Shira Real Estate

September 30, 2010

Foreclosures Slow as Document Flaws Emerge

By DAVID STREITFELD

The foreclosure machinery that has forced millions of Americans out of their homes is beginning to seize up as some lenders and their lawyers are accused of cutting corners in their pursuit of rapid home repossessions.

Evictions are expected to slow sharply, housing analysts said, as state and national law enforcement officials shine a light on questionable foreclosure methods revealed by two of the country’s biggest home lenders in the last two weeks.

Even lenders with no known problems are expected to approach defaulting homeowners more cautiously and look more aggressively for resolutions short of outright eviction.

Despite the turmoil, some economists said the breakdown could ultimately lay the groundwork for a real estate recovery.

Stricken neighborhoods across the country, for example, could benefit. One big factor undermining home sales is fear of a large number of foreclosed homes coming to the market. If the foreclosures are delayed or never happen, housing prices might find a floor.

“Maybe this is like shock therapy,” said the economist Karl E. Case. “Maybe this will actually get the lenders to the table and encourage them to work out deals that are to the benefit of everybody.”

While such a happy ending is possible, the near term is more likely to produce paralysis and confusion.

As more defaulting homeowners become aware of the lenders’ problems, they are expected to hire lawyers and challenge the proceedings against them. And if completed foreclosures were not properly done, families who bought the troubled homes could be vulnerable to claims by the former owners.

Apparently alarmed about such a possibility, one of the major title insurance companies, Old Republic National Title, has sent a bulletin to agents saying that “until further notice” it would not insure title to properties foreclosed upon by GMAC Mortgage, the country’s fourth-largest home lender and one of the two big lenders at the center of the current controversy.

GMAC declined to comment, and Old Republic representatives did not return calls.

GMAC has acknowledged legal missteps in processing mortgages, and JPMorgan Chase has acknowledged the possibility of missteps, and both have suspended all foreclosures in the 23 states where they need a court’s approval. That’s 56,000 in the case of Chase alone; GMAC declined to provide a number.

Attorneys general in half a dozen states are demanding action or opening investigations. The Treasury Department said Thursday it was asking regulators to look into “these troubling developments.”

“We’re seeing a fundamental breakdown in the system, because no one cared that much about getting things right,” said Representative Alan Grayson, a Democrat of Florida, who unsuccessfully asked the Florida Supreme Court to halt all foreclosures in that state.

Wall Street was examining the impact the disclosures could have on the lenders. Moody’s Investors Service has placed the servicer ratings of GMAC and Chase on review for possible downgrade.

The federal government has been the majority owner of GMAC since supplying $17 billion to prevent the lender’s failure during the financial crisis.

Other lenders said Thursday that their foreclosure filings, including the crucial affidavits, had been properly done.

A Citigroup spokesman said the lender required “annual training for our foreclosure employees on the proper execution of affidavits, including having personal knowledge of the information in the affidavit.”

A Wells Fargo spokeswoman said “the affidavits we sign are accurate.” A spokesman for Bank of America, Rick Simon, said, “We do not have anything to tell you at this time.”

GMAC and Chase are in trouble because, overwhelmed with foreclosures, they tried to process them as quickly and cheaply as possible, defense lawyers say. The companies say they are reviewing their procedures to take care of any violations.

The missteps stemmed from the affidavits the lenders file as they seek a quick or summary judgment in thousands of foreclosure cases. The affidavits state certain facts about the case, including the amount owed, which the signer indicates he has personal knowledge of. Without the affidavit, the lender would have to prove the facts at trial.

In depositions taken by lawyers for homeowners, executives at GMAC and Chase said they or their teams signed 10,000 or more affidavits and related documents a month. That did not give them time to review the cases.

Defense lawyers say the disclosures are symptomatic of the carelessness, if not outright fraud, that lenders have been exhibiting for years in their rush to file cases. Many necessary documents have disappeared, with defense lawyers saying the lenders often do not even have standing to foreclose.

In a number of pending cases in Florida, defense lawyers there said, GMAC has already withdrawn affidavits. The lawyers said they would try to have the cases thrown out for possible fraud, although they acknowledged that might be difficult.

