This is a reprint of an article I wrote for our weekly homeownership education newsletter on September 1st, 2009:

Well, this is certainly going to be a closely watched topic over the next couple of months as the deadline for the Federal $8,000 First Time Homebuyer Tax Credit reaches it expiration date.

It seems now that the mainstream media is flirting with prospect of California nearing the bottom of the market.  If this is true, it means it's going to get tougher and tougher for home buyers to get offers accepted.

It is also widely suspected that the there are many more foreclosures still out there that have yet to hit the open market.

Add to this, the urgency that many buyers are feeling about trying to buy before the Federal Tax Credit expires on November 30th, 2009.  All of this points toward requiring better preparation and much more patience in the home buying process.

Is there a chance that the tax credit will be increased?  Absolutely - H.R. 2801 is in committee now with Congress set to meet again on September 8th.  The proposals made with H.R. 2801 are not new, this is very similar to a Senate bill being discussed in February of this year:

Included in both plans is a tax credit for homebuyers, which is expected to cost taxpayers as much as $39 billion. The House bill allows for a $7,500 tax credit for first-time homebuyers and the Senate bill allows up to $15,000 in tax credits for all homebuyers. Opponents of the tax credit argue that it will do little to decrease high inventory levels because current homeowner’s would have to sell their current home to buy a new one. The Fix Housing First Organization is lobbying to keep the Senate provisions for the $15,000 tax credit, and to ensure that the credit remains available to the taxpayer as a tax refund and is not limited to first-time homebuyers. The organization states that first-time buyers make up only a small percentage of the total market and that including more buyers would enhance the success of the incentive. The Senate has a record of winning negotiations with the House, so the $15,000 refundable tax credit for all homebuyers has a good chance of staying in the final bill.

There is an important point being made in the first sentence of this excerpt.....the tax credit is expected to cost taxpayers as much as $39 billion.  With a current federal deficit nearing 12 Trillion dollars, how much more are taxpayers going to be expected to handle?  How many generations are going to be expected to pay for the spending frenzy that has ensued in an effort to correct this economy?

I am not making any assertions as to whether the tax credit will be extended or not, my personal opinion is that it is extended.  Yes, it will cost billions of dollars but I kind of have a "Well, we've gone this far" attitude about the whole thing.  What's a few billion dollars amongst friends huh?

Ok, there's the framework for my approach to preparing those of you that want to take advantage of the "bird in hand" and the $8,000 First Time Homebuyer Tax Credit that is available now.  In the upcoming weeks, we will continue to keep you up to date about the progress of H.R. 2801.

If you wish to take advantage of the $8,000 credit you MUST ACT NOW!  It is as difficult as ever to get your offer accepted on a home now, some markets are more difficult than others.

You can expect that it will take at least 60 to 90 days to get an offer accepted if you have less than a 20% down payment.  Buyers making offers on homes using low down payment loan programs are finding it more difficult to get their offer accepted as they compete against all cash investors and buyers with large down payments.

If you have a low down payment, this does not leave you in an impossible position, it may just take more offers before you get one accepted.  All of this basically means that if you want to try to get in under the deadline, you need to get prepared now.

Here is my short list of things you MUST NOT COMPROMISE if you are trying to meet this deadline of November 30th:

• Start interviewing Lenders and Real Estate Agents - This live class is a good place to start - You cannot underestimate the value of hiring the right team.
• Get FULLY APPROVED for your loan now - This is a full underwriting approval from a direct lender (if possible).  Many loan officers out there will give get you pre-qualified putting you in a compromised position when making offers on homes you wish to buy.
• Don't panic!  You need to maintain an empowered position of being in control of the home buying process.  An implied sense of urgency can compromise your ability to make informed decisions.
• Make educated and informed decisions.  Taking short cuts in the home buying process are costly in terms of stress and increasing the chances of losing your deposit that you've saved up for buying your new home.  Remember, your real motivation here is to buy a home for you and your family.  The tax credit is just a bonus.
• Be proactive but not rushed.  Listen, if you start the process now and are able to complete it by November 30th - Great, if not....Do you believe that everything happens for a reason?  I do.
• Be in a position to take advantage of an extension of the tax credit.  If the tax credit is extended, it will take effect immediately.  Even if you're in the process you may be able to improve your position.
• Be in a position to take advantage of changes in the market.  Home prices have increased for the last 3 months in a row.  If more foreclosures hit the market now, they are likely to sell very quickly because there are more buyers in the market.  Being prepared now may put you in a position to take advantage of "buyer friendly" changes in the market more quickly than other that are waiting on the sidelines waiting for this to happen.

I hope this helps to empower you as a homebuyer, stay tuned for updates on H.R. 2801.  Happy house hunting!

This is a reprint of an article that I wrote on June 29th as a follow up to a live webinar we conducted on the new CalHFA first time homebuyer programs.

The purpose of this article it show buyers how to leverage down payment and closing cost assistance programs.

