5 Real Estate Scams You should be Aware of.

I found this article to be very poignant in this time when everyone is asking why the lending regulations are becoming so tight. There has been a lot of scams and abuse out there lately, when it comes to buying real estate.

Mortgage fraud is wide spread: An estimated $4 billion to $6 billion in annual losses result from mortgage fraud, according to FBI reports. Mortgage fraud can lead to a spike in foreclosures, home values plummeting, and lenders raising their rates and fees to recover losses.

The crimes are often complex, involving several parties and occurring over multiple transactions. To protect you and yourfamily, educate yourself about mortgage fraud and be on guard for any warning signs in a transaction. You can start by reviewing these five scams.

1. The Foreclosure Rescue Scheme

The Scam: “Rescuers” promise cash-strapped home owners that they can save their home from foreclosure. The rescue, which involves paying upfront fees, can take multiple forms, such as the perpetrator obtaining a new loan on behalf of the owner or by having the owner sign over the home’s deed and then rent the home until they can repurchase it. Eventually, the home owner loses the home, either to foreclosure or the fictitious rescue company.

Red Flags: With foreclosure rescue programs, borrowers are often advised to sign over the title of their house to a third party, become renters of their home, not contact their lender, or send mortgage payments to a third party, according to Fannie Mae, which provides fact sheets on mortgage fraud.

2. Loan Documentation Fraud

The Scam: This fraud involves numerous schemes in which a borrower provides inaccurate financial information — such as about their income, assets, and liabilities — or employment status in order to qualify for a loan with lower rates and more favorable terms. Occupancy fraud is one growing area: Borrowers say they plan to live in the property when they actually intend to rent it.

Red Flags: Documentation may raise suspicion if the employer’s address is shown as a post office box, accumulation of assets compared to the person’s income appears too high or low, the new house is too small to accommodate occupants, the person has no credit history, or the application is unsigned or undated, according to Fannie Mae.

3. Appraisal Fraud

The Scam: A faulty appraisal — saying a property is worth more than what it really is — is connected to many types of mortgage fraud. It entails manipulating or overstating comparables, market values, or property characteristics in order to obtain a higher appraisal. The higher property appraisal, which generates false equity, is done by falsifying an appraisal document or using an appraiser accomplice to obtain the higher value.

Red Flags: Be skeptical of appraisals that are dated prior to the sales contract, list comparable sales that do not contain similarities to the property or are outside the neighborhood, the owner is not the seller listed on the contract or the title, or a third party participating in the transaction orders the appraisal, Freddie Mac warns.

4. Illegal Property Flipping

The Scam: This entails purchasing properties and reselling them at inflated prices. These scams usually involve faulty appraisals and inaccurate loan documents. The property is then refinanced or resold immediately after purchase for an inflated value. The home is purchased at a higher price, often by straw buyers working with the “flipper,” and eventually falls into foreclosure.

Red Flags: Some key things to look for are rapid refinancing of a property; the seller recently having acquired the title or acquiring the title concurrent with the transaction; an appraisal that comes in too high; a property that was recently in foreclosure being purchased at a much lower price than its sales price; or the owner listed on the appraisal and title not matching the seller on the sales contract, according to Fannie Mae.

5. Short Sales Schemes

The Scam: Borrowers owe more than the current value of their home so they fake financial hardship and no longer make their mortgage payments. An accomplice of the borrower then submits a low offer to purchase the property in a short sale agreement. The lender agrees to the short sale, unaware that it was premeditated. The property, after being purchased at the reduced price, is then often resold at the home’s actual value for profit.

Red Flags: The borrower suddenly defaults on the mortgage with no workout discussions with the lender, an immediate offer is made to a lender at a short sale price, the short sale offer is less than current market value, or a cash back is offered at closing to the delinquent borrower (disguised as “repairs” or other payouts, for example) and is not disclosed to the lender, according to Fannie Mae.

You can report instances of suspected mortgage fraud to Stopfraud.gov.

Lots of Talk About Short Sales.

How to Buy a Short Sale

I have a lot of people ask me about whether a short sale is a good deal or not. Is it better than aforeclosure, can I get a really good deal? Well, let us take a few seps back and define exactly what a short is and what is involved.

