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Diane Wheatley’s Blog

Understanding and Surviving the Housing Crisis

By Diane Wheatley, Broker | Broker in Rancho Cucamonga, CA
  • What is a Zombie Foreclosure? You Need to Know.

    Posted Under: Home Buying in California, Foreclosure in California, Home Ownership in California  |  February 21, 2013 7:24 PM  |  2,824 views  |  No comments

    Zombie ForeclosureHomeowners think that when they receive a notice of foreclosure from their bank, it’s time to move out. But sometimes banks unexpectedly dismiss the foreclosure, and the home’s title remains in the name of the owner who thought he or she had lost the property.

    Homeowners who aren’t aware of this practice can find themselves the holders of so-called “zombie titles.” A regular title becomes a zombie title when a homeowner finds himself or herself being mindlessly pursued by mortgage servicers, local governments and debt collectors for bills related to a home she thought she no longer owned.

    For a variety of reasons, lenders may hold off on completing a foreclosure because they simply don’t want the house back, or because they have too much inventory on their hands, or because the costs of foreclosing do not justify completing the foreclosure. Banks are not obligated to foreclose and take legal title to a property if they feel the loss or potential liability is too great.

    The bank may not tell the homeowner it has stopped moving forward with the foreclosure or canceled it altogether. The bank may not attempt to notify the homeowner because it isn’t legally required to. Even if it does try to notify the homeowner, it may not be able to locate a homeowner who has moved out and has new contact information.

    Just because you moved out of a house doesn’t mean you automatically stop owning it. The house remains yours until someone else’s name is on the title. This change of ownership often happens after the bank sells your home at a foreclosure auction, but if the foreclosure process stops, your home won’t make it to auction.

    After you vacate your home, a multitude of scenarios can occur placing you at risk for financial, legal and emotional distress.  The home could be damaged and vandalized by criminals and you are held responsible for the damage. If your property violates local housing codes or ordinances, you could find yourself on the hook for those violations.

    If your home is subject to local housing code violations that go unresolved, you may one day receive an unexpected bill, have your tax refund garnished or even be sued by the county or municipality for the cost of any repairs the government made on your behalf. If the house falls into such disrepair that the city decides to demolish it, you could be on the hook for a bill ranging from $10,000 to $30,000.

    As long as you continue to own a home, you can continue to incur liability, including penalties, fees and accruing taxes no matter what you may or may not assume.  

    Zombie titles can plague home buyers, too. According to public record, Wells Fargo foreclosed on Richard R’s Florida home in 2007. The bank later changed its mind and transferred the title back to Richard R., but Richard R. never got the message. In 2010, Wells Fargo sold the home — which it didn’t own — to Brian and Holly, who didn’t learn about the mistake until it was caught by the county property appraiser. Brian and Holly now have hundreds of thousands of dollars tied up in a property they can’t even sell, because they don’t technically own it. The title is still in Richard R’s name.

    This case may be extreme, or it may not be.  The point of this information is to make the homeowner aware of disastrous pitfalls that could occur following a foreclosure proceeding that may or may not occur.  Do not assume you are free to walk away.  Verify the status of the title to your property by contacting the county tax assessor’s office or through the help of a qualified real estate professional.  Knowledge is key and you need to know the facts regarding ownership, title and how you can protect yourself.

     

  • What the Fiscal Cliff Means to You

    Posted Under: Quality of Life in Rancho Cucamonga  |  December 28, 2012 9:37 AM  |  2,598 views  |  2 comments

    The news is full of stories about the looming fiscal cliff and what it may do to our economy, our businesses, and our personal lives but many of us don't even know what the so-called 'fiscal cliff' actually means and how it can impact us.   Allow me to cut through the confusion and give you an understanding of what the issues are and how they may, or may not affect you. 

    Let's start with 'What is the Fiscal Cliff'?

    The term 'Fiscal Cliff' is a popular shorthand term used to describe the possible adverse impacts on the economy from a number of existing laws taking effect.  The fiscal cliff is made up of two parts.

    The first part consists of the scheduled expiration dates of various tax breaks which include tax cuts enacted in 2001 and 2003 under President George W. Bush, the payroll tax holiday enacted under President Obama and an array of other tax breaks.  These tax breaks were designed to put more money into the hands of the consumer which would parlay into more spending thus creating more jobs thereby strengthening the economy.  The designated tax breaks are set to expire at midnight, December 31, 2012.