Down payment and closing cost assistance programs seem to be a rarity in today’s strict lending market.  With the reinstatement of the California Homebuyer Downpayment Assistance Program (CHDAP) earlier in June, 2009 – we now have some great opportunities to help first time homebuyers buy homes.

Although there are several ways to skin a cat (I apologize if i’ve offended any cat lovers here – insert “dog” if you wish) – I would like to talk about just one.

OK, here’s the scenario – You are going to use an FHA loan, you have the minimum 3.5% down payment saved up.  Let’s look at the potential mortgage payment savings with a $300,000 purchase price.

For this scenario, we are going to assume that all closing costs come out to 3% of the sales price….and we have a 3% seller concession.  The “closing costs” are a wash.

With an FHA loan, in exchange for only having to come in with a 3.5% down payment, there is an upfront Mortgage Insurance Premium (MIP) of 1.75% of the loan amount.

• Loan Amount with 3.5% Down:  $289,500
• FHA Upfront MIP 1.75% of loan: $5,066.25

If you don’t have an extra $5,066.25 lying around to pay the MIP, you may add it to your loan amount.  Your monthly payments are now based on this new “financed” loan amount of $294,566.25

• If you finance MIP – New Loan is : $294,566.25

For example purposes only – we’re going to call the interest rate 6% even.  30 year fixed rate mortgage.  Let’s look at the payments on this new mortgage.

Also, for the purposes of this example, we are only going to look at the Principle & Interest payment (PI) – Taxes and insurance will vary depending on your community and do not affect the actual loan payment because you do not finance either of these expenses.  Ok, back to our purchase…..

• Mortgage payment based on New Loan is: $1,766.07

Here’s where the CalHFA CHDAP program really triumphs as a money saving tool.  CHDAP is a deferred payment junior loan.  This means you do not make payments on this loan unless you sell or refinance the first mortgage.  The interest rate on a CHDAP is about half of typical market rates.  Here’s one way to use the CHDAP loan to lower your mortgage payment….

• CHDAP loan is 3% of PURCHASE PRICE: $9,000
• Use $5,066.25 of this to pay your FHA upfront MIP
• Use the remaining $3,933.75 toward your down payment

Let’s take a look at what you just did to your mortgage payment -

• Original loan Amount with 3.5% Down:  $289,500
• You are no longer financing the upfront MIP
• Contribute another $3,933.75 to down payment
• Your new financed loan amount is: $285,566.25

Same loan, same financing as above when we determined the payment to be $1,766.07……..drum roll please…..

• Your New mortgage payment is $1,712.11

Hmmmm…..not sure if a drum roll was necessary to reduce your payment $53.96 a month?

Let’s take a closer look

• Your first year’s savings:  $647.52 – That might be a car payment?  A contribution to your child’s college fund?  Not too shabby right?
• Your five year savings: $3,237.60 – Now we’re talking…can you say family vacation?
• Let’s look at life of loan: (30 years) $19,425.60 – If you channeled this into an investment account or applied it back toward the principle balance of your loan the benefit becomes too great to measure here.

This is just one way to use CHDAP to help you buy your first home.  Talk to your loan specialist and have a discussion about the best way to use this program to meet your family’s specific buying goals.

CHDAP does not have to be used with FHA only.  It can be used with any other financing that is approved through the California Finance Agency.  Make sure your lender is qualified to offer CalHFA loan programs.

CHDAP is a special program offered by the State of California and has specific qualfying requirements that are difference from FHA or Fannie Mae first mortgages.  An experienced lender will be able to explain the requirements for being eligible for this program.

This is a summary provided by the National Association of Realtors® yesterday (7/28/2008) - under each section I have injected my two cents to provide clarity and stimulate conversation and exploration about the details of this 700 page bill.

The NAR summary will be identified with an indent and bullet point, my commentary identified as NOTE:

NOTE: Following is a summary of the key provisions of HR 3221 - The Housing Stimulus Bill of 2008 as reported by the National Association of Realtors® on 7/28/08:

• H.R. 3221, the "Housing and Economic Recovery Act of 2008", passed the House on July 23rd by a vote of 272-152. On Saturday, July26th, the Senate passed the bill by a vote of 72-13. the President is expected to sign the bill on Tuesday, July 29th. It includes:

NOTE: As of 7/29/08 this bill has not been signed by President Bush. Although there are many things that sound "good" in this 700 page bill, there are many in Washington that are not happy with all the "other stuff" that's been squeezed in there. President Bush has indicated that he will sign the bill, no word about it being delayed.

GSE Reform - including a strong independent regulator, and permanent conforming loan limits up to the greater of $417,000 or 115% local area median home price, capped at $625,500. the effective date for reforms is immediate upon enactment, but the loan limits will not go into effect until the expiration of the Economic Stimulus limits (December 31, 2008 )

NOTE: Fannie Mae and Freddie Mac are Government Sponsored Entities (GSEs), they are not government run (yet) like FHA.  Their primary purpose is to purchase mortgage backed securities.  They are currently regulated by the Office of Housing and Enterprise Oversight Committee.  I'm not sure yet what an "independent regulator" would consist of.  Note to self, get more information on that.  Making the conforming loan limit increases permanent is a very interesting prospect.

