Charlotte Real Estate, Foreclosures, Short Sales

Top Seven Reasons Banks Aren't Lending Money.

Easy to Qualify Loans are a Thing of the Past

Oh, I remember the days of sold signs everywhere throughout Charlotte and the surrounding areas. This was coupled with 100% financing loans, pick-a-payment, low doc, no doc, and yes...the extended LTV loans. As a loan officer,it sometimes felt like Christmas each day waking up to see what new loan products were available to broker. The most incredible? A low doc 125% LTV? Well, I never brokered it, but it was definitely a conversation starter.

So now, 2010 and an entire shift in the economy later, we have buyers trying to buy homes that are flooding the market and lenders with moving target underwriting guidelines. So what's the scoop on financing these days? According to a recent Federal Reserve survey, it was found that about 75% of the banks surveyed indicated they had tightened their lending standards for prime, sub-prime and commercial mortgages. That was up from about 60% in the previous survey.

According to RISMedia, below are the top 7 reasons why buyers aren't getting loans:

1. Poor credit: Obtaining a conventional loan has become more challenging. Regardless of a heavy down payment or excellent equity built-up in their house, banks want to see a strong credit history. According to CNN, FHA (Federal Housing Administration) loans, which have traditionally catered to borrowers with lower FICO scores, have an average borrower credit score of 693, which is above the national average.

2. Insufficient liquidity:  Low reserves of money aren't attracting approvals for loans. Lenders are wanting to see a sizable down payment and a strong reserve of money.

3. Lack of income: The borrower doesn't have consistent proof of income for the last two to five years. Good credit is not a free pass anymore. Regardless of how good their credit score is or how much equity they have in their home, if they can't show the bank proof of income, loan approval will be tough.

4. Lying on the application: Banks are not interested in hearing stories and lies any longer.

5. Debt: Borrower has excessive debt and their debt-to-income ratio exceeds the bank's guidelines.

6. Unemployment: Most lenders will like to see at least two years of stable work to issue loan approval.

7. Self employment: Lenders are looking at self-employed applicants with a lot more scrutiny these days, making it very tough for these borrowers to get approved.

So what's a buyer to do? Private Funding?

Some buyers and their Realtors are turning to Noteflo. "With the strict underwriting guidelines banks are governed by these days, private lending is the wave of the future for getting real estate loans funded," explains Eric Wohl, president of NoteFlo, an online private lending marketplace launching today. NoteFlo's unique service allows borrowers to post loan funding requests for free, which will be broadcast out to thousands of private lenders that will bid for the opportunity to fund their loan. "Our goal is to make sure borrowers know that they have plenty of other options if their loan application is denied by a traditional bank," says Wohl.

However it can be accomplished, getting a loan and buying a home in this real estate market has been the smartest move ever for most buyers and investors.

What's the Latest in Foreclosure News?

10 States make up more than 70 percent of the national total of foreclosures.   According to a RealtyTrac report, California, Michigan, Florida, Nevada, Arizona, Georgia, Idaho, Illinois, Utah and Maryland have the highest foreclosure activity in the nation. 

California alone accounts for more than 22 percent of the national total.  California had over 72,000 properties receiving a foreclosure notice during this one month alone. 

Default notices, scheduled auctions and bank repossessions were reported on 322,920 properties in May 2010.  One in every 400 U.S. housing units received a foreclosure filing during the month of May.

Bank repossessions hit a record monthly high for the second month in a row.  There were a total of 93,777 U.S. properties repossed by lenders during the month, an increase of 44 percent from May 2009.

Where does Charlotte rank in foreclosures?

According to RealtyTrac, the number of foreclosures in N.C. fell about 35% in May from the same period last year.  The state of N.C. had 2,587 foreclosures in May 2010.  One in every 1,595 homeowners received a default notice, auction sale notice or bank-reposession filing.

N.C. ranked 36th in the nation for foreclosure filings in May of 2010.

What does this mean for N.C. homebuyers?

It means that home purchases are picking up and buyers are feeling more comfortable buying homes in North Carolina.  According to the data from the National Bureau of Economic Research, it appears that mortgage rates have not been this low since the summer of 1956.  The national 30-year benchmark for fixed-rate mortgage fell to 4.88 percent this week.

For a free short sale home list and guide, visit  

The increase in strategic defaults will have a huge impact on the recovery of the housing markets.  "Strategic defaults", the intentional non-payment on the borrower's behalf to avoid making payment on a home that has an upside down mortgage, but still makes the credit card payments and auto loan payments on time. 

