Marc Guzman's West County Blog
333 30th Street, Richmond, CA 94805
Not the best looking house right now but great investment opportunity! This is Back on the Market and at a reduced price of $154,900.
House features 3 Bedrooms, 1.5 Baths and 2,263 Living Sq Ft. Located in desirable North and East neighborhood of Richmond, CA. Near park and many amenities.
Contact Marc Guzman for private showing.
(510) 662-8536
Bank of America to Streamline Short Sales with 20 Day Decisions
With the recent $25 Billion settlement between 49 Attorney Generals and the 5 largest banks, Bank of America has announced they will streamline the short sale approval process and provide decisions within 20 days.
Here is the link to the article regarding the $25 Billion bank settlement and my prediction that this would happen: http://marcguzmanhomes.tumblr.com/post/19999943839/25-billion-settlement-with-big-banks-may-actually-benefi
by
Marc Guzman
$25 Billion Settlement with Big Banks May Actually Benefit Them
Yes you are reading the headline correct. The $25 Billion settlement that 49 attorney generals negotiated with the large five banks, which is being described as a punishment, may actually benefit the banks.
WARNING: This article will contain more details than my average post, but just stick with it. I recommend reading the entire article but if you are familiar with the details of how loans were originated and ownership structure, skip down to Part 2.
Part 1: Brief History
Let me first start off by providing a very brief explanation on how many of the bad loans from 2002-2007 were created. We are all familiar with the 100% Loan in which a home buyer could purchase a home with no money down. Some loans even went as high as 110%. These were very different than the conventional loans that required a 20% down payment. After the bank originates a loan, they package the loan into portfolios and sell them to investors, but the bank normally retains the Mortgage Servicing Rights (MSR). What is MSR? The bank collects the monthly payment from the borrower and then pays the investor, but charges the investor a fee to service the loan.
But the banks had a problem. They had trouble selling 100% loans to investors. Investors wanted some skin in the game from the borrower but with the booming housing market, a huge government push to increase homeownership and insurance companies such as AIG willing to insurance everything, the big banks came up with the “perfect” loan. It was the 80/20 loan. To the borrower, it was still 100% financing but to the finance world it was a loan made up of two loans. The 80% 1st loan was originated by the banks and sold to investors like normal, but the 20% 2nd loan was in many cases the actual banks money.
Main thing to remember at this point: The 1st loan is made up of investor money (not the big bank’s money) and the 2nd loan is made up of big bank money. It is also important to note that 60-70% of all 2nd loans are owned by the big banks.
Now comes the housing crash. The economy took a turn for the worst and the housing bubble popped and we saw prices plummet. In the Bay Area of Northern California where the majority of my business is, prices were greatly inflated and dropped 80-90% in some areas! So what happens to the loans on a distressed property? Well, the 1st loan has top priority over the 2nd loan meaning in the case of a Short Sale the 2nd loan gets paid a few thousand dollars and the 1st loan gets the majority of the proceeds. SIDE NOTE: A Short Sale is when a home owner sells the property for LESS than what is owed in loans. Now what happens if there is a foreclosure? Then the 2nd loan gets wiped out completely meaning they get $0 and the 1st loan takes back the property. In a case of a loan modification, the 2nd loan has to write down losses first before the 1st takes losses.
So in short, with the housing crash and massive foreclosures, banks were recording massive loses because the foreclosures were wiping out their assets on 2nd loans. The banks did not own the 1st loans, they only serviced them on behalf of investors but the banks actually owned the 2nd loans. Keep this in mind, at one point JPMorgan Chase’s stock was worth $198 Billion yet they owned a little more than $200 Billion in 2nd loans. This was also a conflict of interest in my opinion when a bank like Chase serviced the 1st loan and also owned the 2nd loan. How can they truly service the 1st loan on behalf of investors when they knew they would wipe out their own money in case of foreclosure?
I truly believe that all the foreclosure delays created in the past several years on a national scale by our government have been ways to keep the big banks alive. If the foreclosures continued at the rate they were happening, many more banks would have been wiped out and the credit market could have been much worse. This would have then made our economic recession into a sure depression. So this is one of the reasons why foreclosures have been delayed and there is a huge backlog, also a reason why Short Sales take so long to be approved, IF they even get approved, and a reason why many attempted loan modifications fail.
