If I could be  President Obama’s Mortgage Czar for just one week, the first thing I would mandate is that all existing mortgages become assumable.

When starting my real estate career in Houston, Texas during the last century, it was not uncommon for buyers to assume or take over  existing  financing. In fact, it was a perfect way for the self-employed or those with dinged credit to buy a home.  And because there were no loan origination fees or points,  buyers were often willing to pay a slight premium for homes with assumable loans.

To implement this today would create an immediately available financing alternative for the real estate market–and might even be a way for banks to deal with some of those famously-toxic assets. As Mortgage Czar, I would create two tiers for Assumable Loans:

1. Non-Distressed Loans. Owners of these home have equity and would likely need concessions from neither the lender nor the government, other than permission for the mortgage(s) to be assumed. For example, Seller Smith has an outstanding mortgage of $200,000 and is selling his home for $250,000. Buyer Jones would pay $50,000 plus minimal closing fees and would assume esisting financing. All future payments would now be made by Buyer Jones.  It is a simple transfer of title and mortgagor with no change in terms.

2. Distressed Sales. Sellers of these homes have no equity; in fact, they generally owe more than the home is worth.  Using a blend of short sale and loan modification procedures, loan balances and interest rates on these homes would be adjusted to current market value and rates.  Because buyers would no longer be “buying equity” and would have no equity stake in the properties, lenders could now require that prospective buyers deposit at least three months’ payments with the lender as insurance against potential future default.The Buyer would also be responsible for applicable closing fees.

Implementation of this mandate would allow both the existing borrower and the lender to avoid the costs and damages of the foreclosure process–and would help protect neighborhoods from further decay and decline.

By allowing mortgages to become assumable, we would also be offering a second chance to many whose credit ratings have been demolished by short sales and foreclosures.

Under this plan, lenders would fare much better vis-à-vis short sales and foreclosures–and more homeowners would be able to save their credit and exit their situations with dignity.  Most lenders now force homeowners to be in default with their mortgage before they will even consider a short sale or modification of terms.

It just makes sense to get the mortgage debt seamlessly transferred before it ever goes default.

And with strangled liquidity in financial markets, it makes more sense than ever for this Mortgage Czar to transfer debt rather than forcing buyers to secure new financing–which may or may not be available.

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Forecl—–

It’s a word softly whispered when luxury homeowners in luxe communities like Palm Beach (33480), Beverly Hills (90210), Greenwich (06831) and Rancho Santa Fe (92067) discuss their local real estate markets.

Real estate prices have been declining in many of these markets throughout the country, and some of the heavily mortgage homes are ending up as foreclosure sales. The most prominent foreclosure victim of late is Ed McMahon, whose $5 million Beverly Hills mansion was recently lost to foreclosure.

This morning, CNNMoney reports that three of the richest US zip codes saw nasty declines in home prices for the three-month period ending April 30, when compared with the prior three months. The three biggest losers?

1. Palm Beach, Fla saw a 38 percent decline in median home prices during that period, while

2. Wayzata, Minn (55391) slid 28 percent, and

3. Greenwich, Conn. dropped 15 percent.

Much of the price decline can be attributed to inflated mortgage fallout, but another transition is also contributing to the declines: Downsizing. Many of the large luxury residence owners are baby boomers who are seeking to downsize into a more convenient and connected urban lifestyle–and are doing so in growing numbers.

Not all luxury zip codes and communities are in the tank, though, according to the CNN article. For the 12 month period ending March 31, prices actually rose 18 percent in the upscale Kenilworth (60043) communiity, just outside Chicago. Other ritzy gainers included Medina, WA (home to Bill Gates just outside Seattle) with a 9 percent increase, and a 5 percent climb for Atherton, one of Silicon Valley’s suburban crown jewels.

The post The F-Word in Luxury Real Estate appeared first on Luxury Home Digest.

Luxury Home Foreclosures?

It appears that even the luxury real estate market will not fully escape the financial ravages that are taking down less-expensive neighborhoods.

Housing Wire asks: Has REO gone jumbo? To find out, they consulted with Integrated Asset Services, LLC in Colorado to see if foreclosures are moving up the real estate food chain. And though not all properties with loans in excess of the the conforming $417,000 are luxury homes, it appears that an increasing number of residences in that loftier lending arena are heading to short sale or foreclosure. In California, for example, IAS and Housing Wire saw 102 REO’s sell for more than $417,000 during April, compared to just 13 in April, 2007.

Anecdotally, we have seen a spike this past year in San Diego luxury homes that are closing as short sales (where more is owed on the property than what it is worth), or which end up as foreclosures and REO’s (real estate owned bank properties). We have also seen that it takes lenders far longer to reach an agreeable sales price compared to smaller loans–and that may be understandable.

On one hand, more money is at stake and greater care must be taken in reaching a fair valuation; on the other, carrying costs (taxes, insurance, maintenance, security and HOA fees) run far higher than ordinary REO’s. And that those are bills most lenders and services do not want to shoulder.

In a recent transaction in coastal Encinitas Ranch, Washington Mutual required two appraisals and took almost four months processing time before reaching an agreed-upon sales price. And during that time, foreclosure sale was delayed twice. The original loan amount was $1.2 million and the final sales price was $880,000. It was a major hit for the lender/investor , but costs would surely have been greater if this Encinitas home had gone to foreclosure.