The Morgan Stanley report estimates that 12% of mortgage defaults in February were strategic. Other reports estimate an even higher proportion of this type of loan default.

The problem with with strategic defaults is that is causes a contagion effect.  According to Sam Khater, senior economist for CoreLogic, a provider of consumer, financial and property information, as more and more homeowners watch friends and neighbors walk away from their homes, it becomes more socially acceptable to do so.  The result? Serious ramifications on personal credit histories, the health of neighborhoods, and the entire future of mortgage lending.

"If you know someone who has defaulted strategically, you're more likely to declare you're willing to do it," said Luigi Zingales, professor of entrepreneurship and finance at the University of Chicago's Booth School of Business.

There are many options available to avoid foreclosure.  We have put together a number of guides with information on seller options to include:

Avoiding Loan Modification Disasters and a HAFA short sale guide on the new government short sale program.  It includes information on relocation assistance money and lease-purchase home options.

How Much Time Do You Have?

Help is available for homeowners who own a home with a mortgage insured by the Federal Housing Administration (FHA).  If you are finding it difficult to keep your mortgage payments current or if you are actually in default, you may be able to take advantage of the FHA Pre-foreclosure Sale (PFS) Program to sell your home.  What does it require?

To participate in the program, homeowners must be willing to commit to actively market their home for 3 months.  During the marketing of their home, the lender will delay foreclosure proceedings.  Once the home is successfully sold close to present fair market value, the homeowner may receive a cash payment from FHA of up to $1,000.00 to help the homeowner transition to more affordable housing. 

A similar program is available for homeowners with a mortgage guaranteed through the Veterans Administration.  The VA Compromise Sale Program will help homeowners avoid foreclosure. 

 Some of the requirements for the VA Compromise Sale include:

• The property must be sold at fair market value.
• The closing costs must be reasonable and customary.
• The compromise sale must be less costly for the Government than a foreclosure.
• There must be a financial hardship on the part of the seller.
  

Do you need more help?  Do you need more information on this program and other programs to avoid foreclosure?

Yes, I need more help.  I need information on short sale, HAFA, HAMP and loan modification programs.

Will new the HAFA program help or hurt?  It's unknown what affect it will have on our housing industry until we see how banks handle the "approved" short sale process.  The HAFA, Home Affordable Foreclosure Alternatives Program takes effect on April 5, 2010. 

The program is geared towards helping homeowners avoid foreclosure by giving servicers, sellers and junior lien holders incentives to short sale the homeowner's home.  The main goal is to streamline these transactions into a short sale or deed-in-lieu of foreclosure when a homeowner is unable to keep their home under the HAMP, Home Affordable Modification Program.

I'm confused.  In working in real estate and mortgage for over 12 years, I'm confused as to how this helps the homeowner.  HAMP is an external program, independent of the servicer's in house loss mitigation department. 

Will homeowners understand that if they fail the waterfall test.  Below is an understanding of how the "Waterfall" process determines whether or not a loan is eligible for a loan modification under the HAMP program.

• Capitalize accrued interest and other eligible expenses to determine the modified loan amount.
  
• Reduce the interest rate to reach the 31% target housing debt-to-income ratio in increments of 0.125% subject to an interest rate floor of 2%.
  
  
• If the 31% target housing ratio has not been reached, extend the term of the loan up to a maximum of 40 years.
  
• If the 31% target housing ratio has not been reached, then reduce the principal through an agreement between the borrower and the servicer. This agreement (forbearance agreement) would require that the amount of principal reduction be set as a balloon payment at the end of the loan term or when the loan is otherwise paid off.

Okay, back to my confusion...

Will homeowners understand that they do not have to accept a fail from the HAMP program and move directly to liquidation.  Will borrowers move to loss mitigation before or after the "HAFA Sell"?
Initially, I thought the any new programs introduced would be as an enhancement to the HAMP program since the ratio of borrowers to those applying for loan modifications are so low.  I guess foreclosure alternative is supposed to help the homeowner.  I think more homeowners will feel otherwise.

Which Loans Are Eligible?

The Home Affordable Foreclosure Alternative Program provides short sales guidelines for loans not owned or guaranteed by Fannie Mae or Freddie Mac (those agencies are expected to release their own, similar guidance). The following conditions also must be met:

•  The property is the borrower's principal residence.
• The mortgage loan is a first lien mortgage originated on or before Jan. 1, 2009.
• The mortgage is delinquent or default is reasonably foreseeable.
• The current unpaid principal balance is equal to or less than $729,750.
• The borrower's total monthly mortgage payment exceeds 31 percent of the borrower's gross income.