    The second part includes automatic spending cuts including $1.2 trillion dollars in cuts to the defense and domestic programs resulting from The Budget Control Act of 2011.  The Budget Control Act of 2011 was enacted to resolve a dispute concerning the public debt ceiling.  Deficit spending previously appropriated by Congress had reached its maximum.  Republicans in Congress refused to approve an increase in the debt ceiling unless deep spending cuts were approved.  The Budget Control Act was created to immediately lift the debt ceiling while implementing a mechanism to provide two additional increases.  Unless Congress enacts changes to The Budget Control Act, these spending cuts are scheduled to take effect on January 2, 2013.

    What are the effects if the present laws remain unchanged?

    A Wall Street Journal article dated May 16, 2012 citing a J.P. Morgan study estimates the following impact as viewed in dollar and cents.  $280 billion dollars will be extracted from the economy effective January 2, 2013 pursuant to the implementation of the scheduled tax cuts, $125 million dollars from the expiration of the Obama payroll-tax holiday; $40 million dollars from the expiration of emergency unemployment benefits; and $98 billion dollars from The Budget Control Act spending cuts.  In all, the increase of taxes and spending cuts add up to about 3.5% of the GDP, half of which are derived from the Bush tax cuts.   According to the Congressional Budget Office, this would reduce the overall deficit by an estimated $560 billion dollars, but the vast severity of the cuts could send our economy into a recession resulting in the loss of nearly two million jobs.

    Do these effects justify a change to the current laws?

    This is the subject of the heated debate occurring in Congress right now.  While no one wants to pay more in taxes, we cannot continue to spend more than we earn without facing serious consequences.   In order for survival we have a responsibility to bring our budget under control, if not for ourselves then for our children and grandchildren who will inherit our fiscal mismanagement.  Therefore, something must be done to protect the long term. 

    However, the impact on the economy from a renewed recession cannot be ignored.  This has led to extensive talks both inside and outside of Congress to extend the tax cuts and replace the reductions in spending with more targeted cutbacks.  Since both parties agree that the Bush-era tax cuts should be extended for the vast majority of Americans, we may notice more money missing from our paychecks.  However, it is unlikely that we will suffer any long term negative impact as the spending cuts will not occur all at once.   They are scheduled to be phased in gradually over a decade.

    Conclusion - Repairing our Federal Budget is Necessary

    To some degree, our Government now stands at a crossroad where action is needed.  If we do nothing, then we risk the repercussions of a renewed recession.  Yet, if we choose the easy fix by administering band-aids, we continue to undermine our economy by continuing on the same course of irrational logic that has lead us to the position we are in today.   Any change to the existing laws will likely increase the deficit by either reducing income or increasing spending.   Maintaining the status quo should not be an acceptable solution.  We must increase income while decreasing spending.  The challenge to our lawmakers is no different from the challenge we face each month with our own household budgets.  The test of their leadership will be whether they can work together to make the necessary changes for the sake of our nation.

    The information presented in this Article is not to be taken as legal advice.  Every person's situation is different.  If you are upside-down on your mortgage or facing a lender lawsuit,  get competent legal advice in your State immediately so that you can determine which options are best for you.

  • Credit Repair Scam - Don't be Fooled !

    Posted Under: Home Buying in Indio, Financing in Indio, Credit Score in Indio  |  September 4, 2012 11:31 PM  |  3,480 views  |  No comments

    Watch out for individuals claiming that they can perform credit repair services to increase your FICO scores so you can purchase a home.  Don’t do it!  Don’t believe it!  It’s a SCAM!  This information is provided based on reports obtained through individuals recently victimized in and around the city of Indio, CA. 

