowners, timelines for loan modifications, online system for status checks of applications and third party review of rejections.

    Some sellers are in no hurry to push for a short sale as they would then have to find another place to live and begin paying rent.  Lenders can and do withhold approval of a short sale if they don't like the price.

    Some House Republicans see this as a bailout for irresponsible behavior and are angered that possible payments of $20,000 to distressed homeowners “cash for keys” could be offered to homeowners they see as deadbeats.

     In Southern California, short sales made up an estimated 19.8% of the market for previously owned homes last month. That was up from an estimated 18.4% in February 2010 and 12% in February 2009, according to DataQuick Information Services of San Diego.

    Combined with foreclosures, short sales made up more than half of homes sold in the Southland last month. Without viable, workable solutions, the number of foreclosures we’ve seen so far will pale in comparison to what is to come.

    .

     

  • HR 861- House Acts to Cut Wasteful Spending

    Posted Under: Foreclosure in Los Angeles  |  March 29, 2011 1:36 PM  |  448 views  |  No comments

    The House of Representatives has approved legislation to axe a bailout program for lenders and real estate speculators. The legislation, HR 861, the NSP Termination Act ends the so-called Neighborhood Stabilization Program (NSP). 

    “Today the House acted yet again to end wasteful spending on a government program that does nothing to help homeowners facing foreclosure," said Financial Services Committee Chairman Rep. Spencer Bachus of HR 861. "In fact, this program creates perverse incentives for banks and other lenders to foreclose on homeowners. This program is not only bad for struggling homeowners; it’s horrible for taxpayers, too. It uses taxpayer money to bail out lenders and real estate speculators. We simply cannot continue to use taxpayer dollars to bailout those who made bad decisions.”

    The NSP provides taxpayer dollars to state and local governments, as well as non-profits, to purchase, rehabilitate, and resell foreclosed properties. Yet, giving these entities taxpayer dollars to buy foreclosed properties does nothing to help struggling homeowners stay in their homes. In fact, the program represents a costly bailout of lenders, servicers, and real estate speculators who made risky bets on the housing market and will now dump their foreclosed property onto the taxpayer.

     The NSP has had nothing but problems since its creation in 2008. The Inspector General of the Department of Housing and Urban Development has identified several misuses of NSP money at the state level. The Government Accountability Office questions whether HUD has the capacity of properly tracking the use of funds provided under this program. The NSP has received more taxpayer funding even though it was supposed to be a temporary program. The NSP was provided $4 billion at its inception in 2008, $2 billion more in 2009, and another $1 billion as part of the Dodd-Frank Act in 2010.

     

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