Short Sales

S&P Lowers Fannie, Freddie Credit Rating-Daily Real Estate News | Tuesday, August 09, 2011

Standard & Poor’s downgraded the credit rating of lenders backed by the federal

government on the heels of the first-ever lowering of the U.S.’s credit rating.

Fannie Mae, Freddie Mac, and other government-backed lenders were lowered one step from AAA to AA+, S&P reported in a statement issued Monday. Some analysts say the downgrade may force home buyers to pay higher mortgage rates.

“The downgrades of Fannie Mae and Freddie Mac reflect their direct reliance on the U.S. government,” S&P said in a statement. “Fannie Mae and Freddie Mac were placed into conservatorship in September 2008 and their ability to fund operations relies heavily on the U.S. government.”

The GSEs own or guarantee more than half of U.S. mortgage debt.

Freddie Mac said that the lower debt rating will cause “major disruptions” in its home-lending by possibly reducing the supply of mortgages it can purchase. It said in a Securities and Exchange Commission filing that the lower rating could hamper home prices and even lead to more home-loan defaults on mortgages it guarantees.

Meanwhile, the Federal Housing Finance Agency on Monday assured investors that securities issued by GSEs are sound. “The government commitment to ensure Fannie Mae and Freddie Mac have sufficient capital to meet their obligations, as provided for in the Treasury’s senior preferred stock purchase agreement with each enterprise, remains unaffected by the Standard & Poor’s action,” said Edward DeMarco, FHFA acting director.

Some analysts and lenders have said they don’t see the fallout from the S&P downgrade on the U.S. and other banks as having such a widespread affect. “It’s likely that once the storm passes, you’ll get an increase in mortgage rates because of this, but it won’t be significant,” says Anika Khan, a housing economist at Wells Fargo.

S&P also announced on Monday that it had lowered its credit ratings for 10 of 12 federal home loan banks and federal farm credit banks from AAA to AA+.

Source: “S&P Lowers Fannie, Freddie Citing Reliance on Government,” Bloomberg (Aug. 8, 2011); “S&P Downgrades Fannie and Freddie, Farm Lenders and Bank Debt Backed by U.S. Government,” Associated Press (Aug. 8, 2011); Freddie Mac Reports $4.7B Loss, Says S&P Downgrade Will Disrupt Mortgage Market,” Associated Press (Aug. 8, 2011); and “FHFA Assures Investors After Fannie, Freddie Downgrade,” HousingWire (Aug. 8. 2011)

Read More:
Will the S&P Downgrade Affect Interest Rates?


19. Jul, 2011

FTC Rules That Real Estate Agents No Longer Have To Comply with the Mars Advertising Rules

Just a few short months ago, the Federal Trade Commission (FTC) issued the new M.A.R.S. rules and specifically determined that these new rules would be applicable to real estate agents who list short sale properties. This would require that all the mandatory advertising disclosures be included in all short sale marketing materials. On July 15 the FTC commissioners voted 5 – 0 to stop enforcing most provisions of the new rules against real estate brokers and their agents who assist financially distressed consumers in obtaining short sales from their lenders or servicers.

As a result of the stay on enforcement, real estate professionals will no longer have to make the disclosures required by the rule if they are assisting with the listing or purchase of short sales. It had become evident that the new disclosures were in the context of short cells misleading and confusing consumers and was having the inadvertent effect of discouraging real estate professionals from helping consumers with these types of transactions when more and more American homeowners are seeking assistance with short sales.

Commission stated that the stay of enforcement apply only to real estate professionals who are 1) are licensed and in good standing under state licensing requirements; 2) comply with state laws governing practices of real estate professionals; and 3) assist or attempt to assist consumers in obtaining short sales in the course of securing the sales of their homes. The stay exempts real estate professionals who meet these requirements from the obligation to make disclosures and from the ban on collecting advance fees. Agents however, will remain subject to the rules ban on misrepresentations. The commission further stated that the stay does not apply to real estate agents who provide other types of mortgage assistance relief such as loan modifications.

I guess that this is another example of the government hurriedly writing and passing rules to protect consumers from foreclosure scammers without really considering their impact or even asking for input on how the new rules would work in the real world. Because of this lack of foresight, tens of thousands of short sale agents around this country with almost no advance notice were forced to change all their advertising and marketing at great expense or risk violating federal law. Now the rules are as they were before M.A.R.S. was implemented. To read a copy of the FTC’s news release go to

Raising Debt Ceiling Critical for Real Estate

In a letter issued to President Obama and members of Congress, a diverse group of national business leaders, including Realogy CEO Richard A. Smith, called on lawmakers to raise the $14.3 trillion U.S. debt ceiling and commit to a deficit reduction plan.