    How do these fraudsters convince you to turn over your hard earned money?

    a.      These crooks will prey upon their own kind.  The Hispanic community tends to trust other Hispanics, especially those who appear to be very experienced and “father-like”.  A smooth con will attempt to provide you with a sense of ease and comfort in a situation that should cause you apprehension and fear.   It is that “fear” that these crooks prey upon. 

    b.      They provide you with a series of success stories on how they were able to perform a “home purchase miracle” when no one else could.  As you listen to the stories of their ability to place families into homes in less than 30-60 days by using their guaranteed and proven plan, you will begin to listen more intently without noticing that they are casting their net upon you, pulling you into their web of deceit.

    c.      The crooks operate their schemes in a relaxed atmosphere like public swap meets and festivals where an individual might attend as a FREE day for the family to spend time together looking at exhibits, vendors, eating food of all sorts, collecting free samples, receiving free neck messages and balloons for the kids.  You are happy, comfortable and speak more freely than you would under different circumstances. 

    d.      You will notice other people surrounding these fraudsters, listening intently to how they perform their tricks.  If other people appear interested then it could create the illusion that their operation might actually work. 

    e.      Just like the others before you, you also sign up for a phone appointment to get this program started to begin your path towards home ownership.  If it all sounds too good to be true, then it usually is.  Listen to your gut instinct.

    f.       The Hispanic communities located in economically challenged areas hit hard by the recession are ripe for this type of crime.  Many do not speak English very well, if at all.  They can communicate with these thieves in their natural language which appeals to their overall sense of trust and belief that what these crooks are saying is true.  The victims begin to overlook the red flags as their instinctive sense of caution comes down. 

    g.      Just because someone speaks Spanish and may share the same or a similar background with you does not mean that you can or should trust them. Scammers are experts in fraud and gaining a victim’s confidence.  When you believe you have common interests with someone and believe in the same faiths and traditions, you are more inclined to trust and ultimately be taken advantage of.  Quite simply, verify, verify, and then verify again before you trust anyone with your family and your money.

    h.      The thieves have a well thought out plan in their selection of venues to operate from preferring to operate at small swap meets or outdoor festivals.  The less fortunate, out of work, God fearing husband and father is tempted by his thoughts of a better home and life for his struggling family.  The victims will pool their money together to pay the thousands of dollars needed to provide a better home for their families. 

    i.       Many victims do not own a computer or use the internet as a source of information to verify the credentials of the crooks.  Many do not speak English well enough to communicate the crime to the proper authorities or choose not to for fear of appearing ignorant or irresponsible.  Or when the crime is finally reported, the thieves have closed up shop never to be heard from again.

    j.       Victims of mortgage, credit, loan modification or real estate related crimes pay thousands of dollars up front and in advance of any services provided which in itself is a crime.  Both the California and Federal Acts contain requirements for consumer disclosures, written contracts, and numerous protections against false and misleading statements. They also both contain prohibitions against charging or receiving any money or other consideration before fully performing the credit repair services the “repairer” has agreed to perform. Stated otherwise, both the California and Federal laws preclude the collection of “advance fees” for credit repair services.  Under almost every circumstance, do not pay for financial related services before they have been performed.

    k.      The contracts provided, if any, are typically copied from other related service companies.  The agreements are not dated or signed by the fraudster promising the services and little to no contact information is provided. There is no state licensing number.  They will “forget” to provide you with a copy of the signed contract when you leave.  Never sign a contract without receiving a copy of what you signed immediately to take with you.  Review the contract for blank spaces or empty lines that could be filled in later by the criminal.  Do not sign a contract written in a foreign language or without a proper translator.  The contract should be signed by all parties with a clear understanding of the duties to be performed, the cost of the service, how it will be collected, what you can do in the event you choose to cancel and what the refund policy is.  You will never be able to collect your money in a court of law if you don’t have any documents to prove that the terms of your agreement were breached.

    l.       The thief will tell you that they will call you as soon as the victim’s credit score is high enough to purchase a home, typically within the next 30-60 days, which will NEVER happen.  Many victims find out that their credit report was never obtained to begin with.  If your credit report was obtained by a third party, demand that you receive a copy of the report for your records. 