It seems that with housing prices dropping the way they are that would not be necessary. This does enable Fannie and Freddie to purchase mortgage backed securities that used to be considered "Jumbo".  This is good news because there is absolutely no secondary market for Jumbo loans now and those banks still offering these loans have rates starting in the high 7% range.

FHA Reform - Including permanent FHA loan limits at the greater of $271,050 or 115% of local area median home price, capped at $625,500; streamlined processing for FHA condos; reforms to the HECM program, and reforms to the FHA manufactured housing program. The effective date for reforms is immediate upon enactment, but the loan limits will not go into effect until the expiration of the Economic Stimulus limits (December 31, 2008)

NOTE: Permanently increasing the FHA loan limits is a very good move.  The loan limits have been antiquated for quite some time.  This will allow many more people to qualify for FHA financing in states like California.  Not sure what the streamlined processing for condos, reform to the HECM, and reforms to the manufactured housing program will entail.  I will report on that when we find out more.

Program reforms go into effect immediately - loan limits after temporary increase expires at the end of the year.

Home Tax Credit - a $7,500 tax credit that would be available for any qualified purchase between April 8, 2008 and June 30, 2009. the credit is repayable over 15 years (making it, in effect, an interest free loan).

NOTE: This is phenomenal.  I have heard a couple of versions of this so i'm not going to get too excited but this is a powerful program and a great incentive to buy in the next year.  I have heard that it will be broken up over 3 years but there is no mention of that in this summary from NAR.  The $7,500 is not free money, however it is interest free.  It will be paid back over 15 years, i imagine it will just be added to your taxes due on your returns - if i did the math right, that's about $500 a year....not bad.  Stay tuned for this one - any way you slice it this is a great feature of this bill.

FHA foreclosure rescue - development of a refinance program for homebuyers with problematic subprime loans. Lenders would write down qualified mortgages to 85% of the current appraised value and qualified borrowers would get a new FHA 30-year fixed mortgage at 90% of appraised value. Borrowers would have to share 50% of all future appreciation with FHA. The loan limit for this program is $550,440 nationwide. Program is effective on October 1, 2008.

NOTE: Ok, this is a clarification on earlier reports.  The caveat of this program is that lenders are not required to participate in this write down, they must volunteer to forgive loan balances down to current market value, 85% of current market value no less.  I just don't anticipate this going over well with most lenders and I believe they will be slow to adapt - you can read more about my opinion of this here.

Although it's not mentioned here, I have also read and reported that the lenders will have to pay a 3% fee to FHA and there will be an upfront mortgage insurance premium to the owner of 1.5% of the loan amount and a monthly mortgage insurance premium of .50.  If this is consistent with FHA loan now, that upfront PMI can be financed into the loan.

Wait a minute now, hold the presses!  FHA is entitled to 50% of future appreciation?  This is the bottom of the market right here folks.  If your home is being re-valued at current market value then you have nowhere to go but up right?  I know reporters are not supposed to interject their personal feelings into a story...so it's a good think i'm not a reporter...this is something I am going to keep an eye on.  Another question that comes to mind is will the county tax assesors adjust your property tax base to this new value?  It's time to start asking more questions I think.

Finally, the loan limit of $550,440 nationwide is a good move.  This is going to help a lot of people.

Seller funded downpayment assistance programs - codifies existing FHA propposal to prohibit the use of downpayment assistance programs funded by those who have a financial interest in the sale; does not prohibit other assistance programs provided by nonprofits funded by other sources, churches, employers, or family members. This prohibition does not go into effect until October 1, 2008.

NOTE: This is unfortunate.  HUD has had it in for Nehemiah, AmeriDream, HART and the sort since last year.  My guess is that these charities will find a way to survive through private funding.  Possibly putting home sellers on a "do solicit" list and hound them until they give?  I don't know...it's a guess.

These organizations have helped many families achieve home ownership that otherwise would not have been able to.  This bill simply states that FHA will not allow down payement assistance from someone that is set up to financially benefit from the transaction and the gift.  Fair enough.  These organizations I imagine will continue to operate somewhat in the style of city and state down payment assistance programs and try to acquire funding through government grants and donations.  I'm confident that they will exist in some fashion or other, maybe just not the way they do now.

VA loan limits - temporarily increases the VA home loan guarantee loan limits to the same level as the Economic Stimulus limits through December 31, 2008.

NOTE: I don't quite understand the temporary part of this.  I suspect that it's a set up for an extension at the end of the year, possibly a grand finale by the Bush administration to help Veterans.  It's a very good move as far as i'm concerned, even if it is temporary for now.  We don't do enough for our country's Veterans as it is.

Risk-based pricing - puts a moratorium on FHA using risk-based pricing for one year. This provision will be effective from October 1, 2008 through September 30, 2009.

