September 2010 – This Month in Real Estate

Right to Rent Legislation Would Slow Growing Rate of Foreclosure

As the number of homes around the country entering the foreclosure process continues to steadily rise, a recent report from the Center for Economic and Policy Research (CEPR) suggests that giving homeowners the right to rent their house at a fair market price may be one of the best ways to address the nation’s foreclosure crisis.

“With roughly one-in four mortgages underwater, the loan modification plans put forth so far have done little to help homeowners facing foreclosure,” said Dean Baker, Co-Director of CEPR and an author of the report. “Right to Rent, on the other hand, would benefit millions, provide families with real housing security, and could go into effect immediately.”

The report, “The Gains from Right to Rent in 2010,” analyzes the costs of renting versus owning a house in several major cities and finds that the Fair Market Rents in these metropolitan areas is often much lower than the cost of ownership.

“Ordinarily, the gap between owning and renting is not that large.” continued Baker, “Due to the enormous run-up in house prices over the housing bubble years, however, ownership costs now vastly exceed rental costs in many of the bubble markets and homeowners in these markets have much to gain from having the opportunity to remain in a home as a renter following a foreclosure.”

The report documents the costs of renting and owning before and after taxes in 16 metropolitan statistical areas (MSAs) and details substantial savings gained from renting across all scenarios depicted. The various scenarios consider the costs of mortgage payments, property taxes, insurance and maintenance costs, and mortgage deductions. An appendix is included that compares ownership and rental costs across 100 MSAs as well.

Under Right to Rent legislation, such as HR 5028, sponsored by representatives Grijalva (NM) and Kaptur (OH), Congress would temporarily alter foreclosure laws to let foreclosed homeowners remain in their homes as renters for a substantial period of time. This would save families from being kicked out of their homes and would go far to stop the blight of foreclosures affecting many of our communities. This plan requires no taxpayer dollars and no new bureaucracy to implement.

Source: RISMEDIA

Fannie Mae Disqualifies Jobless Benefits

Fannie Mae, the largest provider of U.S. home loan funding, on Tuesday said it will no longer count unemployment benefits as income when troubled borrowers are applying for loan modification.

The new requirement will be effective Nov. 1, the company said in a statement to mortgage servicers.

The change could reduce the number of borrowers eligible for the federal Home Affordable Modification Program, which is aimed at curbing the foreclosure crisis by easing terms of existing loans. Including unemployment benefits for a limited period was seen by analysts as a way to expand the reach of HAMP, which was hoped to help up to four million borrowers.

But restrictions on income may help limit the number of borrowers that re-default after receiving a modification.

Modifications in the first two quarters of 2010 by Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB) are performing better three months after completion, compared to loans modified in earlier periods, the Federal Housing Finance Agency said in a report this month.

Fannie Mae also made changes to its forbearance policy, including requiring mortgage servicers to get written approval for forbearances longer than six months.

A Fannie Mae spokewoman had no immediate comment.

Source: Reuters.com

Bill Sets 45-day Deadline on Lender Short Sale Decisions

Real estate brokers who have long complained about the time it takes to complete a short sale now have two U.S. congressmen in their corner who are sponsoring a bill that would require lenders to respond to consumer short sale requests within 45 days.

Real estate brokers — and homeowners – have long complained about the length of time it takes to get a short sale done.

Lenders have been pushing more short sales as the industry recognizes them as a viable alternative to foreclosure. Short sales in the U.S. have tripled since 2008, according to data analyzer CoreLogic.

At the government-sponsored enterprises (GSEs), short sale volume in the second quarter was up more than 150% from volume in 2Q09, according to the Federal Housing Finance Agency’s “Foreclosure Prevention & Refinance Report.”

This summer, Bank of America began testing a new short sale program that targets 2,000 pre-screened homeowners to short sell their homes. The participants are borrowers who have been considered for a modification under the Home Affordable Modification Program (HAMP) and a short sale under the Home Affordable Foreclosure Alternatives (HAFA) program, but have fallen out of either program or failed to qualify.

The National Association of Realtors (NAR) is supporting the bill, H.R. 6133, “Prompt Decision for Qualification of Short Sale Act of 2010.” It was filed Sept. 15 by U.S. Reps. Robert Andrews (D-N.J.) and Tom Rooney (R-Fla.). The bill was referred to the House Committee on Financial Services on Wednesday.

Immediate comment was not available to the bill from the Mortgage Bankers Association.

“The short sale, which requires lender approval, is an important instrument for homeowners who owe more than their home is worth,” said NAR President Vicki Cox Golder, owner of Vicki L. Cox & Associates in Tucson, Ariz., said in a news release. “While the lending community has worked to improve the size and training of their short sales staffs, they still have a long way to go on improving response times.”

In the second quarter, Nevada, California, Florida and Arizona had significant shares of all properties on the market are potential short sales: 32%, 28%, 27% and 24%, respectively, according to NAR data.

“Unfortunately, homeowners who need to execute a short sale are severely hampered because lenders (loan servicers) are unable to decide whether to approve a short sale within a reasonable amount of time,” she said. “Potential homebuyers are walking away from purchasing short sale property because the lender has taken many months and still not responded to their request for an approval of a proposed short sale price,” Golder said.

REO Insider is currently running a survey asking readers about the longest time that it has taken to complete a short sale. So far, 81% of respondents have said it takes more than 91 days, with 44% of those saying it takes 91-180 days.

Source: REO Insider, Kerry Curry (09/16/2010)