A short sale is a sale of real estate in which the sale proceeds fall short of the balance owed on the property's loan.

Keep in mind Foreclosures are different than Short Sales. A Foreclosure means the bank owns the property. Banks are responding to offers on Foreclosures within 1 week, and many times they will accept a price less than current market value.

The first thing I look at when a client contacts me about buying a Short Sale is the days on market. If it is a new listing, perhaps within 30 days on market, then we probably have time to get your offer in and be among the first offers. If it is 50 days or more on the market, they most likely have multiple offers already, and they are waiting for approval from the seller’s lender.

Then I contact the listing agent so see how many offers they have. If they do have offers how long has the 1st offer been at the bank? Also, are they still allowing showings and looking for more offers?

Multiple Offers

We found that any time there are multiple offers; you need to be 2% to 5% over asking price to have a chance of buying the property. This sometimes holds true even if you are the 1st offer, because they might take 6 additional offers, and any offer that is higher than yours will be put in 1st position.

When submitting your offer you must have a pre-approval, and if you have a large cash down payment, you should include proof of cash too.

Could take up to 4 months

Many Short Sales still take 2-4 months for the bank to respond and let you know if your offer is accepted. However, there are some that have already done their BPO (Broker’s Price Opinion), and if you offer the price they are asking, they can approve the sale fast, perhaps within 7 to 14 days.

In addition, some banks are getting it together and approving Short Sales in less than 4 weeks.

Because it might take a long time, never stop looking for other opportunities, even after you have placed your offer.

If there are two lenders that need to be paid off after the sale, then it will probably take longer for a response, as they argue between themselves as to who should get paid what.

Keep in mind each bank is different and has different policies, and even big banks like Bank of America are adjusting their procedures weekly.

A 30 day close

If your offer is accepted, you want to be prepared for a 30 day closing period, as most banks will come back and say they accept your offer and they want to close in 30 days. This is interesting, because on the lending side most banks say they need 45 days to close a loan. They normally will give you a small extension if everything is in order with your loan and your lender is just not ready to close. However, they do retain the right to cancel your transaction if you miss the 30 day close.

Many banks will also add a per diem penalty of $75 to $100 for every day late you close after the target closing date.

Summary

The most likely outcome for most Short Sale offers is to not have your offer accepted. This is normally due to the bank choosing another offer over yours, or perhaps deciding not to accept any offers and just foreclosing on the property.

Sometimes you can be the #1 offer, but the bank still wants more money, so they counter your offer. If you do not meet their counter offer price, then they just go down the list of other offers to see if anyone will.

Bottom Line

So the bottom line is it still makes sense to make offers on Short Sales, but you should understand the risks involved, in terms of time spent, and time waiting when you might not have the outcome you desire.

New Loan Regualtions to Help Big Foreclosure Wave.

This is great information about what is finally being done about short sales and foreclosures.

It’s not likely anything could surprise us as much as the sheer magnitude of the slowdown we’re experiencing. Just be prepared for anything going forward.

If you made adjustments and found some stability in 2009, then you’re probably seeing—and can expect—more of the same this year. If you struggled last year, it will likely get harder unless you’re able to adapt to the changes in the real estate market as it is. As you continue to power through and find new ways to work in a changed economy, stay aware of these challenges at the forefront.

Short Sales
The U.S. Treasury Department’s new guidelines on short sales, announced in November, include better protection for the consumers and Realtors involved. The policies represent a good step forward, and they’ll prove to be even more so in April when banks are required to have a compliant short sale plan in place to participate in the Home Affordable Foreclosure Alternatives (HAFA) program. The rules for participating banks include a 10-day window to accept or reject offers and a $1,000 incentive for each closed short sale. However, the most valuable currency for negotiating short sales will remain a competitive offer and a complete, well-organized short sale document packet for the servicer.

Loan Modifications
Unfortunately, loan modifications are being implemented at an extremely slow pace. The Obama Administration reports that in 2009 only 66,000 loans were permanently modified, a tiny portion of the more than 900,000 submitted for consideration. With 350,000 properties defaulting each month in the U.S., it’s in everyone’s best interest to keep people in their homes and their properties off the already flooded market. And if job growth occurs as promised in 2010, loan modifications may be viewed as a good fit for people who are getting back to work and have enough income to keep current on their mortgage.