NOTE: As part of the expansion of FHASecure, HUD implemented risk based pricing into thier mortage insurance model.  It basically raised mortgage insurance premiums on homebuyers that were on the lowest end of the credit tolerances when being approved for FHA loans.  I see their point, i just don't know if it's good for tax payers.  It looks like it's just a temporary measure to stimulate the housing markets again by the end of 2009.  That, i'm ok with.

GSE Stabilization - includes language proposed by the Treasury Department to authorize Treasury to make loans to and buy stock from the GSEs to make sure that Freddie Mac and Fannie Mae could not fail.

NOTE: This is a very positive move by the Treasury Department and will go a long way toward shoring up consumer confidence and stimulating the secondary market.

Mortgage Revenue Bond Authority - authorizes $10 billion in mortgage revenue bonds for refinancing subprime mortgages.

NOTE: I do not have enough information to comment on this.

CDBG Funding - Provides $4 billion in neighborhood revitalization funds for communities to purchase foreclosed homes

NOTE: Community Development Block Grants.  There are already reports of cities buying up foreclosure homes fixing them up and reselling them.  This is an important move by responsible municipalities to revitalize hard hit communities and help home values recover quicker.  I imagine these monies will be distributed proportionately to those areas of the country that have been hit hardest by foreclosures.

LIHTC - Modernizes the Low Income Housing Tax Credit program to make it more efficient.

NOTE: I do not have enough information to comment on this.

Loan Originator Requirements - Strengthens the existing state-run nationwide mortgage originator licensing and registration system (and requires a parallel HUD system for states that fail to participate). Federal bank regulators will establish a parallel registration system for FDIC-insured banks. the purpose is the prevent fraud and require minimum licensing and education requirements. The bill exempts those who only perform real estate brokerage activities and are licensed or registered by a state, unless they are compensated by a lender, mortgage broker, or other loan originator.

NOTE: This is a move that many in the mortgage industry have been in support of.  There is too much inconsistency from State to State in regards to licensing requirements and regulation.  I do not know enough about these new requirements to comment further.  I will do more research and report back.

As we wait for President Bush to sign this bill I'm sure more and more details will come out.  I encourage you to comment and engage in debate about this bill so that we can disseminate details as we get them.

For questions, comments or conversation about H.R. 3221you may call me on my cell phone at 714-336-8286

Being whispered in the back halls of Real Estate and Mortgage Lender's offices this past month is the news of Fannie and Freddie enacting a "Buy and Bail" rule to prevent fraudulent mortgage loans from being purchased on the secondary market.

In some cases, homeowners are encouraged and coached through this process by Real Estate Agents and Mortgage Brokers who believe there is nothing wrong with the practice as is reported in this WSJ article - Some Buy a New Home to Bail on the Old

Here's a snapshot of how "Buy and Bail" works:

Joe homeowner bought his home several years ago for X dollars. Property values in the neighborhood have dropped drastically over the past 12 months and Joe homeowner can now buy a similar or even bigger/better home for about 60% of what he owes on his current home.

Joe homeowner is advised or figures out that he can buy this new home and "say" that he is going to rent out current home. Under current underwriting guidelines Joe can use 75% of the rental agreement payments to offset the mortgage payment on his current home/rental.

Joe buys new home....Joe walks away from other home....Joe stops making payments because he never had intentions of carrying both payments....Joe is a "Buy and Bail" expert.

So, a conversation that Karen and I had today, which prompted this post, is understanding where the "Mortgage Fraud" comes in under this scenario. Neither of us are lawyers so this is speculation but here goes my best guess - When applying for the new loan, the existing home was listed as an investment property. Here lies the fraud.

If Joe stops making payments and the home goes into foreclosure shortly after he is in his new home...I believe this is where the "Duck" rule applies - If it walks like one and sounds like one...it probably is one.

The New Rules
Beginning August 1st, 2008 - Fannie and Freddie are implementing the following rules:

Home buyers claiming to rent out current home must produce supporting evidence including an executed rental agreement.

Borrowers must also qualify counting the full PITI payment for both homes against their debt to income ratios. With tightening underwriting guidelines that makes this a very strict rule that most will not be able to get around. The exception to this is if there is at least 30% equity in the "rental" home.

Although I have not read any documented policy for these new rules I have heard through the grapevine that it is the case and several lenders have already begun to implement these restrictions on conventional as well as FHA purchase loans.

I believe that this is a responsible rule and Fannie and Freddie are certainly justified in implementing these rules, maybe not a moment to soon as "Buy and Bail" seems to be growing in popularity - but here's my problem with it.

How to REALLY Help Homeowners in Trouble
There is no question that it is both legally and ethically questionable on the homeowners part to partake in this practice but how much responsibility falls on the lender's shoulders? I think quite a bit.

There are many of billions in inevitable losses on the horizon in the U.S. real estate market. The unfortunate end for many challenges homeowners are currently experiencing is foreclosure. What happens as the result of a foreclosure? The bank takes the asset/home and resells it in one of the worst real estate markets in the past 20 years.

