STRATEGIC DEFAULTS – RIGHT OR WRONG?

A recent article by Ken Harney at the LA Times cited a study done by Experian (one of the 3 major credit reporting bureaus) that highlighted some very interesting information about foreclosures.  Think foreclosures only happen to people with bad credit?  Think again!

Traditional thinking indicates that foreclosures happen to people who are “down on their luck”, maybe they lost a job, maybe they got sick or maybe they were careless, overspent and are getting foreclosed on because they are in over their heads.  There is typically a pattern that appears in their credit history, late  payments, missed payments delinquencies on other debts.  A growing trend over the last few years has been contrary to this pattern.  People with great credit scores and no other “warning signs” or “life changing events” such as a job loss are being foreclosed on in record numbers.

The study done by Experian looked for answers to that question and using data from 24 million credit that they were able to review over time to look for patterns, they found some interesting trends.  Here are some of the things they found:

  • The number of strategic defaults is far beyond most industry estimates — 588,000 nationwide during 2008, more than double the total in 2007. They represented 18% of all serious delinquencies that extended for more than 60 days in last year’s fourth quarter.
  • Strategic defaulters often go straight from perfect payment histories to no mortgage payments at all. This is in stark contrast with most financially distressed borrowers, who try to keep paying on their mortgage even after they’ve fallen behind on other accounts.
  • Strategic defaults are heavily concentrated in negative-equity markets where home values zoomed during the boom and have cratered since 2006. In California last year, the number of strategic defaults was 68 times higher than it was in 2005. In Florida it was 46 times higher. In most other parts of the country, defaults were about nine times higher in 2008 than in 2005.
  • Two-thirds of strategic defaulters have only one mortgage — the one they’re walking away from on their primary homes. Individuals who have mortgages on multiple houses also have a higher likelihood of strategic default, but researchers believe that many of these walkaways are from investment properties or second homes.
  • Homeowners with large mortgage balances generally are more likely to pull the plug than those with lower balances. Similarly, people with credit ratings in the two highest categories measured by VantageScore — a joint scoring venture created by Experian and the two other national credit bureaus, Equifax and TransUnion — are far more likely to default strategically than people in lower score categories.
  • People who default strategically and lose their houses appear to understand the consequences of what they’re doing. Piyush Tantia, an Oliver Wyman partner and a principal researcher on the study, said strategic defaulters “are clearly sophisticated,” based on the patterns of selective payments observable in their credit files. For example, they tend not to default on home equity lines of credit until after they bail out on their main mortgages, sometimes to draw down more cash on the equity line.

Also, the study found that people with high credit scores at the time of loan application are 50% more likely to strategically default than people with poor credit scores.

So what does it all mean, who is doing this?  Well, for starters, there are some people gaming the system.  They bought to high, they speculated, they bled out their equity and now rather than make good on the debt they are just walking away, kinda like stealing.  Then there are people who legitimately intended to make good on the debt, had wanted to build equity, own a home, live the dream.  These people, as the survey indicates, are typically in markets where there is a significant amount of negative equity.  They have no missed payments, no problems making payments, they just take a hard look at their situation, decide that they will never recover the loss in equity (buying a home for $400,000 and it being only sellable for $200,000 and yes, in California and Florida that really happened) and just walk away.  They know their credit will be damaged and here is the problem with this whole scenario, why walking away is more attractive than sticking it out and making good on their debt: in 3 years, if they treat their credit reports right and rebuild those scores, they could get a brand new mortgage on another home.

There are many legal implications here that I won’t go into since I am not a lawyer, walking away does not always make the debt go away. Let’s not forget either the ethical problems associated with taking a mortgage, promising to pay it back and then just breaking your word and walking, there by making the rest of us pay for it in higher interest rates and bail outs, but let me ask you, is a strategic default right or is it wrong?  If you were in this situation, what would you do?

I’d like you to be part of the conversation here, so please, comment, forward this to your friends, subscribe and as always, if you have questions, need real estate advice or want to buy or sell a home, you can call or text me at 717-371-0557, email me at Jason@JasonsHomes.com or contact me at the office at 717-490-8999!

Your Friend in Real Estate,
Jason Burkholder

Search for Lancaster County Homes for sale by clicking here!

Want to see local real estate values and home prices?  Go to www.RealEstateCrystalBall.com !

DOING YOUR PART TO HELP HOUSING RECOVERY

The National Association of REALTORS® (NAR) is asking its 1.2 million members to write to Congress to extend the successful homebuyer tax credit into next year.  NAR has a great system email system to reach all of it’s members allowing massive responses to these “Call to Actions”.  According to realtor.org, the $8,000 first time buyer tax credit has encouraged  350,000 people to realize the dream of home ownership, buyers who otherwise could not have bought.