Experts have said that failing to increase the debt ceiling would not only have significant implications on the economy in general, but also real estate. If the government defaulted on its bonds, the government likely would have to raise interest rates dramatically, which would in turn hamper home ownership. (Read more at Speaking of Real Estate.)

“It is critical that the U.S. government not default in any way on its fiscal obligations,” the business leaders wrote in the letter to lawmakers. “Treasury securities influence the cost of financing not just for companies but more importantly for mortgages, auto loans, credit cards, and student debt. A default would risk both disarray in those markets and a host of unintended consequences.”

The letter was signed by several associations and companies, including Realogy, the Business Roundtable, the U.S. Chamber of Commerce, the Financial Services Forum, the National Association of Manufacturers, and others.

Also in the letter, the group called on lawmakers to reduce the nation’s long-term budget deficits. “As businesses make plans to invest and hire, we need confidence that, in the absence of a crisis, our government will not reverse course and return to large deficit spending. … Now is the time for our political leaders to put aside partisan differences and act in the nation’s best interests,” the letter stated. “We believe that our nation’s economic future is reliant upon their actions and urge them to reach an agreement. It is time to pull together rather than pull apart.”

Read more:

‘No’ on Debt Ceiling Would Clobber Real Estate

Don’t Let Myths Get the Best of Your Clients

By Erica Christoffer, Multimedia Web Producer, REALTOR® Magazine

turning-myths-into-moneyThe only way you’ll be winning the real estate game is if your clients are. Industry veteran Richard Steinhoff wants to help you help them. With more than 30 years under his belt, Steinhoff drew from his plethora of client-centric experiences to write his new book, Turning Myths into Money: An Insider’s Guide to Winning the Real Estate Game. He’s blowing open misconceptions and busting myths that may be tripping-up your clients’ real estate process.


Q&A with Richard Steinhoff:

How did you get your start in real estate?

Steinhoff: I had a friend who just got their real estate license and they needed some help getting a house sold. I already had a college education and I decided to get my broker license. We opened our own office and that’s how I got started. My specialty was in commercial, but our office dealt with both residential and commercial real estate and we grew to have about 40 agents.

I’ve wanted to write a book for years and my daughter always encouraged me. When the market took a turn and I started to see all this bad information out there, it became apparent that this was the right time to write a book that helps people by giving them good advice from someone inside the real estate industry.

You include 90 real estate myths in your book. Which ones, in your opinion, are the most important to understand?

Steinhoff: I originally write more than 100 myths, but we cut them down to 90. There’s a whole section on how to find a good agent. Also, the section on short sales and foreclosures are must-reads for people.

What do you cover in the short sale section of your book?

Steinhoff: Well, it’s a complicated field. The book covers the basics, what people’s options are, and what sellers need to do to qualify for a short sale. I discuss the difference between short sales and foreclosures. People don’t always have to go through a foreclosure–there are other options. I also outline the tax implications of a short sale and how it affects a seller’s credit. The whole process of how a short-sale is handled is outlined in the book, including the type of documentation that lenders require.

Short sales are taking an average of 90 days to complete now. I don’t think they should be called short sales anymore, because they are in no way short. But I really like the first myth under the short sale section: “Tall People Can’t Utilize a Short Sale.” There’s a lot of humor like that throughout the book, which gets people’s attention. I also offer a lot of tips on transaction dos and don’ts.

How do you think a real estate professional can benefit from this book?

Steinhoff: It’s beneficial for agents just entering the business to get a footing on the misconceptions that are out there and how to handle objections. But it’s really a beneficial gift to give your clients. I’ve given one to every one of my clients. There’s so much information packed in there, you’ll continually hear people having “ah-ha moments.”

It’s not written like a text book; I incorporate a lot of humor, graphs and charts, as well as tips – pre-emptive tips. Plus, it really explains to clients why they should use a REALTOR®. A lot of articles in the newspaper and in the media just skim over the basics of things. Your clients need more than text book answers to things. They need to know what’s happening in the trenches.

I think a lot of REALTORS® would appreciate you covering Myth #67: Should I Wait for Prices to Increase Before Selling? What advice do you have for agents trying to communicate this issue to their clients?