What's the lesson here? Principle reduction is the lesson. The Foreclosure Prevention Act requires that lenders "forgive" principle balances down to 90% of current appraised value in order to qualify for FHA insurance on the loan. How long do you think it will take for the lender to "volunteer" for this? It is not required that Lenders participate in this program, it's going to be interesting to see who takes the lead on this.

If Lenders would embrace the these losses now and modify promisory notes to reflect affordable payments to the homeowner the note becomes a performing asset once again which is investment quality after 6 months of on-time payments....am I crazy or does this make sense?

Let me quickly qualify the above mention of "affordable payments" - Borrowers must qualify for payment by providing full income and assets to Lender for review and principle reduction must be reasonably close to current market value or there is no incentive by the Lender to accept modification as a viable option.

Keep an eye on this topic, I think there's a lot more to come in the upcoming months on the subject of principle reduction as a viable and universally accepted alternative to foreclosure.

What do you think?

On Wednesday the House voted 272-152 to pass H.R. 3221, The American Housing Rescue & Foreclosure Prevention Act that will offer up to $300 billion in assistance to troubled homeowners and offer government support for Fannie Mae and Freddie Mac.

This is a a 700 page bill that includes many moving parts.  President Bush has been long threatening to veto this bill as package and asked that it be revised.  It appears that this current version is not going to face any challenges when the President sees it shortly.

Helping At-Risk Borrowers

The part of this bill that is good news for challenged homeowners looking at adjusting interest rates and negative equity involved FHA insuring up to $300 Billion in new 30 year fixed rate mortgages for at-risk borrowers living in owner-occupied homes.

In a nut shell, here are the proposed terms outlined:

• The existing lender must agree to "write down" the balance of the existing loan to 90% of the homes' current appraised value.
• Lenders must agree to also pay upfront fees to the FHA equal to 3% of the home's appraised value.
• Borrowers must agree to pay an annual premium to the FHA equal to 1.5% of thier new loan balance.
• Borrowers must agree to share with the government any profit they realize from selling or refinancing.

Helping Hand Holds Comes At A Price

Ok, so is this a cure-all or a "bail out"?  It certainly does not seem that way to me.  For borrowers that qualify for this program, it will still come at a large cost.  For instance, if your home is now worth $250,000 - you must pay $3,750 a year to FHA?  Even if they break it up over 12 months that adds $312.50

Add the equity share if you sell or refinance and it starts to get a little less friendly.  I saw this in the early 2000's when folks were just starting to see huge equity increases.  One specific case was a county provided silent second mortgage used to purchase the home.  It included an equity share clause similar to this one.

The "share" of equity for this particular loan was over $17,000! 

Take into consideration also that although prices will continue to drop if left to follow it's natural course of market correction, it is likely that homes are very close to the bottom in many areas around the U.S.  If you "commit" to a loan that is 90% of current appraised value at the "bottom" of the market.....That equity share could mean big bucks!

Historically, Real Estate doubles in value every 10 years.  I'm sure this will be the case with many homes in many areas at the significantly deflated prices resulting from this unique collapse of the secondary and credit markets.

It will be interesting to see what happens and how many homeowners it helps.....And don't let me seemingly pessimistic and cautious reservation about this bill fool you....I see a rainbow!

The Rainbow - The Answer to Short Sales and Loan Modifications

I believe that the passing of this bill is going to help MANY, MANY home owners currently having challenges with their payments, and here's why.

• This bill is going to force banks to start considering principle reduction as a method of preventing foreclosure.
• This bill puts the responsibility back on the banks to keep people in their homes.
• A Bank participating in this program is forced to pay big fees - 3% of the appraised value

Let me explain.  If the banks are already being forced to consider principle reduction (reduce amount of loan to reflect current home values", why would they pay FHA an additional 3% instead of simply modifying the note themselves?

3% does not seem like a lot of money until you multiply it by tens of thousands of loans.  It makes sense to me that if the banks hand is forced, they will accept that principle reduction is a vehicle that will keep their clients (home owners, investors) happy - and they will begin to look for ways to save money....say....3%

What I don't know is how valuable the Government Mortgage Insurance will be to these banks.  As with all legislation, what looks good on paper does not always mean there's a practical application in a free market society.  We will see.

Either way you cut it, i think it will help many home owners stay in their homes.  I think it will force banks to do the "right" thing and do what it takes to keep folks in their homes.  I believe that it will begin to restore confidence in foreign and domestic investors and bring liquidity back to mortgage backed securities.

There you have it....that's my .02 - I guess it's just wait and see time now.

Reposted from my Blog on July 23rd @ 9:00am

July 23rd 2008 - JUST RELEASED!

This conventional first mortgage loan program features a below market, 30-year, fixed interest rate, fully amortized loan reserved for REO properties of participating financial institutions. It has a maximum LTV limit of 100% and may be used with CalHFA’s CHDAP and Fannie Mae eligible Community Seconds® programs (which are designated on CalHFA’s AHPP list as “CalHFA MBS Program Eligible”) for a total CLTV of 103%....Click here to get more details and guidelines

Ok, I admit - i was originally inspired to write about Vlad's unfolding trials (literally) with ePerks because Mary McKnight was offering a free RSSPieces blog

I have been following the story, sort of half paying attention for some time....not sure how i ran into it, but it struck me as disturbing in a way that i haven't read a lot of comment on - so here I go with my own .02 rant on the situation.