GMAC said it would refile the affidavits. Chase said it had not withdrawn any affidavits.

“The way the plaintiffs’ lawyers have handled this has corrupted our legal system,” said Thomas Cox, a Maine lawyer whose deposition of a GMAC executive in June helped prompt the current disclosures. “They tried to manufacture foreclosures the way you’d manufacture cars, on an assembly line. It can’t be done that way.”

Mr. Cox is representing pro bono a rural woman who is in foreclosure on a $82,000 mortgage. The plaintiff in the case is Fannie Mae, the mortgage holding company that failed during the financial crisis and is now under government conservatorship. GMAC serviced the loan for Fannie Mae.

This week, the judge in the case set aside his summary judgment in favor of Fannie when he read Mr. Cox’s deposition of a GMAC executive, Jeffrey Stephan, who said he never reviewed the file he had signed. The case will now go to trial.

“I don’t think they are going to give up easily,” said Mr. Cox.

As the foreclosure crisis has deepened, the length of time borrowers spend waiting for the end has lengthened.

In January 2009 the time between the owner’s first missed payment and eviction was 319 days, according to LPS Applied Analytics. By August it was 478 days.

Since spring, the data firm says, the lenders have been trying to clear their backlog. They have stepped up the rate at which they put defaulting owners into the formal foreclosure process. In August, they started 283,000 foreclosures, up from 220,000 in April.

Now, as the lenders are pressed to examine more closely their filings, those foreclosure starts are likely to fall, prolonging the owner’s time in limbo. Many borrowers use this period, when they are living in their home but not paying for it, to try and get their financial house back in order.

http://www.nytimes.com/2010/10/01/business/01mortgage.html?ref=business&src=me&pagewanted=print

FHA Refis for Underwater Borrowers

FHA has launched a refinancing program to assist homeowners who owe more on their mortgages than their home is worth. Beginning Sept. 7, the agency will offer qualified non-FHA borrowers the opportunity to refinance with an FHA-insured mortgage on their primary residence. Borrowers must be current on their existing mortgage, qualify under FHA underwriting requirements, and have a credit score of at least 500. The first lien holder must agree to write off at least 10 percent of the remaining amount owed under the mortgage, bringing the combined loan-to-value ratio of all mortgages to no more than 115 percent. The LTV for the new FHA mortgage may not exceed 97.75 percent. The Treasury Department will provide incentives to second lien holders who agree to forgive all or part of their liens.

Over the past few weeks I have received many questions from clients regarding the newly modified State of California Home Buyers Credit.  The main question has to do with the method in which the funds are to be allocated, buyers want to know if they will receive a refunded in the amount of $10,000? The answer to this concern is NO! The new credit is not refundable, it simply lowers your state taxes for three years, something to the tune of $3333.33 each year.  To better explain this credit below is a detailed account for the State of California website:

2010 Tax Credit for New Home / First-Time Buyer

(If you are looking for more information regarding the 2009 New Home Credit, see FTB Publication 3528, New Home Credit, or search using the “Forms & Publications” tab above.)

Important Update (04/07/10): The 2010 New Home Credit and First-Time Buyer Credit begins May 1, 2010.

The New Home / First-Time Buyer Credits are available only for purchases that close escrow on or after May 1, 2010.

Applying for the 2010 New Home/First-Time Buyer tax credits: Applications must be faxed after escrow closes. The new application will be available by May 1, 2010. We will deny the application if the 2009 form is used or if we receive the 2010 application before May 1, 2010.

Check this page often. We will add updates as they become available.

General Information: These tax credits are available for taxpayers who purchase a qualified principal residence on or after May 1, 2010, and before January 1, 2011. Additionally, these tax credits are available for taxpayers who purchase a qualified principal residence on or after December 31, 2010, and before August 1, 2011, pursuant to an enforceable contract executed on or before December 31, 2010. The purchase date is defined as the date escrow closes. Taxpayers may apply for the tax credits if they have entered into a contract before May 1, 2010, as long as escrow closes on or after May 1, 2010.

