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Want a loan modification? Get your paperwork ready.
Your woes do not end with delinquency. You now need to get better at your paper work too, if you want to avail the administration’s mortgage modification program. With effect from June 1, New Treasury Department guidelines require loan servicers to verify applicants’ income and financial hardship before placing them into trial modifications. This will make it much tougher to get temporary relief from unaffordable mortgage payments. But if you make it into a trial modification, you’re more likely to get long-term assistance, providing you send in your check on time. Of the 1.2 million people who’ve started trial modifications, fewer than 300,000 have received permanent assistance. Another 278,000 have washed out of the program either because they didn’t send in timely payments, hand in the required documents or meet the eligibility criteria.
Paperwork has caused all sorts of problems for the president’s signature foreclosure rescue program. In order to get the effort off the ground quickly, administration officials allowed servicers to place people in trial modifications before verifying that they were indeed eligible for the program. Many homeowners have been stuck in trial modifications for months and months while they wrestle with servicers over the documentation requirements. The financial institutions say that borrowers aren’t sending in the needed forms; homeowners contend the servicers are losing them. Many loans didn’t require much documentation when they were originated, which makes gathering the paperwork during the modification process that much more difficult, said Paul Koches, executive vice president at Ocwen. The pace of people entering trial modifications has already slowed as servicers have started requiring the paperwork in advance. Only 47,160 trials were started in April, down from more than 72,000 in February. Among the documents Chase and other servicers require are hardship affidavits, two recent pay stubs, a bank statement, a tax return, proof of occupancy and a 4506T-EZ form.
Congress Has Hands Full With FinReg Compromise Bill
The upcoming conference to merge the House and Senate bills on sweeping financial reform, has the potential to be both fractious and divisive with a number of minefields to cross. Amendments–tacked on or ignored during earlier rounds—will be disposed of, adding to the existing frustration of Senate members in particular. “There are too many issues to horse trade on,” says bank analyst Bert Ely. “What’s going to happen is that because the Senate bill was so poorly drafted—there was no committee markup…is that many portions of the bill will be substantially rewritten in resolving the differences.” Meanwhile, additions will be made, even though the bills already run 1,400-1500 pages.
Republican conference members are also already setting the table. Sen. Bob Corker of Tennessee—who negotiated with Dodd for weeks at the committee level and is a conference member—has already criticized the President for taking a non-partisan approach, while Sen. Judd Gregg has called the bill “a disaster.” And, if all this weren’t enough, extraneous events and personal circumstances may play a sizable role in the negotiations and their outcome. Potential minefields include, the Derivatives Regulation that covers personal fortune, politics and policy converge, the so-called Volcker rule—whose primary purpose is to limit the proprietary trading of big firms, Capital Requirements amendment by Maine Republican Susan Collins, that would essentially tighten capital requirements for banks and Consumer Agency Exemption by Sen. Sam Brownback of Kansas, who wants auto dealers exempted from new regulations that would protect consumers from abusive practices in the sale of financial products.
Diana Olick – Are Investors Souring on Housing?
“Last year, when the rest of the nation’s housing was still reeling from recession, California started to show signs of life. Sales increased and prices stabilized, despite the fact that it was one of the hardest hit states with one of the highest foreclosure rates. California’s savior was investors. They came in fast, cash in hand, and started snatching up distressed properties at a fast pace. That interest appears to be waning. While sales of existing homes shot up across most of the nation in April, they fell in the West, down 6.2 percent. “The sales are lower because of lack of inventory on lower-priced homes,” says Lawrence Yun of the National Association of Realtors. “The California market was one of the first markets to go down sharply but also the first market to rebound.” The inventory of low-priced homes is low because of big investor demand initially and because banks are being very careful with REO (bank owned) properties, releasing them slowly onto the market so as not to tank prices. But that’s not all of it. “We know the tax-credit has pushed low-priced houses up sharply and investors have backed away big-time in recent months, not wanting to compete with a bunch of first-timers and their Obama coupons,” says mortgage analyst Mark Hanson. “Perhaps this is the end of the demand cycle from first timers and investors who have had their fill.”
On the other hand, some of the numbers may be skewed due to the increasing prevalence of short sales, where the bank allows the home to be sold for less than the value of the mortgage. “The proportion of damaged foreclosed properties or so-called real estate owned (REO) sold during April plunged,” according to the latest Campbell/Inside Mortgage Finance Monthly Survey of Real Estate Market Conditions. “Damaged REO accounted for 15.4 percent of transactions in March, but only 12.8 percent in April. One reason for the drop in damaged REO may be increasing numbers of short sales.” Now that the tax credit is over, and foreclosures are moving through the bank pipelines more quickly, perhaps investors will come back in larger numbers. Prices are certainly low enough!”
Consumers Hold Their Wallets Tight
U.S. consumer spending was unexpectedly flat in April, a government report showed on Friday. The Commerce Department said spending was the weakest since September, when it fell 0.6 percent, after increasing by an unrevised 0.6 percent in March. Analysts polled by Reuters had expected consumer spending, which normally accounts for over two-thirds of U.S. economic activity, to increase 0.3 percent last month. Spending adjusted for inflation was also flat in April after a 0.5 percent increase the prior month, the Commerce Department said. Personal income rose 0.4 percent, the report showed, after rising by the same margin in March. Markets had expected income to rise 0.5 percent last month. The saving rate rose to 3.6 percent from 3.1 percent in March. Savings rose to an annual rate of $398.5 billion. The report also showed the personal consumption expenditures price index, excluding food and energy, rising 1.2 percent in the 12 months to April, the smallest rise since September. The index, which is a key inflation gauge monitored by the Federal Reserve, increased 1.3 percent in March.