Second thing to remember at this point: With distressed properties, the 1st loan would get back about 25-50 cents on the dollar of their original investment, sometimes more. But the 2nd loan would get back 1-10 cents on the dollar, if they were lucky enough. Obviously a big difference but the 1st loan has top priority over the 2nd according to principles of contract and property law.
Part 2: Back to the $25 Billion settlement.
A part of the settlement changes how liens are prioritized by making the 1st and 2nd loans share losses equally. In simple terms, if the property value is half of what the original loan amounts total then both the 1st and 2nd loans take a 50% loss. This basically means the 1st loan (owned by investors) gets less and the 2nd loan (owned by banks) make more. According to CoreLogic, 11.1 Million borrowers are underwater and 4.4 Million have both a 1st and 2nd loan… that’s a HUGE pay raise for owners of the 2nd loans.
So in your opinion is this “punishment” really a punishment? The big banks will essentially be credited for the $25 Billion payout by making more money on the 2nd loans. Also remember that the $25 Billion payout is split among the top five big banks. JPMorgan Chase made $18.9 Billion Net Income in 2011 so this payout for them, and the other banks, are basically 1 or 2 month’s worth of profits. Rumors right now are that investors that own 1st loans are planning a lawsuit to battle the settlement.
The potentially good news? With the 2nd loans now making more money on distressed properties there may be a lot more motivation to foreclose, approve short sales and approve loan modifications. Or maybe foreclose and turn properties into rentals, making the bank even more money…
by
Marc Guzman
2012 Foreclosure-to-Rental Program to Capture 50% of Bank Foreclosures
One thing I should clarify that I didn’t mention in the video: 7.5 Million foreclosures in pipeline with half in the top 20 metropolitan areas. The majority of the foreclosures that will be sold are concentrated in the 20 metropolitan areas hit the hardest by the housing crash. That is why 50% of government-backed mortgage foreclosures in those areas will never hit the market.
For example, at the end of February 2012 the first bulk sale was put for for auction. It consisted of 2,490 homes in 6 cities ONLY. Yes only 6 cities and they were cities hit hard by the housing crash. This is why 50% in these metropolitan areas will disappear.
Of course this will create an even more shortage of inventory in many of these areas and we will see another small bubble in home values before it pops in a few years when the hedge funds and equity firms decide to liquidate properties.
So if you are thinking of selling your home, do so within the next year or two. You’ll have the advantage of high buyer demand.
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Marc Guzman
333 30th Street, Richmond
I need your help in getting this sold! Please spread the word and find this house the perfect new owner.
$169,900
3 Beds, 2 Bath, 2263 Sq Ft
by
Marc Guzman
Top 3 Housing News Articles for Today
Read below or watch the quick video…
1. Obama Proposes Extending Tax Waiver on Mortgage Debt Forgiveness
DSNews Article (Click Here)
Obama’s FY2013 budget proposal includes an extension of the Mortgage Forgiveness Debt Relief Act of 2007. The Act ensures that homeowners who received principal reductions or other forms of debt forgiveness on their primary residences do not have to pay taxes on the amount forgiven.
Without the Mortgage Forgiveness Debt Relief Act, debt reduced through mortgage modifications or short sales qualifies as income to the borrower and is taxable. Under the act, up to $2 million in debt elimination can be tax-free.
In the Treasury’s Green Book, its summary explanation of the administration’s budget proposal, it calls for an extension of the tax break due to “the continued importance of facilitating home mortgage modifications.”
The administration is proposing an extension that would apply to any amounts forgiven before January 1, 2015. At that point, the government would reassess the market and determine whether another extension is appropriate.
2. CFPB Proposes New Mortgage Statement Layouts
DSNews Article (Click Here)
The Consumer Financial Protection Bureau (CFPB) is looking to propose a rule to standardize monthly mortgage statements to make them easier for customers to understand.
The CFPB recently released an early draft of a statement and is seeking feedback. “This draft statement shows consumers the breakdown of their mortgage payments – what money goes to the loan principal, interest, and fees,” CFPB director Richard Cordray said in a statement. “This information will help consumers stay on top of their mortgage costs and hold their mortgage servicers accountable for fixing errors that crop up.”