Steinhoff: Right now so many people are waiting. Buyers are waiting for prices to go down and sellers are waiting for prices to go up. But here’s the thing: interest rates have a much higher impact on what people will pay. It would help for buyers to understand that if the price for a median value home (nationally) goes down 5 percent, assuming the interest rate is the same, your payment would only go down about $40 per month. On the other hand, if the interest rate goes up just half a point, their payment would go up $45. So the client could actually be losing money by waiting. And sellers are going to have a long wait if they are waiting for prices to come back up. They may be waiting five or six years.

The entire “Selling Lessons” section looks particularly helpful and could be incorporated in listing presentations. What practices do you reinforce in that section?

Steinhoff: The segment about offers–I don’t think a lot of people understand that process. For real estate professionals, because this is in print, the book can serve as a verification source and an authority when you’re making your presentation, to back-up your advice to clients.

When you were doing research for your book, was there anything that surprised you or that you learned?

Steinhoff: What I learned most about was about government programs such as HAFA and HAMP, but they’re not working. People are not using them. I think it takes so long that people end up losing their house before they qualify and the program can do anything. They were expecting to help 8 million people and maybe a few hundred thousand have actually been able to utilize those programs.


Myth #28: Short Sales are Simple and Easy

Fiction: A short sale is a transaction in which the lender agrees to allow the borrower to sell the property “short” of the balanced owed on the loan. Hence, the term “short sale.” In this situation, the owner’s mortgage balance is greater than the probable sales price of the home. Since the lender has not yet foreclosed, this creates a window of opportunity for the owner to sell the property on their own.

It is, however, a complicated process. The biggest problem in a short sale is that the home owner must persuade his lender to discount the loan.

It becomes even more complicated when there is a second mortgage and/or an equity line. These lenders must also agree to discount their loans.

Not an easy task, as you might imagine.

The process starts when the home owner receives an acceptable offer. He must then submit a “Short Sale Package” to each of the lenders. This package consists of numerous components, as outlined in Figure 3.1, and is typical of what REALTORS® submit to lenders. If any element is missing or incomplete, the process will be delayed. The key ingredient is the seller’s hardship letter. A sample seller’s hardship letter is shown in Figure 3.2.

The large increase in number of short sales has created a new job title:

Short Sale Negotiator: This is an individual who will, for a fee, negotiate with your bank to obtain a reduction in the amount of their loan. He must, however, have a real estate license and work for a broker.

Once the lender agrees to a short sale, they will issue an “Approval Letter” stating the terms they find acceptable. An example of a lender’s approval letter is shown in Figure 3.3.

You might ask why lenders would ever agree to discount a loan. There are many reasons, but the primary consideration is that they will lose less money than by going through the lengthy foreclosure process.

Once the lender’s approval letter is received, you can open escrow (if you are in an escrow state) and proceed with the transaction in the usual manner. If you are in a state that doesn’t use escrow, you proceed with the transaction in the usual manner.

TIP: Make sure your agent is trained and certified in handling short sales.



A Dodd-Frank report card

By Kelli Galippo • Jun 28th, 2011 • Category: real estate newsflash

The one-year anniversary of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) is swiftly approaching, and government officials, lawyers and media outlets are all anxiously tracking the progress of regulations being formulated to implement the required changes.

So far, 28 deadlines for the drafting of new regulations have been missed. Of the 385 new rules to be written, only 24 have been completed.

It has become undeniable that many on Wall Street (and in Congress) are using highly-paid, aggressive lobbyists to resist the changes demanded by Dodd-Frank. As a result of the delays, most of the new safeguards may not become effective until after the next election — giving newly-elected officials (supported by lenders) an opportunity to stop them altogether.

Regulators overseeing the transition process of the overhaul are struggling to discern whether the requests to slow the process down are genuinely in the interest of the consumer or just excuses for delay conjured up by those with only an interest in their own pocketbooks.

first tuesday take: Dodd-Frank is going to take longer to implement than expected. We anticipated lenders (and choice members of Congress) would do whatever they could to slow or kill the process. For them, lending is all about how much money can be taken from the consumer. Lenders are part of the rentier society that makes money simply by having money, versus the American homeowners who must contribute their skills to society and “rent” the money they need from the rentiers.

Among the many changes, (Dodd-Frank) strictly defines a qualified residential mortgage (QRM) as a Real Estate Settlement Procedures Act (RESPA)-controlled loan (for personal purposes, not business-related) which is not a Section 32, high-cost RESPA loan typical of equity loans and private money non-business loans. Tighter parameters will be placed on a borrower’s ability to obtain a mortgage not in the QRM category. [For more information regarding the Dodd-Frank changes, see the October 2010 first tuesday Legislative Watch, TILA circa 2010; consumer protection enhancement; for more information about the QRM, see the May 2011 first tuesday article, How much medicine can the sick housing market stomach?]