    After a few months have passed you may receive a phone call stating that your file has been declined because you failed to deliver the requested documents needed to repair your credit score.  Even if you know that you delivered the required documents, they will tell you that you that they are still waiting on updated information from you.  They will tell you that it’s too late to do anything further without collecting additional money from you.  Remember, these are all lies to perpetuate their deceit and defraud you of your money.  Demand to see the letters sent to your creditors, which creditors were contacted and the results from their requests.  Was anything ever done to repair your credit score?

    m.    Never, ever pay someone for services using a money order, Western Union, cashier’s check or money gram.  And never, ever give anyone a check made payable to “blank or no name”.  The thief will tell you not to fill out who the check is payable to because they do not know what credit reporting company they need to send it to or they have a stamp with the company name to use for convenience.  DON’T DO IT!!  That check is going to be cashed using the crook’s name or immediately deposited into their bank account.  Even if you receive a receipt for your cash payment, you can count on never seeing that money again.  It is very easy for a criminal to say that they never received your cash payment if your case needs to be tried in court.  If you received a receipt for the cash payment, the thief could claim that the receipt is fake and no money was ever received from you. 

    n.      You may be told that you are approved for a loan and asked to begin looking at homes to purchase.  Request your updated credit report showing the items that were corrected or removed and how it affected your FICO score.  Request a letter from the lender who approved you for a loan.  Contact the lender to verify the information and more importantly, contact a lender of your own choosing to provide you with a second approval to confirm your eligibility for a home loan.

    To sum up the red flags to look for when confronted with this type of fraud remember the following:

    • There are no miracles in financial or credit repair services.  Request references.
    • Beware of individuals who make promises and guarantees.
    • Credit repair services cost an average of $300 to $600 depending upon the number of items needing attention.  Beware of anyone attempting to collect a fee outside of this range.
    • Hispanics will prey on their own kind to gain trust through the Spanish language.
    • Credit repair scams often begin at swap meets or outdoor fairs among low income communities.
    • Advance collection of fees is illegal in California in nearly all circumstances.
    • Never pay for services using a money order, cashier’s check or cash.
    • Never provide a check for services with blank spaces.  Do not agree to have your check stamped.
    •  Always receive a complete contract for services with contact information, licensing info, date the service is to be performed, terms, defined cancelation and refund policies and a clear understanding of what is expected of you.  Full disclosure and open communication at all times.

    • Take any approval to a lender of your choosing to verify your eligibility and prove that the credit repairs were performed.

    DON'T BE FOOLED!!

  • Where did all the homes go? No listings!

    Posted Under: Market Conditions in Rancho Cucamonga, Home Buying in Rancho Cucamonga, Home Selling in Rancho Cucamonga  |  June 25, 2012 1:07 AM  |  3,647 views  |  No comments

    As the economy stumbles its way slowly towards a recovery, the real estate market remains challenged with upside down loans, lawsuits, and uncertainly as to what’s coming. One surprising factor is the continued limited supply of homes for sale.  According to the Sacramento Association of Realtors, there presently is a 6 week supply of homes on the market. That is down 20% from January. A normal market would be a three month supply. The predictable result is shorter sale times and multiple offers. The economic laws of supply and demand tell us that this competition should push prices up but it’s not happening. The other result is that, with so little purchase opportunities available, demand for rental housing has increased and rent is at an all-time high.

    So what’s going on? It appears to be a conflict between several varied market forces.

    First – Buyers fear more price reductions to come – Market watcher Core Logic reports that there are currently 11.1 million borrowers underwater nationwide. Lender Processing Service (LPS) reports that 5.5 million borrowers are 30 days or more delinquent, over 2 million of which are already in the foreclosure process. And while statistically foreclosure rates are actually down, 56,258 new foreclosures were started in California in the 1st three months of 2012. Many call this the “shadow inventory”: properties in trouble but not on the market for sale. With the recent National Mortgage Settlement resolving lender fears of possible blocks to foreclosure, most market watchers expect an increase in the 2nd quarter. If so, prospective buyers fear that increased foreclosure activity may push prices down further.

    Second – Prospective Sellers hope for Loan Modifications – Despite the reality that success in obtaining a loan modification remains less than 10% and mods with principal reduction are even less, upside-down owners continue to hope that relief may be coming to enable them to keep their homes. The National Mortgage Settlement will eventually produce up to $25 billion in principal reductions, although it is still unclear who will qualify for these. The Settlement only applies to Wells Fargo, BofA, Chase, Ally, and Citi and does not apply to FNMA and Freddie Mac owned loans. Those two GSE’s own 60% of the upside-down loans yet they refuse to participate in principal reduction.