We are currently involved with two other sellers who have loans exceeding $1 million and whose custom homes could end up as foreclosures if Countrywide and First Franklin investors cannot come up with pricing that reflects current San Diego market realities. Neither home is coastal (which would help prop up valuation) and neither have area comparable sales that would support pricing anywhere near what is owed on these homes.

Outside of our San Diego real estate practice with Villa Sotheby’s International Realty in Del Mar, we are hearing whispers that there will be more luxury short sales and REO’s before the real estate market recovers. And out of the confusion and delays in disposing of these luxury properties will be opportunities that luxury investors have been long awaiting.

And even the ultra-luxury real estate market appears to be experiencing some correction. In 2006, we wrote about Donald Trump’s luxury estate in Palm Beach being offered at $125 million. Recent reports say it sold at just $100 million.

What may have been painful for The Donald would have been a coup for the lucky buyer. I guess every market has silver linings–for someone.

The post Rise in Luxury Home Foreclosures, Short Sales and REO’s? appeared first on Luxury Home Digest.

The real estate predators are always there–in good times and in bad.

There are whispered stories in real estate circles of certain escrow and loan officers who, in the heady days of real estate, slipped deeds into the stacks of papers homeowners were signing as they refinanced their homes. The deed, of course, moved the property into the predator’s claws.

As the Discovery Channel shows, predators will always pick off the unsteady, the not-so-swift and the elderly because the catch is easy and the herd moves on. No different with these criminals.

But you know what’s scary?

The employers of these predators, when or if they discovered the crimes, fired the perps summarily–and kept their collective mouths shut. They didn’t want bad press, they didn’t want exposure, they didn’t want to field the possible litigation that sometimes come from predator attorneys.

It was a criminal catch and release program that spared corporations their reputations and the hassle of potential lawsuits.

As as result, it should surprise none of us that these same real estate criminals (and others who have caught onto their scams) are again preying on unsteady homeowners. This time they disguise themselves as the good guys of real estate, who are out to save stressed homeowners from foreclosure. Their lines and lead-ins go something like this:

I can save your home from foreclosure. I can save your credit. Just sign here.

Other wannabe-predators offer embarrassed and delinquent homeowners the chance to stay in their homes as renters, and then offer to buy them back when circumstances improve. Families can remain in their homes, the kids can stay in school, and neighbors will never know the difference.

The only problem is that the prices at which the homes will be eventually offered back to the former owners may be far above market value.

The true real estate predator will offer to make the foreclosure go away with a simple loan. All the distressed homeowner needs to do is sign on the marked lines (at the bottom of the promissory note and deed of trust)–which means that he and/or she have just signed over the deed to the house. These predators are really good at slipping these critical documents into big stacks of paper that need to be signed in any real estate transaction. If we recall, this is the same tactic these creeps used a few years ago and their targets remain the same: The distressed, the unsteady and the elderly–who also own homes with enough equity or opportunity to make it worth the hunt.

My advice to distressed homeowners? Immediately consult with a reputable real estate professional or attorney before signing anything offered by a real estate problem solver–and remember that the predators wouldn’t be after you if there wasn’t any meat on the target.

The post Troubled Homeowners: Beware the Predators appeared first on Luxury Home Digest.

Some of the more difficult listing appointments our group encounters these days are ones that involve short sale conditions. In this situation, the seller owes more on the property than what it is worth in the current market.

A year or so ago, we were having to explain how short sales worked to anguished sellers. These days, sellers call us, say they are underwater with their mortgages, and ask if we can help get them out from under crushing and/or mounting debt. And contrary to popular belief, short sales are not only occurring in condo conversions and lower end properties, but in the luxury home market as well.

How and why do short sales present such potential for real estate investors and home buyers? Most short sales situations we encounter in San Diego involve homes that were purchased in the last two years with 100 percent financing, or homes that had been refinanced—often a number of times. Many of these properties are also encumbered with Option ARM mortgages, whose rates have reset to unaffordable rates and may have negative amortization.  

No well-advised buyer would ever pay an inflated price for a home to accommodate a home seller’s inflated mortgage debt.

In fact, we routinely check the outstanding mortgage debt on properties we show to home buying clients to check short sale potential. Many buyers don’t want to go through the protracted hassle of waiting for lenders to respond to offers. Others are willing to trade time for opportunity. Regardless, we feel compelled to advise buyers of the possibility.

It may be anecdotal evidence, but we seem to be encountering more homes at the low end of the luxury market that will likely be sold under short sale conditions. In the San Diego market, many of these properties are newer tract homes that are in the $1 to $1.5 million range. These sellers have also had the added burden of having to compete with builder’s inventory that is/was being sold with ultra-generous incentives.

And what does the near-term future hold for short sales in the luxury home market?

Difficulties will arise with some of the luxury home purchases and refinances that were accomplished with Option ARMs and their “teaser” entry rates. A million dollar mortgage that originated 30 months ago and had payments starting around $2600 per month could now be readjusting to just under $7000 per month. And refinancing out of these products is often daunting, because of hefty prepayment penalties.

It is a story that is still under development.

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