Reputation management is an important part of our responsibility as bloggers.  Blogging has become a very real and vital part of Web 2.0, RE 2.0 and i'm sure to a completely new level of transparency, ease of use and interaction through all of the "point o's" to come.

The ability for us as individuals, business owners and regular 'ole people to have the ability to engage in open converstation and exchange with the world simply by being interesting and capturing peoples attention is an amazing phenomenon.  Hat's off to Vlad for earning that reputation so that this entire exposure is even possible.

The exposure I speak of is the vulnerability of Businesses wishing to compete in a 2.0 world.  In this case, ePerks invited it's client base to solicit "word from the street" feedback on it's services.  Ok, here's where i feel my blood pressure rising and I get that little white "v" between my eyes from my involentarily furrowed brow.

Is ePerk's entire premise for thier law suit here that they only wanted people to say "good things" about thier services?!  Can anyone be so naieve to think that 100% of thier clients will be 100% satisfied?  Thier reaction to the feedback they received could be taught in Harvard business school as exactly what NOT to do when given the opportunity to get completely legitimate and valuable feedback on your products and services from your customers.

This is what is blowing my mind.  Imagine any company worth it's salt attacking it's customers because they are not satisfied with the products and services it offers!  Let me get this straight.....as an American I can go to the top of the highest building or on the busiest site on the web and rant and rave about how the leader of the free world, our President, is a bumbling fool and has done nothing but screw up since accepting charge of the helm...(for analogous purposes only - this does not reflect my political views :) - But if write a blog about the fact that McDonalds hamburgers taste like cardboard....they are going to sue me if enough people agree with me?

ePerk's is doing a great job and a great justice to all of us right now.  I'm totally serious here.  It takes a lot of guts and an incredible amount of ego to stand in the face of the ludicrous with index fingers firmly embedded in each ear and scream about how the big bad bully called them a name.

Forget about the fact that Vlad NEVER once made any negative comments about ePerks, this came about from comments he recieved from ePerk's unsatisfied masses (or few) that had a differing opinion from him on his original complementary input about thier offerings per thier request.

Ok..that was a drift...back to my point.  ePerks is doing all of us in the blogging community and everyone in the Web 2.0 world a great justice here by being such cry baby's.  Let's make this very, very simple in case an ePerks suit happens to keyword subpeona every blog ever written about this case as evidence in support of thier argument that they are being "hurt" by all this attention. 

Are you ready?  Here it its......You have been given a gift wrapped opportunity to improve your products and services.  This attention is a GIFT vital to your survival IF you take the feedback seriously and use it to improve your product.   

ePerks made one mistake and one mistake only....they made thier report card public.  They thought that because they were good at sports that they would recieve straight A's even though they never did thier homework.  Ok, i hear you, it sucks when your girlfriend says you're lousy in bed in the middle of a party...i get it.  It's just that you can't walk up to her and punch her in the mouth!  This is what happens....everyone at the party thinks you're an A**Hole (i apologize for the implied profanity...i'm a little riled up) and they talk about it to everyone they know.

Reputation management a huge reality for business in the web 2.0 world and ePerks is a blazing example of how it can all go horribly wrong.  I think that more important than bringing attention to Vlad's fight is bringing even more attention to the outcome of this battle.  If, and I can not possibly see it going any other way, Vlad comes out of this as the victor, ePerks will have set legal precedent for bloggers everywhere.  I believe they have brought upon themselves a crippling blow to thier ability to survive as a company through thier immature handling of this situation.

Do you think that Zillow has not recieved criticism about it's products and services?  What would David Gibbons do?  He would thank you for your input and use it to improve thier products and services or engage in a converstaion with you better understand the root of your critisism so as to better provide a valuable service to all.

Vlad needs our help.  There's no question.  Greg Swann has set up a legal fund for Vlad to help with the legal expenses of defending himself against ePerks in court.  Please continue to read about this case and understand it.  This is an important opportunity for us to show the strength of our "Community".

This is GREAT News for first time home buyers!  As this market begins to correct itself and new underwriting and credit guidelines are being established, Fannie mae announced on May 16th, 2008 that it is replacing it's Declining Markets Policy with a new Down Payment Policy.

The Declining Markets Policy basically said that if a property was located in a "declining market", the maximum LTV/CLTV would be reduced by 5%.  In a nutshell, if you previously would have qualified for a FLEX 100 or MyCommunity 100 - meaning 100% financing, you now have to come up with a 5% down payment.

The National Down Payment Policy states that there is a minimum down payment of 3% required for all loans approved through DU and 5% required for manually underwritten loans.  This is consistent with what have long been FHA guidelines in regards to down payment requirements.