    Third – Lenders are tightening lending standards – According to a recent report in DS News, over 30% of residential mortgage lenders report an increase in demand. In response, lenders are actually tightening standards for residential mortgage loans. While the availability of loans remains better than it was immediately after the onset of the recession, prospective home owners are finding it more difficult to obtain purchase funds. This prevents them from competing with the large numbers of investors and others purchasing properties for all cash.

    Fourth – REO holders are bypassing the real estate professional - Increasingly, lenders are offering to sell their REO (real estate owned) properties in bulk to investor groups at a discount. For lenders, this removes large numbers of properties from their non-performing inventory at a lower cost; and for investors, this provides a very significant opportunity to buy already devalued property at even further reductions. However, these properties never come on the market for Realtors to sell or prospective buyers to buy. This trend appears to be increasing.

    Taken together, these market forces are likely to keep market inventory down for the foreseeable future.

    WHAT SHOULD REALTORS BE DOING IN THIS MARKET?

    Realtors should be actively educating those prospective Sellers who are sitting on the fence awaiting a Loan Modification that it may never come. Take the time to build the relationship now so that when a homeowner does get denied their modification – as most of them will – you will be in a position to assist them in avoiding foreclosure through a short sale.

    The Benefits of Short Sales:

    Four very major benefits exist that make short sales the avenue of choice for upside down owners:

    (1) Deficiency Judgment Avoidance – The passage of SB458 in July, 2011 bars deficiency recourse after a short sale for all lenders. In most foreclosures, junior lenders can still sue the borrower for a deficiency judgment;

    (2) Debt Forgiveness Tax Avoidance – The Debt Forgiveness Tax Relief Act expires on December 31, 2012. Currently, foreclosures take an average of 10 months in California so a borrower defaulting this month would likely lose the Act’s protection and become liable for the tax on any unpaid loan amount. Only a short sale can realistically be started and competed before the Act expires.

    (3) Reduce Credit Damage – Both because of the reduced default time and the different credit reporting (“Settled” instead of “Foreclosed”), a short sale enables sellers to restore their credit earlier and get back into the market while prices and interest rates remain at historic lows.

    (4) Avoid Job & Career Damage – For some debtors working in security positions (Military, Fire, Police) or fiduciary positions (Banking, Accounting, Investing), a foreclosure on their record and reporting on their Credit can cost them their job, stop them from further employment in a similar job, or even end their career. In contrast, a Short Sale avoids or at least substantially reduces these risks.

    For most people in today’s market, especially since the passage of SB458, short sales represent the best means of achieving the above-stated protections…. but it’s not necessarily for everyone. If you or someone you know is struggling with an upside-down property in California and don’t know what to do, we offer our knowledge of what to expect and form strategies to either keep the property or move on with as little financial risk as possible. To schedule a Consultation, please contact our office at (909) 981-5400 x222.

    The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are upside-down on your loan, especially if you’re facing a lender lawsuit, get competent legal advice in your State immediately so that you can determine your best options.


  • Credit Card Collection Agencies Preventing Short Sales

    Posted Under: Home Buying in California, Home Selling in California, Foreclosure in California  |  March 11, 2012 10:35 PM  |  4,207 views  |  No comments
    Many collection agencies have resorted to recording liens against the borrower’s property instead of the bank levy or wage garnishment option.  What I don’t understand is how these collectors think that a lien for an abstract of judgment is of any real value when these properties are hundreds of thousands of dollars underwater.  There is not a dime extra for anyone who is party to a short sale.  The first lender is agreeing to accept only half of the original loan balance to release their lien (typical example), the second lender receives no more than $6,000 to release their lien and in California even the property tax collector will agree to step aside by way of a partial lien release to enable the transaction to close.   So who gave these credit card collection agencies all the power to refuse negotiations and force these homes into foreclosure?

    An abstract of judgment lien recorded against a property can be released through the use of a partial lien release which allows them to have the ability to collect from the debtor at any other time in the future by attaching itself to any other asset the borrower owns instead.  If the home goes to foreclosure because of their lack of cooperation they still have the legal right to collect on their judgment through a wage garnishment, bank levy or attaching to a subsequent real property the borrower owns.   Why hold up a short sale transaction that has ZERO ability for repayment of the debt when they have other options for recovery?   

    Has this happened to any of you too?

  • Are there Restrictions when Selling Property Purchased at a Property Tax Auction in California?