“Now is the time for Congress to keep this recovery going by extending the tax credit through 2010 and making it available to more homebuyers. We have all seen how the credit has been a spur to bring homebuyers into the market, and have seen the beginnings of a real recovery in the housing market. Housing has always led this nation out of economic downturns, and can do so again,” said NAR President Charles McMillan, “The credit needs to be available for an additional period of time in order to sustain the progress that’s been made so we can continue to see our markets fully recover. Uncertainty about the future of the credit will dampen consumer demand. The only way we can assure that the progress we’ve made can continue is to extend the credit and to do that now.”

How can you help? Write Congress Now. REALTORS® responding to the Call to Action will be doing this en masse and your letters will help.  Write to your Senators and Representatives to tell them of the successes with the tax credit thus far, and press them to extend and expand it now.  With the deadline of November 30, 2009 fast approaching, buyers are running out of time.  if you or someone you know wants to take advantage of the existing tax credit, you need to have a home under agreement in the next 20 days or you will risk losing your chance to claim the credit.

As always, if you have questions, need real estate advice or want to buy or sell a home, you can call or text me at 717-371-0557, email me at Jason@JasonsHomes.com or contact me at the office at 717-490-8999!

Your Friend in Real Estate,
Jason Burkholder

Search for Lancaster County Homes for sale by clicking here!

Want to see local real estate values and home prices?  Go to www.RealEstateCrystalBall.com !

PROTECTING TENANTS CAUGHT IN FORECLOSURE

This past May, a new law went into effect that did not capture much media attention at the time. The “Helping Families Save Their Homes Act of 2009” became effective May 20, 2009 and included some much needed protection for tenants caught in the crossfire of the foreclosure process. Here is the most common scenario: Landlord becomes delinquent in their mortgage, the foreclosure process begins and in an effort to keep collecting rents as long as possible, the landlord does not inform the tenant of the fact that foreclosure is taking place. The property is sold at Sheriff’s Sale, the bank takes possession and immediately, without notice, begins the tenant eviction process. This unfortunate situation placed numerous tenants, who paid on time and had a valid lease, on the street. This Federal law helps tenants avoid being unfairly evicted and in most cases will supersede state law.

Nothing in this article is intended to be legal advice and anyone who feels this new law is applicable to their situation should consult an attorney. Here are the basic points:

· All tenants, regardless of type of tenancy or existence of a lease, must be given 90 days notice by the “immediate successor in interest”, which could be either the bank or the new owner.

· If a tenant has a valid lease, the terms and conditions of that lease must be honored through the end of the lease. The tenant cannot be evicted prior to the end of the lease.

Here are the exceptions to the rule:

· If the new owner intends to occupy the property as their primary residence, the length of the lease does not have to be honored. The 90 day notice can be immediately served.

· If there is a month to month lease, or no lease or the state law allows the lease to be terminated at any time with proper notice, then a 90 day notice can be served immediately.

· The lease must have been entered into before the landlord received notice of foreclosure.

· The tenant cannot be a spouse, child or parent of the foreclosed owner.

· The tenants must not be paying substantially less than a fair market rent unless certain government subsidies are in place.

· Under any conditions, the tenants may be evicted if they violate the terms of the lease.

The rules are set to expire Dec 31, 2012 so until then, if you are listing a foreclosed property or a property recently purchased at a foreclosure sale that is tenant occupied, the tenant must always be give at least 90 days notice to vacate.

As always, if you have questions, need real estate advice or want to buy or sell a home, you can call or text me at 717-371-0557, email me at Jason@JasonsHomes.com or contact me at the office at 717-490-8999!

Your Friend in Real Estate,
Jason Burkholder

Search for Lancaster County Homes for sale by clicking here!

Want to see local real estate values and home prices?  Go to www.RealEstateCrystalBall.com !

2009 HOUSING OPPORTUNITY PULSE SURVEY

Survey Reveals Downpayment, Closing Costs Still Greatest Obstacles to Homeownership, NAR Survey Shows

(article republished from www.Realtor.org)

NAR’s seventh pulse survey reveals that despite improved affordability conditions, eight in 10 Americans still consider having enough money for downpayment and closing costs to be the biggest obstacle to buying a home.

The survey, which measures how affordable housing issues affect consumers, also found job security concerns to be the highest in seven years of sampling. Two-thirds of Americans think job layoffs and unemployment are a big problem; eight in 10 cite these issues as a barrier to homeownership.

The telephone survey of 1,250 urban and suburban adults in the top 25 metropolitan statistical areas was conducted for NAR by by American Strategies and Myers Research & Strategic Services for NAR’s Housing Opportunity Program.