Mortgage Lenders Seek Relief on Bad Debt Repurchases
Mortgage lenders are seeking relief from Fannie Mae and Freddie Mac as the government-supported companies force them to buy back more soured debt, said John Courson, president of the industry’s largest trade group. The Mortgage Bankers Association has started to “aggressively” push the two companies and their regulator to ease up. Fannie Mae and Freddie Mac, propped up by unlimited taxpayer capital, should acknowledge lenders are unfairly absorbing too many losses, with unemployment that reached a 27- year high among the causes of defaults unrelated to loan quality. Last quarter, the companies forced lenders to repurchase $3.1 billion of loans, up 63 percent from a year earlier, after defaults surged to the highest since the Great Depression, according to regulatory filings. Bank of America Corp. and JPMorgan Chase & Co. are among banks that reported setting aside money to cover such demands.
Freddie Mac, based in McLean, Virginia, had $4.8 billion of repurchase requests pending as of March 31, up from $3.8 billion on Dec. 31. Washington-based Fannie Mae hasn’t made a similar disclosure. The company is creating new upfront lender requirements to “promote improved loan delivery data that is complete, accurate, and fully reflective of the terms of the mortgage,” which should reduce future repurchase demands, said Janis Smith, a Fannie Mae spokeswoman. The so- called loan quality initiative takes effect June 1. The U.S. government seized Fannie Mae and Freddie Mac, which own or guarantee almost $5 trillion of U.S. housing debt, in September 2008, and has guided their actions during their so called conservatorships. They’ve drawn $145 billion in aid from the Treasury Department.
State Group Estimates 37% of California Foreclosures Involved Renters
The foreclosure crisis in California has taken a toll on not only homeowners, but a large number of tenants in the state. According to a new study from Tenants Together, California’s statewide organization for renters’ rights, at least 37 percent of residential units in foreclosure in the Golden State last year were rentals, directly affecting over 200,000 tenants – most of whom were displaced. Tenant Together’s research is based on California property records for every foreclosure in 2009, and the organization says its estimates are “conservative.” The report – California Tenants in the Foreclosure Crisis Report – concludes that while the largest percentage of renter-occupied foreclosed properties were single-family homes, the percentage of renter-occupied, multi-unit buildings is growing at a faster pace. The organization says this trend is likely to increase as more loan modification programs target owner-occupied properties, which are primarily single-family homes and condominiums, while multi-unit rental properties continue to fall by the wayside and into foreclosure. Tenants Together says that the new federal law Protecting Tenants at Foreclosure Act comes short of providing long-term security for tenants and has been mired by implementation problems arising from banks’ non-compliance with the new law. Among the various proposals, the report notes that ‘just cause for eviction’ laws are a particularly effective and cost-free way to stop the displacement of tenants whose lenders have been foreclosed on and provide greater stability to California communities.
Now on to our real estate education section…
Friday File – Assessing a Mobile Home Park
This week we have explored the commercial side of short sales with a special look at the use of mobile home parks as one easy entry into a frequently ignored alternative. For today’s Friday file we will show a quick and easy way to assess whether or not a mobile home park would enhance your portfolio. Not only are a large number of “mom and pop” parks wanting to retire but many larger properties are coming on the market thanks to REO and generalized foreclosures. Use these quick calculations to compare the cost and outcome:
1. Determine the Density. Expect an average density of roughly 4 to 10 units per acre. Long term residential areas tend to be less dense while part-time, resort and/or RV rental areas tend to be more dense.
2. Decide who will be responsible for utilities? If tenants will pay for the utilities, multiple the average monthly lot rent by 70. If the investor will pay for utilities, multiple the average monthly lot rent by 60. These are industry norms with a built-in “cushion”.
Tip: Average monthly lot rent for most mobile home parks average $250 to $400 per month. So, if you own a ten acre mobile home park that has 40 units and rents for $300 per month with tenants paying utilities, the park would generate an anticipated $12,000 per month multiplied by .70 or $8,400 anticipated monthly net.
3. Evaluate the “Break Even” point. As a general rule of thumb some mobile home park investors like to cap the cost at an arbitrary number such as $5,000 per $100 of lot rent (less for vacant lots) however, it’s often possible to find a diamond in the rough for significantly less especially if it has been poorly managed or the owners are looking to liquidate. Using the same example from above, a 40 unit park with rents of $300 per month would expect to sell somewhere in the neighborhood of $600,000 before taking vacancies into account. Discount for average vacancy rates, assess the impact of accelerated depreciation and other tax advantages plus down payment to determine your “break even” point.
4. Add in the cost of appreciation, rentals and other ancillary services such as laundry, RV lots, sales of mobile homes, rentals of mobile homes, wi-fi or other potential sources of income.
Many investors are surprised to learn how affordable and easy investing in a mobile home park can be; it’s just one quick example of another alternative to breaking into commercial real estate investments. This week, perform a quick search for a small mobile home or RV park to see what’s available in your area. Remember, it’s easy to trade free lot rent for an on-site manager to keep the headache and hassle down while rapidly increasing the income and appreciation.
See you at the top!
Chris McLaughlin
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Copyright Loss Mitigation Institute LLC 2009.
All Rights Reserved.
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About the author:
Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.
* As the top Florida foreclosure and pre-
foreclosure expert, he oversees more than
100 short sale & REO closings each month
* Long-time authority on real estate investing
and rapid reselling of distressed homes. Owns
portfolio of nearly 100 high-value, high-profit
properties
* Owner of one of Florida’s largest Real Estate firms,
running 4 different offices, supporting over
400 agents, uniquely positioning him to help
thousands of investors make money in the
biggest market opportunity ever!
* Highly sought-after speaker, consultant, and
seminar leader for current trends and hot topics
in Real Estate Investing, Entrepreneurship, and
Wealth Building
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