These tighter lending standards and increased consumer protection measures mean less business for lenders who made a killing during the Millennium Boom originating subprime loans and adjustable rate mortgages (ARMs).

Furthermore, the legislation prevents mortgage loan brokers (MLBs) from being compensated through yield spread premiums, or undisclosed kickbacks in an effort to remove MLB incentives for originating mortgages homebuyers can’t afford to repay. This is a good thing, which many MLBs remaining in the business acknowledge. Those who participated in the carnage have mostly lost their licenses or let them expire. [For more information regarding kickbacks, see the October 2010 first tuesday article, How to make money as an endorsed, registered, law-abiding RESPA mortgage loan broker.]

It is crucial for regulators to remember the purpose of these changes is to protect the mortgage borrowers. Further delay of the changes leaves homeowners and homebuyers vulnerable to the game played and (thus far) always won by lenders.

Re: “Financial overhaul is mired in detail and dissent” from the NY Times

California tiered home pricing

By Bradley Markano • Jun 29th, 2011 • Category: Charts


Charts are updated monthly. There is a two-month lag in reported data.

Chart last updated 6/29/11

Chart last updated 6/29/11

  April 2011 March 2011 April 2010
Low Tier
Mid Tier
High Tier

Chart last updated 6/29/11

Chart last updated 6/29/11

  April 2011 March 2011 April 2010
Low Tier
163 163 163
Mid Tier
170 170 178
High Tier
169 169 174

Chart last updated 6/29/11

Chart last updated 6/29/11

  April 2011 March 2011 April 2010
Low Tier
112 112 118
Mid Tier
132 130 143
High Tier
142 140 148

Chart last updated 6/29/11

Chart last updated 6/29/11

  April 2011 March 2011 April 2010
Low Tier
144 144 148
Mid Tier
152 152 162
High Tier
155 154 161

The above charts track sales price fluctuations of single family residence (SFR) resales in California’s three largest cities. Each city’s sales prices are organized by price tier, giving a clearer picture of how price movement in each tier of the market has developed over time.

Nationwide, March 2011 saw the lowest home prices during this recession, as reported by Standard and Poor’s (S&P). Prices hit new lows in eleven major cities, and dropped in all cities reported except for Washington, D.C.

As the S&P figures charted below indicate, prices in California’s three top cities—unlike the majority of the nation—remain somewhat higher than their worst days, when they bottomed in April and May of 2009. Nonetheless, California is trending toward the “double-dip” real estate recession currently rippling through the national housing market. Home pricing tiers reported in California remained stagnant or slipped in March 2011, and barely rose in April.

The waffling of sales volume and prices is part of the bumpy plateau recovery we will experience well into 2013.

Readers who want to understand the “big picture” of the disparity between low-, middle- and high-tier sales fluctuations will find the Standard & Poor’s/Case-Shiller home price index, represented above, to be an invaluable source of information and price comparisons for California’s three major cities. These charts track changes in specific tiers of property, so you can see how specifically comparable ranges of the market perform in comparison to one another.

Can a New HUD Program Save Home Owners?

In June, the Department of Housing and Urban Development launched a new grant program to help home owners who have fallen behind on their mortgage payments due to unemployment or unexpected medical bills.

The program offers eligible home owners $50,000 in interest-free loans for up to two years.

HUD has until the end of the government’s fiscal year, Sept. 30, to spend all of its $1 billion for the Emergency Homeowners’ Loan Program (or EHLP), which will provide 27 states with aid for the program. Home owners in eligible states have until July 22 to complete their applications.

HUD hopes that 30,000 home owners can be helped through the program.

However, while some are seeing the program as a last chance to help unemployed home owners stay in their homes, others aren’t as convinced the program will do much good in ultimately lessening foreclosures in the country.

“The best foreclosure mitigation program in America is a job,” argues Rep. Jeb Hensarling, R-Texas. “It’s not a government check, it’s a paycheck.” Earlier this year, Hensarling sponsored a bill to end EHLP, which was supported by the House. The Senate has yet to take up the bill, however.

For a full list of states and eligibility requirements for EHLP, visit the HUD Web site.

Source: “HUD to Give Away $1 Billion to Struggling Home Owners,” The Washington Post (July 4, 2011)

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