The draft is available online (http://www.consumerfinance.gov/a-model-form-for-mortgage-statements/).
“Most servicers have spent years customizing the mortgage statements they send to their customers,” Ghazale Johnston, senior executive of Accenture Credit Services, said in an email. “Moving to a new set of statement standards may require them to make a significant investment in changing their core systems.”
Once a refined prototype is available, the CFPB said in statement that it will propose a rule to specify what needs to be on statements, but creditors, assignees, and servicers will have some flexibility to tweak the form after final publication of the rule and form.
3. Deadline to Request Foreclosure Review Extended 3 Months
DSNews Article (Click Here)
Consumers who want their foreclosure cases checked by a third party as part of federal regulators’ independent foreclosure review directive now have until July 31, 2012, to submit their requests.
The Federal Reserve and the Office of the Comptroller of the Currency (OCC) announced Wednesday that the deadline has been pushed out by three months to give consumers more time to file for a case assessment if they believe they suffered financial injury as a result of errors in foreclosure actions in 2009 or 2010. The original deadline was April 30.
The independent foreclosure reviews, as mandated and enforced by the federal regulatory agencies, only apply to the mortgage servicers and their subsidiaries that were subject to the enforcement actions handed down by the OCC and Fed on April 13th of last year.
Borrowers are eligible for a foreclosure review if their loan is serviced by one of the participating companies above, the mortgage loan was subject to foreclosure between January 1, 2009 and December 31, 2010, and the property securing the mortgage was the borrower’s primary residence.
There are no costs associated with the foreclosure reviews. These case evaluations performed by independent third parties began in November. Eligible borrowers should have received a letter by the end of 2011 detailing the process.
A very important message for homeowners in financial distress and the homeowners that owe more on their mortgage than what they owe. Consider doing a Short Sale! It could pocket you up to $35,000. Watch the video to find out how.
Marc Guzman
510-662-8536
For the last 7 or 8 months, I have been talking about how the banks will eventually turn their foreclosure properties into rentals. Well yesterday, Fannie Mae and Freddie Mac announced that it will start taking applications from investors to get pre-qualified for the upcoming Foreclosure-to-Rental program. This new program will create an investment vehicle that will allow investors to purchasxe a controlling equity interest in bulk packages of properties owned by Fannie and Freddie. If you still have doubts about this, go direct to Fannie Mae’s website: Homepath.com and read it for yourself. You can also go to http://www.WestCountyBlog.com
So what does this mean for home sellers, home buyers and professionals in the real estate industry?
Home Sellers – With many foreclosures turning into rentals, the current lack of inventory on the market will continue. It will be a seller’s market with multiple offers on almost every property. So 2012 will be the year to sell. For those sellers facing foreclosure, doing a short sale is the best option. In California, the 1st and 2nd lien holder (normally the bank holding your mortgage) cannot come after you for loses after approving a short sale.. last year a new California law banned it. But if the bank forecloses, then the 2nd lien holder can come after you for a judgment. So completing a short sale in today’s seller’s market is the way to go.
Home Buyers – Unfortunately due to the lack of inventory, you will be competing with other home buyers on the few available properties. The reality is that you will have to overbid on most properties. But the good news is that you will not have to overbid by much because home values will not increase by much.. maybe a few percentage points but nothing drastic. They will continue to stay very affordable. In most areas of West Contra Costa County, SF Bay Area, CA, buying is cheaper than renting. I’ll be making another video this coming weekend explaining why prices wont go much higher and what you as a buyer can do to increase your chances of getting your offer accepted.
Real Estate Profesionals – It is going to get very tough out there. The National Association of Realtors came out with a statistic that in the next 18 months, 70-80% of ALL brokerages currently in business will go out of business. I’m already seeing it here in my area with several mid-size brokerages falling apart. The reason is due to lower volume of sales, running a mid-size brokerage is too expensive. The ones that will last are small mom and pop shops and large brokerages such as Security Pacific Real Estate (visit http://www.spre.com). So what should be your 2012 business plan? Get realigned with a strong brokerage that will last through the housing market. And don’t forget to network, network, network.
Marc Guzman
Watch the video, then answer this: If a Down Payment Protection Plan was offered, would you buy a house?
A small tip for homebuyers in today’s market. How many homebuyers actually know this?