    Posted Under: Home Buying in California, Foreclosure in California, Property Q&A in California  |  March 7, 2012 7:22 PM  |  3,896 views  |  No comments

    I was recently contacted for an answer to this question and found the answer to be one that I was not aware of.  The answer was graciously provided to me by a Senior Title Officer with Chicago Title.

    Q.  Is there a restriction in the state of California that prevents a buyer who purchased a home through a property tax auction from transferring title during the first year following the auction?  In other words, if an investor or buyer purchases a property through a property tax lien sale or auction, is he restricted from reselling that property for a period of time because he cannot obtain title insurance when it transfers it to a subsequent buyer?  

    A.  The buyer at tax auction can re-sell the property within a year however they may have trouble obtaining title insurance.  Title companies typically will not insure until one year has passed due to the fact that there is a one year right of redemption if a junior lien holder or former owner was not properly notified of the tax sale.  After a year the title company requires a letter from the Tax Collector showing proof of all notifications sent, this is reviewed before insurance can be issued.

     

     

  • Upcoming Changes to the HARP 2.0 Program

    Posted Under: Financing in California, Foreclosure in California, Credit Score in California  |  February 28, 2012 11:03 PM  |  5,283 views  |  No comments

    Look Out for Upcoming Changes to the HARP Program

    HARP allows homeowners facing difficulties refinancing their mortgage through conventional methods to apply for a refinance of their mortgage. A homeowner that is current with their monthly payments but unable to refinance due to a drop in the value is the typical prime candidate for the HARP program. The ultimate goal is to allow a homeowner to do a mortgage refinance for a lower interest rate and overall monthly payment.  Here are the general eligibility guidelines for HARP:

    • There is no loan-to-value cap in the new HARP, for fixed-rate loans. This is the most significant change of HARP 2.0. Under previous versions of HARP, the LTV could not exceed 125%.
    • The loan on your property is owned or guaranteed by Fannie Mae or Freddie Mac. Determine if you have a Fannie Mae or Freddie Mac loan by going online (check Fannie; and check Freddie) or by calling 800-7FANNIE or 800-FREDDIE (8 am to 8 pm ET).
    • At the time you apply, you are current on your mortgage payments. You can have one 30-day late payment in the past 12 months, but none within the past 6 months.
    • You have a reasonable ability to pay the new mortgage payments. Editor’s note: Fannie Mae removed the "reasonable ability to pay" clause. 
    • The refinance improves the long-term affordability or stability of your loan.

    HARP Changes for Lenders and Effects on Borrowers

    The following is a summary of key changes found in HARP 2.0.  Some key underwriting details are not yet announced, and are expected to be released before March 2012.

    Limited Liability

    What’s new: A key provision of the new HARP is that it limits lenders' liability in cases of loan default. Essentially, Fannie and Freddie will not force the lender to buy back a non-performing loan.

    Effect on the borrower: This change should greatly expand HARP's reach. Lenders will be much more eager to offer HARP loans, where they were previously reluctant. With more lenders participating, you will have an easier time getting a HARP mortgage.

    Lender Fees Dropped

    What’s new: Fees that Fannie and Freddie charge lenders for high LTV loans are being cut.

    Effect on the borrower: The reduced fees are passed on to you, making your loan cheaper. If you are financing to a 15-year or 20-year loan, the fees are cut even further.

    Credit Score and Income Requirements Relaxed

    What’s new: As long as your new HARP monthly payment is not more than 20% greater than your current payment, specific credit and income guidelines do not apply. The lender will have to determine that the borrower is an “acceptable credit risk” (and what that means is yet to be determined).

    Effect on the borrower: A low credit score or high DTI is not enough to automatically disqualify a borrower. Also, if your family is now a one-income family when it was a two-income family on the original loan, you only have to show proof of one income, as opposed to conventional loans where all borrowers listed on the application must document income.

    Underwriting Requirements Relaxed

    What’s new No. 1: Mortgage Payment History: A HARP lender can approve a loan that has one late mortgage payment in past 12 months as long as it did not take place in the last six months.

    Effect on the borrower: You won't be counted out for a mortgage late, when that could normally eliminate your ability to get refinanced at the lowest rates available. If you have a recent mortgage late, you can still apply for HARP once you meet the relaxed mortgage late requirements.