These tax credits are limited to the lesser of 5 percent of the purchase price or $10,000 for a qualified principal residence. Taxpayers must apply the total tax credit in equal amounts over 3 successive tax years (maximum of $3,333 per year) beginning with the tax year in which the home is purchased. The tax credits cannot reduce regular tax below tentative minimum tax (TMT). The tax credits are nonrefundable and unused credits cannot be carried over.

The total amount of allocated tax credit for all taxpayers may not exceed $100 million for the New Home Credit and $100 million for the First-Time Buyer Credit. However, since many taxpayers will not be able to utilize the entire tax credit, the legislation specifies that the $100 million cap for the New Home Credit will be reduced by 70 percent of the tax credit allocated to each buyer and the $100 million cap for the First-Time Buyer Credit will be reduced by 57 percent of the tax credit allocated to each buyer. For example, if a taxpayer is allocated $10,000 for the New Home Credit, the $100 million cap for the New Home Credit will only be reduced by $7,000. If a taxpayer is allocated $10,000 for the First-Time Buyer Credit, the $100 million cap for the First-Time Buyer Credit will only be reduced by $5,700. The 70 and 57 percent reductions do not impact the amount that can be claimed by the taxpayer.

We will allocate the tax credits on a first-come, first-served basis.

Only one tax credit is allowed per taxpayer. If a taxpayer qualifies for both tax credits, the law specifies that we will allocate the amount under the New Home Credit.

Taxpayers will not be eligible for either tax credit if any of the following apply:

* The taxpayer was allowed a 2009 New Home Credit.

* The taxpayer is under 18 years old. (A taxpayer who is married as of the date of purchase will be considered to be 18 if the spouse/registered domestic partner (RDP) of the taxpayer is 18 or older on the date of purchase.)

* The taxpayer or the taxpayer’s spouse/RDP is related to the seller.

* The taxpayer qualifies as a dependent of any other taxpayer for the tax year of the purchase.

New Home Credit: A qualified principal residence, for purposes of the New Home Credit, must:

* Be a single family residence, either detached or attached. This can be a single family residence, a condominium, a unit in a cooperative project, a house boat, a manufactured home, or a mobile home. A home constructed by the taxpayer is not eligible since the home has not been “purchased.”

* Have never been occupied. Sellers must certify that the home has never been occupied in order for a taxpayer to receive an allocation of the credit.

* Be eligible for the California property tax homeowner’s exemption.

* Be occupied by the taxpayer as their principal residence for a minimum of 2 years immediately following the purchase.

Tax credit allocation:

* A Certificate of Allocation will not be issued if:

o The seller does not certify the home has never been occupied.

o We do not receive the application and a copy of the properly executed settlement statement within 2 weeks (14 calendar days) after the close of escrow.

o We receive the application or reservation request after the total tax credits available have been allocated.

* FTB’s determination may not be protested or appealed.

First-Time Buyer Credit: A qualified principal residence, for purposes of the First-Time Buyer Credit, must:

* Be a single family residence, either detached or attached. This can be a single family residence, a condominium, a unit in a cooperative project, a house boat, a manufactured home, or a mobile home. A home constructed by the taxpayer is not eligible since the home has not been “purchased.”

* Be eligible for the California property tax homeowner’s exemption.

* Be occupied by the taxpayer as their principal residence for a minimum of 2 years immediately following the purchase.

A first-time buyer is any individual (and the individual’s spouse/RDP, if married on the date of purchase) who did not have an ownership interest in a principal residence, either in or out of California, during the preceding 3 year period ending on the date of the purchase of the qualified principal residence. If the buyer is married on the date of purchase and either the buyer or the buyer’s spouse/RDP had an ownership interest in a principal residence during the preceding 3 year period, the buyer does not qualify for the First-Time Buyer Credit even if the spouse/RDP is not going to be on title.

Tax credit allocation:

* A Certificate of Allocation will not be issued if:

o We do not receive the application and a copy of the properly executed settlement statement within 2 weeks (14 calendar days) after the close of escrow.

o We receive the application after the total tax credits available have been allocated.

* FTB’s determination may not be protested or appealed.

Applications: We will accept applications by fax only beginning May 1, 2010. Do not use the 2009 application. We will post more information by May 1, 2010.