The elimination of FLEX 100 and MCM 100 is not the end of the world.  The FLEX 97 and MCM 97 are both very aggressive programs for first time home buyers and home buyers purchasing a primary residence that may own other properties.

Down Payment Assistance Programs are allowed to cover the 3% down payment requirement and/or closing costs making this an incredible opportunity for home buyers.

For information about the Flex 97 and MCM 97 or information about Special Programs Specifically for California Teachers and Employees, contact me today!

I can be reached any time at:

Cell / Text: 714-336-8286
Email: Scott@MyPorchLightScott.com
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Short Sales or short pays continue to be the number one most confusing subject in today's real estate market for new home buyers and home sellers.

Let me try to put a better perspective on this process and maybe help both buyers and sellers so that you can better understand the process and have a better chance buying and selling a short pay / short sale home.

Knowing your options will put you in control of your situation.  Armed with this knowledge both buyers and sellers will have a better understanding of the process, the expectations of the bank and the patience you need to have to get through one of these transactions.  When done correctly, as short sale will be a Win/Win/Win for seller, bank and buyer.

What a Seller Needs to Know about short sales is the bank is much less likely to kick you out of your home if you communicate with them.  Bottom line is there are many options available to sellers of homes.  I know these are difficult times, it is for many people right now. 

There are many experienced Realtors® that can help you get through this as easy as possible and with as little stress as possible....and, unfortunately these situations are new for many people, including Realtors.  There is a learning curve that we are all experiencing right now to help home owners through these difficult times.

If you are in a hardship and can not make your complete payments - talk to the bank/lender.  It is important that you understand that there is a process and procedure and nobody wants to take your home from you.  Banks are businesses and they have procedures for these situations.

Take a look at this simple, easy to understand web page from Washington Mutual.  These options are available through many lenders and banks.

Let's take a closer look at the four most common options from Washington Mutual's site.

Repayment Plan

If your mortgage payments are past-due, we may be able spread out the past-due amount over several months. Each month you will pay your regular monthly payment amount plus a portion of the amount you are behind until your mortgage loan is deemed current.

With a repayment plan you can:

• Repay the amount you are behind over time
• Postpone foreclosure proceedings
• Protect your home

Forbearance

If your mortgage loan is past-due and you're overcoming a temporary hardship, we can establish a forbearance plan. This plan will allow us to suspend or reduce your monthly payments for a short period of time to help you catch up. We can also establish a forbearance agreement if you are trying to sell your home or complete a loan modification. Please contact us to discuss how we can work together.

With a forbearance agreement you can:

• Get a short break or reduction in your monthly mortgage payments
• Work with WaMu toward a more permanent resolution by modification of your mortgage loan

Short Sale

If you owe more than your house is worth, we can work together to sell your house to payoff all or most of the mortgage amount. A short sale allows you to control the timing of the sale. The property must be listed on the Multiple Listing Service ('MLS') with a Realtor.

With a "Short Sale" you can:

• Voluntarily List your house for sale and be in control of the sale process

Deed-in-Lieu

As a last resort you can voluntarily transfer the property title to the lender.  This is called a "Deed-in-Lieu" of foreclosure.  You voluntarily deed your property in-lieu of losing it at foreclosure.  If you do not have any other loans, liens or judgments attached to your house, then we can discuss ways to transfer title. We would explore the deed-in-lieu only after we have exhausted all your other options.

With a Deed-in-Lieu of foreclosure you can:

• Avoid additional foreclosure charges from being assessed

Being in Control is so important.  These challenges are very common in this market for many, many reasons.  Each situation is different and it is vital that you have good people on your side.

Listing your home for sale is not the answer to all of your challenges if you are behind on your payments.  It is important that you work with a Realtor that is familiar with how to best market your home for a short sale so that you and your family are in control of the process.

If It Sounds To Good To Be True it probably is.  Unfortunately when people are hurting there are other people out there to try to take advantage.  There are many SCAMS in this marketplace that promise you options that at the very least are illegal (for them to offer) and at the very best highly unethical, misleading and could result in you losing your home in a much worse way.  Here is a good article about some of the most common SCAMS in being perpetrated in this market.

The First Step is to find a Realtor® that understands how to market and sell your home as a short sale or short pay.  There are no guarantees that you will not still have challenges throughout this process and there are no guarantees that the bank will cooperate with you during this process. 

The Best You Can Do Is Be Proactive and be educated about the process.  Avoid being the guest of honor at a pity party and take control of the situation.  I know that sounds harsh - it's not - it's tough love.  The best way for you to protect yourself and your family is to understand the facts, educate yourself about your options and work with a Realtor® that helps put you in control of your situation and helps you to work with the bank and communicate effectively to keep you in control of the process.

You may be protected against Tax Liability in a short sale.  President Bush signed HR 3648, the "Mortgage Forgiveness Debt Relief Act of 2007 on December 20th 2007.  This act revises the IRS tax code and removes your tax liability for the "short" part of the payoff on your existing home.  In the past, the "short" amount was 1099 misc income and you where liable to pay taxes on it.  The Government has stepped in to protect home owners against this tax liability as a result of these difficult times for so many people.  There are exceptions to having this debt forgiven and you should consult your CPA or Accountant for your specific situation.