    What’s new No. 2: Relaxed Foreclosure & Bankruptcy rules: Your HARP loan could be approved, regardless of how recently a borrower filed bankruptcy or experienced a foreclosure.

    Effect on you: Normally, if you filed for bankruptcy or experienced a foreclosure you would have to wait years before you could successfully refinance.

    Occupancy Requirements Relaxed

    What’s new: Owner Occupancy: HARP loans are no longer restricted only to owner-occupants.

    Effect on the borrower: You can now use HARP to refinance your second home or investment property.

    Lenders Must Show that a Borrower Benefits from the Program

    What’s new: Lenders must show that the HARP mortgage borrower derives one or more of the following four benefits in the new loan:

    1.      Reduce the size of the monthly payment.

    2.      Change to a more stable loan product, such as moving from an adjustable-rate mortgage to a fixed-rate mortgage.

    3.      Reduce the interest rate.

    4.      Reduce the loan amortization term (moving to a shorter-term loan).

    Relaxed Condominium Requirements

    What’s new: HARP eligibility used to require that no more than 10% of units in the complex be owned by one person and that no more than 20% of owners in the complex be behind on their HOA dues. These requirements are now removed.

    Effect on the borrower:  More condo owners will now qualify for HARP. If you own a condo, qualifying for the HARP program is no longer dependent on your neighbors' finances.

    Condominium owners have perhaps the best reason to be optimistic.  Lenders are being relieved of the responsibility (for HARP refinance loans only) to ensure that condo projects meet the often strict project approval requirements of Fannie Mae and Freddie Mac. 

    Borrowers living in condominium projects that have seen a sharp increase in the number of renters or those that have experienced some level of budgetary stress will be much more likely to find relief under HARP 2.0 than they have under existing programs (as long as their loans are owned by Fannie or Freddie).

    Hold Your Horses

    Although applications could be submitted for the new HARP 2.0 mortgages in December 2011, there are those who believe the bulk of HARP mortgages will not be approved until March, 2012.  Both Fannie and Freddie must update their automated loan underwriting/approval software by March 2012.  Until then, while lenders may approve HARP mortgages by manually underwriting the loans, loans that are manually underwritten expose the lender to greater risk. If a manually underwritten loan defaults, the lender will be required to buy back the loan.

    Given the protections that the lender will have once the automated underwriting programs are updated and ready in March 2012, it seems very likely that most loan originators will wait until March 2012. Be ready to move forward with an application, once lenders start taking them but be prepared for a very long process before your loan closes.

    Before refinancing, borrowers should know whether their current loan is a recourse or non-recourse loan and also be familiar with their state’s anti-deficiency laws. Refinancing a non-recourse loan could expose the borrower to responsibility for a potentially huge financial obligation where no such obligation currently exists.

    Recourse, Non-recourse, and Anti-deficiency

    In some states, refinancing can remove the consumer protections, called anti-deficiency laws, which protect underwater homeowners who default on their mortgages.  It is recommended that homeowners learn the anti-deficiency laws in their states, and determine if a mortgage refinance changes their rights.  Anyone with a non-recourse loan should carefully weigh the decision to turn a non-recourse loan into a recourse loan.

    Basic HARP Requirements

    Not every upside-down home qualifies for HARP 2.0. Here is a summary of the basic requirements:

    1. The loan must be owned or guaranteed by Fannie Mae or Freddie Mac
    2. The loan was sold to Fannie Mae or Freddie Mac on or before May 31, 2009.
    3. The loan was not refinanced under HARP previously, unless it is a Fannie Mae loan that was refinanced under HARP from March through May, 2009.
    4. The loan’s current loan-to-value (LTV) is greater than 80%.

    More About HARP 2.0

    How does mortgage insurance impact qualifying for HARP 2.0?  Mortgage insurance on a loan should not block a refinance under HARP 2.0.

    Readers who do not have Fannie, Freddie, or other GSE loans are not eligible for HARP 2.0.  In late January 2012, President Obama proposed a similar plan for non-GSE home loans. See Obama Refinance Plan for more information on this proposal.

    More HARP updates will be released both by lenders and by Fannie and Freddie, so keep checking with MoveUpProperties.com to stay updated on details of the new HARP program.

     

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