Real Estate Market

Team Jodi's September Update

What is and is not a Short Sale?

A “short sale” occurs when the homeowner enters into a negotiation with the mortgage company to accept less than the full balance of the loan at closing. The homeowner closes on the property and the property is “sold short.”  This occurs prior to a property entering the foreclosure process.
 
A bank-owned house, or Foreclosure, is not a short sale. A seller deciding to lower their price and take less profit is not a short sale.    To have a short sale, one of the parties has to be “shorted;” either the seller or the bank, and for the owner to qualify a number of criteria must be met (see below).
 
In a foreclosure, homeowners fall behind in their payments and the bank typically repossess the house and sells it. In almost all cases, the bank pursues the homeowner for the deficiency. The only real way out of this type of situation is to file bankruptcy.
 
In the case of a short sale, the homeowner:
 
  • Does not enter the foreclosure process,
  • Only late payments on the mortgage show on a credit report and after the sale of the home, the mortgage will be reported as paid or negotiated. This could lower a homeowner’s credit score by as little as 50 points if all other payments have been made. The affect of a short sale can be as brief as 12 to 18 months
  • A short sale is not reported on a credit history. There is no specific reporting item for ‘short sale.’ The loan is typically reported as ‘paid in full, settled.’ 
  • A Short Sale on its own does not challenge most security clearances whereas a foreclosure does.
  • A Short Sale is not reported on a credit report and is therefore does not present a challenge to employment.
  • In some successful short sales it is possible to convince the lender to give up the right to pursue a deficiency judgment against the homeowner, (i.e., payment of the shortfall or the difference between what was owed and what the bank received.)
  • Under the Mortgage Forgiveness Debt Relief Act of 2007, if there is a deficiency payment, and the home subject of the short sale was a principal residence (vs. an investment property) and that home is worth less than or equal to $2 million, the tax on the deficiency will be forgiven. 
  • A homeowner who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed mortgage after only 2 yrs
  • An Investor who successfully negotiates and closes a short sale will be eligible for a Fannie Mae backed investment mortgage after only 2 years.
For information about short sales or to learn how Team Jodi can help, go to www.ShortSalesInNC.com.

Jodi Bakst Earns Designation as Short Sale Expert

I have been a Real Estate Broker for 11 years.  As are you, I am very concerned about the mortgage crisis not only for its affect on the real estate business but more importantly for its affect on homeowners.  The more important thing to understand is that not only are those with subprime loans affected, today we are seeing more and more defaults by homeowners with conventional, "A" paper loans. 
 
Because of the magnitude of the problem, I am working toward gaining my designation as a Certified Distressed Property Expert (CDPE).  My coursework will be completed and the designation earned by the end of October 2008.  I am learning the tools, information and tactics to effectively help homeowners who are in financial distress.  I will and can be an advocate to help homeowners find the best solution to whatever financial crisis they are facing.  My goal is to be fully informed of the issues and know the detailed processes and procedures for working with and through the banks.  Experts who understand this can close a short sale in a much quicker time frame (weeks or a few months rather than 6 or more months). 
 
What is the Problem Anyway?
 
Today, more homeowners than imagined are in some sort of financial distress. Historically, at any given time, there are always a certain percentage of homeowners that can’t pay their mortgage. In a healthy market, typically 1 to 3% of properties fall into this category. Today, this number is frighteningly higher; as many as 1 out of 25 homes are at some stage of the foreclosure process.
 
Not only have foreclosures been going up exponentially since 2005, so are defaults or missed payments before the foreclosure process begins.  It is important to note that as part of this debacle, mortgages actually were being written and closed where homeowners could not even make the first payment.  Nationally, 1% of all mortgages (ARMs, non-ARMs, sub-prime and conventional) are in foreclosure and 6.35% are not making payments.  
 
Right now, an estimated 1.15 million homeowners are at some stage of the foreclosure process, and 5.6 million are 30+ days late on their payments.  This translates into almost 6.76 million homeowners being in some sort of financial distress.  This number is huge given that the National Association of Realtors estimates that in 2008 approximately 5 million properties will sell in the U.S. 
 
In a HousingWire article released September 2, 2008, there is grave concern since Option ARM loans will soon reset.  The facts are:
  • $96 billion in Option Arms will reset by 2010;
  • 90-day+ delinquencies, already ranging from 10-24% could more than double;
  • The potential payment increase on these loans will be 63%; and
  • Option ARM defaults are expected to spread into more expensive neighborhoods & higher priced homes.
In data released by HOPE NOW on August 28, 2008, it is clear that problems have spread to prime credit borrowers as well.  Recently, prime foreclosure starts moved ahead of subprime foreclosure starts.  In July 2008, foreclosures were initiated on 105,000 prime borrowers and 92,000 subprime borrowers.  These starts on prime foreclosures are more than double the same time last year and are 10% higher than in June 2008.  Subprime starts are up 22% over last year and 10% since June as well.
 
The goal in earning my designation as a Certified Distressed Property Expert is to help people find solutions to their financial problems well in advance of the foreclosure process starting.  If a homeowner qualifies for a Short Sale, there are huge benefits to going that route -- most importantly little to no blemish on your credit report, you typically can negotiate the deficiency with the bank and today, if your home is a primary residence and less than $2 million, you do not have to pay tax on the deficiency.
 
If you want to learn more about Short Sales, contact Team Jodi at www.ShortSalesInNC.com.

The Mortgage Report

It is an interesting time in the mortgage business. Subprime loans have all but disappeared and most 100% financing loans are gone, however, there are still some great mortgage products available. These include:

Conventional mortgages have fixed or adjustable rates and go up to a loan amount of $417,000. These loans typically require the borrower to put at least 5% down. Today, the 30 year fixed rate is about 6%, and 5/1 adjustable rate mortgages are about 5.5%.

FHA mortgages are insured by the government and provide for loans up to $331,250 in Durham and Orange counties. The great thing about FHA is the borrower only needs to put 3.5% down, and the down payment can be a gift from a family member. Under FHA guidelines the seller is able to pay up to 6% of the purchase price towards the buyers closing costs.  FHA allows for people with less than perfect credit, often as low as a 560 credit score, to qualify for a home.
USDA (United States Department of Agriculture) 502 Guaranteed Rural Housing Loans still provide for 100% financing, provided the house is located in a rural area. To determine if a property is located in a rural area, go to http://eligibility.sc.egov.usda.gov/eligibility/incomeEligibilityAction.do and under property eligibility key in the address. If the property is eligible, then check under income eligibility to see if you meet the program guidelines. For instance, all of Chatham County is considered rural and the income limit for a family of four is $82,000 per year. This program allows for credit scores down to 580.
VA loans are available to veterans and active military, and provide 100% financing up to a purchase price up to $417,000. VA will allow the seller to pay up to 6% of the purchase price towards the buyers closing costs, allowing the veteran to buy a home with little or no money out of pocket.
Currently the rates on fixed jumbo mortgages are over 7%, but there are some great rates available on 5 year jumbo arms at about 5.75%. 
If you have questions on these products or any mortgage scenario please give me a call.
 
Kearny Davis
919-869-8210
Carolina Home Mortgage

Contact Information

Photo of Team Jodi Homes for Sale
Team Jodi
The Home Team
1721 E. Franklin Street
Chapel Hill NC 27514
919-672-4377
Fax: 1-877-206-5036