Last and Certainly not Least - A Prime Example of What Not to Do! 

Finally, i would like to leave you with this example of how difficult this situation can be. This is a great example of how we are all trying to learn about the complicities of short sales and short pays.

The other day I was making phone calls to listing agents to make appointments for my buyer.  The listing agent returns my call on a short sale / short pay that I was inquiring about.

Here is the conversation that took place about the property i was inquiring about:

"That bank foreclosed on the property right out from under me.  I can't believe that (insert explatives here) bank.  I have had this listing for 4 months now and the other day I went to the home and knocked on the door.  A person answered the door and it wasn't my client!  The bank foreclosed on the home and already sold it behind my back!  I asked the new owner who the bank was because that was just wrong."

This is not an exact quote but it certainly is the same conversation.  This real estate agent was not familiar with short sales and did not educate the home owner.  Communication is the moral of this story.  Communication with your Realtor, communication with the home owner, communication with the lender/bank is so very important.

It is Important that you Understand what is happening on the other side of a short sale or short pay when you are considering making an offer on a home in this situation. 

Read This First - And then come back and finish this article. 

Ok, welcome back.  I want to give you a perspective on buying short sales and short pays that will give you more control of the transaction.  Short Sales and Short pays are becoming more and more common in this real estate market and my best guess is that over 70% of what you are finding when you search for homes are either short pay / short sales or foreclosure / REO homes.

The seller and seller's real estate agent are an important part of the short sale process.  The number one thing i hear from "agents" is that the bank foreclosed on the home without notice.  I understand that there are some banks/lenders that are not cooperative and difficult to work with and I also believe that many times that is a self induced "difficulty" due to a lack of understanding of the process.

Much of the difficulty of the Short Sale / Short Pay process can be avoided with a simple matter of perspective by both home buyers and the Realtors® that represent home buyers.

You can make the process easier by understanding it.  Your Realtor should be able to communicate with the seller's agent to determine whether or not they are communicating with the bank/lender. 

Here is a "Perfect World" example of how to make an offer on a short sale / short pay and buy your new home.

• The seller's real estate agent has educated the home seller on all of their options.  The seller is communicating with the bank and has ensured that the bank will not foreclose on the home during the process.  The seller's agent has already prepared and reviewed the seller's hardship package and is confident that the seller is a good candidate to ask for a short pay from the bank.
• Your Realtor® has researched the comparable sales in the area and has recommended a fair offer price that the bank should be willing to accept.  You should typically offer between 10% and 15% below current market value to accomodate for any further reduction in values over this (3 month) process.
• Once the offer has been accepted by the seller, open title and escrow and order an appraisal.  You know that the bank will order an appraisal or BPO before even considering your offer.  Submitting an appraisal with the purchase offer and financing approval to the bank/lender you will make the negotiator's job easier.
• Your Realtor® and the sellers agent are communicating and have a solid game plan on how to get you into this home.  They work together to give you the best chance of buying and give the current home owner the best chance of selling their property to result in a Win/Win/Win for all parties involved.

Be willing to make an investment of $350 if you really want this home.  Pay for an appraisal.  It is the single most pivotal component of your offer to purchase this home for less than what is owed on it.  An appraisal is an opportunity to get an independent third party report on the actual market value of the property.  Once you have the appraisal, you will know if your offer is too high or too low and you can change it accordingly before submitting the package to the bank. 

The Bank/Lender would prefer not to foreclose on a property unless they have determined that it is thier only option.  I have seen banks postpone the foreclosure process for up to a year if some arrangement is made to make partial payments on the loan during this process.  It is very expensive for a bank to forelcose.

Doing your homework will save you money.  By making a fair offer to buy the home, you increase your chances of having the bank pay for closing costs.  Many banks/lenders will pay up to 3% of the sales price toward your closing costs if your offer is fair.  Make sure your Realtor® also verifies that the current home owner has made arrangements with the bank to prevent the home from going into foreclosure during the offer process.

Getting a good deal on a Short Sale / Short Pay is a matter of you being able to buy the home of your dreams and have a payment that you can comfortably afford.  There are no magic deals out there, you can not buy a home at a HUGE discount unless you are an all cash buyer and the home needs a lot of work. What they don't tell you is that the homes on TV that they buy, fix up, and sell for huge profits are cash purchases.  Cash is king in Real Estate and there are incredible deals out there for investors.  Investors do not buy short sales / short pays - they buy bank owned homes in poor condition that do not qualify for bank financing.

Now that you know the secret to buying a short sale / short pay home - be patient and find the home of your dreams.  Buying a short sale or short pay is a long term commitment.  Do your homework.  Make sure your Realtor® does thier homework and most importantly - Enjoy the Process! 

This is an incredible opportunity for home buyers.  If you are armed with a good team going into this market - you will surely be the proud owner of a new home!