Reservations: Taxpayers who qualify for the New Home Credit may, but are not required to, reserve a tax credit prior to the close of escrow. Reservations will become important as we near the $100 million cap for homes that may not close escrow before the cap is reached, as a reservation will “hold the taxpayer’s place in line” until 2 weeks after escrow closes. To reserve a tax credit, the taxpayer and seller need to complete, sign, and fax to us a reservation request to certify that they have entered into an enforceable contract on or after May 1, 2010, and on or before December 31, 2010. A copy of the signed contract must be included with the reservation request. Taxpayers who reserve a tax credit still need to fax an application and a copy of the settlement statement within 2 weeks after the close of escrow. Taxpayers may not reserve a tax credit if the contract was entered into before May 1, 2010. We will post the reservation form and details about the process by May 1, 2010.

If you are only applying for the First-Time Buyer Credit, you will not be able to reserve the tax credit before escrow closes.

Claiming the tax credit:

* The taxpayer must receive a Certificate of Allocation from us to claim the tax credit on their California personal income tax return. The Certificate of Allocation will state the maximum amount the taxpayer can claim listed by tax year.

* The taxpayer should refer to the 2010 New Home / First-Time Buyer Credit Publication for instructions on claiming the tax credit (the publication will be available by December, 2010).

* Special rules apply to married/RDP taxpayers filing separately, in which case each spouse/RDP is entitled to one-half of the tax credit, even if their ownership percentages are not equal. For 2 or more taxpayers who are not married/RDP, the tax credit amount will have already been allocated to each taxpayer occupying the residence on their respective tax credit allocation letter.

* If the available tax credit exceeds the current year net tax, the unused tax credit may not be carried over to the following tax year.

* The tax credit may not reduce regular tax below TMT.

* The tax credit is not refundable.

* Any disallowance of the tax credit may not be protested or appealed.

Contact Us

* 888.792.4900 (press 1)

* 916.845.4900 (not toll-free)

Email: wscs.gen@ftb.ca.gov

http://www.ftb.ca.gov/individuals/new_home_credit.shtml

After several revisions and delays, the Federal Housing Administration (FHA) has finally issued major changes to its revised guidelines on mortgage insurance requirements for condominium projects. FHA first proposed the revisions back in June (under Mortgagee Letter 2009-19). The new guidelines are effective December 7, 2009; however, some of the requirements are phased in through January 31, 2010.

There has been a considerable amount of controversy involving HUD/FHA’s proposed requirements for obtaining FHA mortgage insurance for condominiums. The newest guideline revisions are in response to the strong reaction from condominium associations and mortgage industry representatives who saw many of the FHA requirements as counter-productive and burdensome to condominium associations and owners.

The latest guidelines are described in two separate HUD/FHA documents:

• Mortgagee Letter 2009-46B (the revised guidelines for FHA approval of residential condominium projects)
• Mortgagee Letter 2009-46A (temporary guidance for condominium approvals).

Under the Temporary Guidance:

• The “Spot Loan” approval process will continue through February 1, 2010, after which it will be replaced by the new Direct Endorsement Lender Review & Approval Process (DELRAP); and
• The 30% cap on FHA loans per condo project will be expanded to 50% until December 31, 2010. Concentrations may be increased to 100% if certain additional conditions are met. After January 1, 2011, the cap reverts back to 30%.

The highlights of the New Guidelines are as follows:

• Condominium project approval is not required for condominiums comprised of single-family totally detached dwellings (no shared garages or any other attached buildings).
• Until December 31, 2010, at least 30% pre-sale level must be reached before any FHA mortgage can be granted on any unit. After 12/31/10, 50% pre-sale level must be reached.
• 50% owner occupancy rate for the entire project.
• No more than 15% of unit owners can be delinquent (over 30 days late) on their condominium fees.
• Capital reserve funding:  The reserve study requirement has been eliminated, along with the requirement of at least 60% of the fully funded reserves. The new requirement requires merely that at least 10% of the association’s annual budget be set aside for reserves.
• Budget review:  Lenders must review the condominium budget to determine that the budget is adequate and: (i) includes allocations/line items to ensure sufficient funds are available to maintain and preserve all amenities and features unique to the condominium project; (ii) provides for the funding of replacement reserves for capital expenditures and deferred maintenance in an account representing at least 10% of the budget; and (iii) provides adequate funding for insurance coverage and deductibles.
• No more than 25% of space allocated to commercial use.
• No more than 10% of units held by a single investor.
• The 1-year waiting period for conversion condominiums is eliminated.
• Unit owners must obtain individual HO-6 insurance policies if the master policy doesn’t cover unit interiors.
• Fidelity insurance must be obtained for 20+ unit projects.
• Re-certification required every 2 years.