Some key results include:

  • Eight in 10 Americans (82 percent) still consider having enough money for downpayment and closing costs to be the biggest obstacle to buying a home.
  • Two-thirds of Americans think job layoffs and unemployment are a big problem; 83 percent cite these issues as a barrier to homeownership.
  • 83 percent of Americans still believe buying a home is a good financial decision.
  • Three-fourths of those surveyed also believe now is a good time to buy a home, a number that has increased steadily the past two years.
  • The number of those who feel buying and selling activity has stabilized or stayed nearly the same has grown significantly, up more than 44 percent since last year.
  • The majority (58 percent) report that activity in their market has slowed.
  • Regarding home sales, nearly eight in 10 say it’s harder to sell a home in their area today than it was a year ago, despite the fact that nearly three-fourths of respondents say home prices are less expensive.
  • Foreclosures remain a real concern among survey respondents. Slightly more than half (51 percent) say foreclosures are a big to moderate problem in their area.
  • The rate of foreclosures is generally seen as stabilizing; 41 percent say the rate of foreclosures in their area is about the same as last year.
  • Ninety-two percent of respondents said neither they nor members of their immediate family have experienced a foreclosure in the past year, yet it is still a personal concern for many. One in five respondents said they are very or fairly worried that they will have difficulty making their mortgage payments over the next year.
  • Thirty-two percent say it’s a big or moderate worry that they, or a member of their family, may have their home repossessed or foreclosed because they are unable to pay rising monthly mortgage payments.
  • In 2008, more than half of respondents (54 percent) were open to the federal government taking a more active role in overseeing mortgage and lending practices – the number dropped this year to 47 percent.
  • Forty-two percent of Americans believe the country is back on the right track, more than double the number last year (16 percent).

Right now, buyers, first time buyers especially, have a tremendous opportunity to buy.  there are tons of programs available that can help with closing cost assistance, for information on those programs or with any other questions or comments, as always, you can call me Direct at 717-371-0557 or at the Office 717-490-8999, email me at Jason@JasonsHomes.com or send me a text message using the tool to the right of this page!

Your Friend in Real Estate,
Jason Burkholder

Search for Lancaster County Homes for sale by clicking here!

Want to see local real estate values and home prices?  Go to www.RealEstateCrystalBall.com !

CONSUMERS WERE TOO OPTIMISTIC? REALLY?

The last few years have brought some significant changes to the real estate world.  If you’ve been watching the media coverage, by now you probably think there was only one possible cause to this mess….. the evil mortgage companies taking advantage of consumers!

Well, a recent study (yes, apparently they really needed a study for this, they could of just called me, I would have told them!) by the New York Federal Reserve found that consumer confidence that made people think they could afford higher housing prices, not easy mortgage money.  The study concluded that all the way until 2007, when the economic conditions started convincing people otherwise, that consumers believed the “good times” would continue and their paychecks would increase as they had.  It appears that the lax lending standards may have come about because of the optimism by consumers, simply put, because people were buying, lenders put forth more products to help them buy.

Now don’t get me wrong, there was some predatory lending, there were people taken advantage of and lenders are partly to blame but seriously, the amount of “damage” being done to the real estate markets by foreclosures nationwide didn’t all come from lenders.  Also, if you are in foreclosure right now, I don’t want to be unsympathetic, it is a horrible thing to go through and I would not want anyone to be homeless.  But seriously, sometimes, consumers are too blame to.  Yes, that’s right, I said it. Sometimes, it really is your fault.

No one wants to hear this, let alone say it, not politicians, they want someone to blame so they can score political points, not mortgage companies, they would look even worse if they blamed consumers and certainly not the consumers themselves.  In our current culture, where Governors can abandon their duties (yes Sanford, I’m talking about you), disappear for a whole week without telling anyone where they are going (I guess when you leave the country to cheat on your wife you don’t want to tell anyone, imagine that!) and then hold a press conference embarrassing themselves (and their family, and their state, of and the ENTIRE COUNTRY) in which they apologize for their adventure and then expect everything to be just fine, in this culture, NO ONE can accept the blame they deserve.  It is never their fault.

In good ole Sanford’s case, he was a helpless, star crossed romantic, unable to resist the call of fate and his true love.  In the real estate world, it is the mortgage companies fault, they made it so easy, the deals were just so good, we couldn’t resist! It can’t be their fault, it couldn’t be a poor decision on their part, it had to have been the lenders!

I could come up with tons of other examples, examples of adults making poor choices then blaming the companies that provided those services (tobacco, alcohol, McDonald’s,any of those fit the argument here?), but everyone seems to forget that these bad mortgages were selected by adults, no one forced them to make a bad decision.  No one said they had to trade up their 3 bed, 2 bath,  2000 sq ft home worth $200,000 for a 3 bed, 2 bath, 2000 sq ft home in a fancier gated community selling for $400,000.  They didn’t have to do it.  But they did.  Not all of the folks saddled with bad mortgages are in this predicament, but let’s go back a minute and look closer at the point raised by this study, the fact that consumer confidence bears part of the blame.