Transition Strategy:

• FHA will move all currently approved condominium projects to the new approval list and FHA Connection database.
• Projects that received approval prior to October 1, 2008, will require recertification on or before December 7, 2009.
• Projects that received approval between October 1, 2008 and December 7, 2009, will be “grandfathered” and will have to follow the new guidelines’ recertification process (recertification required every two years).

Analysis:

Although the condominium association and mortgage lobby were successful in watering down some the more onerous requirements, the new revised guidelines will still represent a major change in how lenders underwrite condominium mortgages. Lenders will have to perform much more extensive due diligence on condominium projects than before.

The new guidelines will also force existing condominium associations to really get their acts together, especially with their unpaid condominium fees, budgets, insurance and capital reserve accounts. FHA mortgage programs are becoming the first choice for first time home buyers, and condominium units are particularly suitable for first timers. I have already seen situations where condominium trustees feel no obligation to comply with FHA (and Fannie Mae) guidelines in connection with a proposal sale of a unit, and it is not a good situation. Condominium trustees and association can certainly open themselves up to liability if they don’t cooperate and maintain the marketability of the units which they govern. Trustees owe unit owners a fiduciary obligation to get their associations in compliance with all new FHA/FNMA guidelines, in my opinion.

For condominium associations, the Community Associations Institute has published this helpful “Head’s Up” and FAQ.

As always, contact Richard Vetstein with any questions.

by Richard D. Vetstein, Esq. on November 21, 2009 · 4 comments

in Condominium Law, FHA, Fannie Mae, HUD, Massachusetts Real Estate Law, Mortgages

http://www.massrealestatelawblog.com/final-hopefully-revised-fha-condominium-lending-guidelines-issued/

January 21st, 2010

Securing an FHA mortgage in california is about to get more expensive.

In a statement issued Wednesday, the Federal Housing Authority outlined policy changes to its mortgage assistance program. The shift is meant to both reduce the government group’s portfolio risk while strengthening its overall financials.

For consumers, the changes mean higher costs.

As listed in the official announcement, there are 3 major guideline updates for the FHA:

1. Upfront mortgage insurance premiums are increasing to 2.25% from 1.75%
2. Minimum downpayments for applicants with sub-580 FICOs are rising to 10 percent
3. Seller concessions are being limited to 3%, down from today’s allowable 6%

Furthermore, the FHA has appealed to Congress to raise an FHA borrowers’ monthly mortgage insurance premiums.

To read the FHA’s statement, it’s clear what the group is trying to balance.  On one side, the FHA wants to provide affordable financing to families that need it. That’s its mission statement. On the other side, though, the FHA must manage the risk that comes with insuring lesser-quality loans.

To that end, the FHA is stepping up its enforcement of “bad lenders” in hopes of stopping problems where they start.

Also in its new policies, the FHA is introducing a “termination clause”. If banks or loan officers that produce more than their fair share of bad loans, they lose their right to originate FHA mortgages.

As a result, homebuyers in chicago should expect tougher FHA underwriting in 2010. Not because the FHA says so, necessarily, but because banks don’t want to do “bad loans”.  Lenders are incented to turn down at-risk applicants and, already, we’re seeing examples of this. Despite FHA allowing 580 FICOs and lower, many banks have made 620 their minimum.

Some have other guideline overlays, too.

The FHA’s new guidelines don’t go into effect until spring.  So, between now and then, the old guidelines will apply.  Therefore, if you know you’re going to need an FHA home loan in the next few months, consider moving up your time-frame.

If nothing else, you’ll save some money at closing.

http://themortgagebuzz.com/