A lot of the people who took out risky mortgages shouldn’t have done it, but in their defense they were lulled into thinking they could swing those payments by a “irrational exuberance”, by the optimism everyone had, by thinking the good times would keep on trucking because they had for so long.  Many of them expected that when the time came for their adjustable rate mortgage to adjust, they would have gotten that raise or promotion they were expecting (instead they got a pink slip) or that worst case scenario they could sell if they couldn’t afford it, because 2005 brought some people 10-30% appreciation, and that would save them (instead they found a slower market where in some areas people lost value instead of appreciating).  What they found, is that the one thing they counted on to save them, the one reason that made them place their bets and gamble, our solid economy, wasn’t there when they needed it to be.  They knew what they were doing.  They gambled.  They lost.

We can find plenty of places to lay blame for this, but consumers need to realize that they had just as much of a part in creating this mess as did the builders, lenders, politicians, agents, everyone.  This “crisis”, this issue, doesn’t tie up into a tidy little package, there is no one “bad guy” to prosecute and make it all better.  The time to put it all on Red number 6 and spin the wheel for your payday is long gone.  Consumers cannot sit back and wait for someone else to fix this, lamenting all that has gone wrong, blaming everyone but themselves.  Don’t get me wrong, the system is flawed, there are still numerous problems, still many things wrong, but consumers need to step up, take their medicine, sell if they have to sell, buy if they have to buy and make smart, rational decisions based on fact.  Once we start doing that, once we stop letting emotion (whether it is fear or exuberance) guide our financial decisions, we can begin the process of re-building what we once had, a solid foundation of home ownership supporting the country.

As always, you can call me Direct at 717-371-0557 or at the Office 717-490-8999, email me at Jason@JasonsHomes.com or send me a text message using the tool to the right of this page!

Your Friend in Real Estate,
Jason

Search for Lancaster County Homes for sale by clicking here!

Want to see local real estate values and home prices?  Go to www.RealEstateCrystalBall.com !

WEICHERT FINANCIAL PROVIDES ACCESS TO THE FIRST TIME BUYER TAX CREDIT BEFORE SETTLEMENT TO USE AS CLOSING COST $$

Weichert Financial is pleased to announce the release of the Pennsylvania Housing Finance Agency’s Tax Credit Advance Loan Program (TCA) now available throughout Pennsylvania.  TCA provides an interest free loan of up to $6,000 (for newly constructed homes and $5,000 for existing homes, with a minimum loan amount of $500) to use towards down payment and/or closing costs.

TCA Product Highlights:

  • Buyer must invest a minimum of $1,000 of their own funds for conventional loans.
  • If TCA is repaid by June 30, 2010, the borrower pays no interest for the loan.
  • Any portion of the TCA not repaid by June 30, 2010, becomes a ten year loan at the same interest rate as the PHFA first mortgage; with monthly payments beginning on August 1, 2010.
  • You must be a first-time homebuyer.
  • You must fall within the Federal First Time Homebuyer Tax Credit income guidelines and PHFA s income and purchase price limits.
  • Cannot be combined with other PHFA down payment and closing cost assistance programs.
  • The homebuyer files for the Federal First Time Homebuyer Tax Credit with their 2009 federal income tax return and uses their tax refund to repay the Tax Credit Advance Loan.
  • Loan must close prior to December 1, 2009 (and be occupied, in the case of custom construction).
  • Funding is limited; therefore, loan availability is on a first come, first served basis.
  • For underwriting purposes, the lender must include the tax credit advance loan payment in the borrower’s housing to income (front end) ratio. The payment is calculated using the full amount of the advance at the same interest rate as the first mortgage and with a ten year term.
  • At closing, the lender is to disburse funds only for the actual amount of credit needed to pay for the minimum required down payment and/or closing costs.
  • A second Mortgage and Note/TIL are to be completed at closing. The Mortgage is to be recorded at the same time as the PHFA first mortgage.

Please feel free to contact Laura Weidner with any mortgage questions you may have, here is her contact info: Laura Weidner, Weichert Financial Services Gold Services Manager Cell:  (717) 808-3656         eFax:  (973) 630-3574                 Email: LWeidner@WeichertFinancial.com

Great News for first time buyers who may be short on cash to close, if you want to know how to structure this program into your home purchase, as always, you can call me Direct at 717-371-0557 or at the Office 717-490-8999, email me at Jason@JasonsHomes.com or send me a text message using the tool to the right of this post!

Your Friend in Real Estate,
Jason

Search for Lancaster County Homes for sale by clicking here!

Want to see local real estate values and home prices?  Go to www.RealEstateCrystalBall.com !