Jumbo Loans
In recent months, the nearly dry jumbo loan faucet has been turned on—but only to a slow drip. Until banks open it wider, there’s little chance of making a dent in the roughly 40-month supply of inventory above $729,500. Qualified buyers capable of making a 20% down payment but unable to secure financing are sitting on the sidelines eager to join the game.

Don’t let the hard facts deter you. If anything, they should motivate you to push harder. As the industry continues to tackle these challenges throughout the year, move forward with your eyes wide open. Then, for Realtors, we are more likely to see a full recovery in our business long before the downturn is deemed officially behind us.

Interest Rates Take a Slight Rise Up

In Freddie Mac's results of its Primary Mortgage Market Survey the 30-year fixed-rate mortgage averaged 5.05 percent for the week ending February 25, 2010 - up from the previous week when it averaged 4.93 percent.
Last year at this time, the 30-year fixed-rate mortgage averaged 5.07 percent.
Rates for 30-year fixed mortgages followed long-term bond yields higher and rose above 5 percent this week amid a mixed set of economic data reports," said Frank Nothaft, Freddie Mac vice president and chief economist.


Mortgage Rates
U.S. averages as of February 25, 2010:



30 yr. fixed: 5.05%
15 yr. fixed: 4.40%
1 yr. adj: 4.15%

“Defaults, foreclosures plummet in January. Are thes signs of stability.”

“Defaults, foreclosures plummet in January."

So read the headlines of my local paper.
Signs of Stability? Really? Now what might those be? I saw an image of Christ on a piece of toast once so I know we tend to see what we want to see, but not all my signs are spelling relief.

In fact, some things appear to be getting worse. I keep seeing “Vacant Stores and For Lease sign on office windows.”

Last year, I correctly argued against the common wisdom that there was this shadow inventory of foreclosed property that banks were holding back that would soon swamp the market. They weren’t showing up anywhere. So far, so good.

But, as continuing price declines push more and more homeowners deeper and deeper underwater, we are going to see a second wave of defaults. And, this one is not only going to swamp the market, it’s going to take the future with it when it recedes. It's like this all over the country and in some parts of Hawaii and Honolulu county, it's no exception.

The employment numbers don’t mean anything. They don’t count failed business owners and other self-employed, and there are a lot of them, who are not entitled to unemployment insurance. There are those who have simply given up looking for work or those who have “graduated” and have maxed out their benefits.

Without substantial job creation, more homeowners will lose their grasp on their finances as unemployment insurance, savings, and retirement accounts are depleted.

Then there is the thorny issue of deferred interest loans made between 2005 and 2007, the peak of the market, that will adjust upwards in the months to come. Property values in some parts of the islands have fallen by as much as half, making the possibility of a refinance on Hawaii Real Estate remote and increasing the likelihood that the borrower will exercise a strategic default.

I’m not sure where the good news is being found, but according to RealtyTrac:

One in every 409 homes in America was sent a default notice, scheduled for auction or bank owned in January, while 87,000 homes were seized and that is 31% more than January 2009.

Last year there were a record 2.8 million households facing foreclosure and that number is supposed to increase 40% to 3.5 million this year, according to RealtyTrac.

Consequently, that good news about stability is just the first wave receding.

There are two parts to a Tsunami. The first big wave is usually more of a curiosity, and then the water pulls way back from the coastline. It’s time to run for higher ground. When that tide comes back in, it comes with a vengeance and a wall of water several stories high.

There comes a point when the idea of continuing to struggle to make payments on something worth half the loan amount stops making sense. At that point, you no longer own the home; it owns you—for life. Because, we tend to believe, that we are not going to see these prices double in our lifetime.

The only way to avoid more and deeper pain across all sectors of the economy is principal reduction to market value. What is a short sale but a principal reduction for the new owner? How does that solve anything while getting us to the same place?

Those who have referred to the economic collapse as a Tsunami may be faulted for being overly dramatic, but not for being inaccurate. Prepare for the next wave.

If you know of anyone that is underwater on their mortgage and trying to consider their options, suggest to them that they call me, to see what we can do to help them either stay in their home, or work out an amicable agreement with their lender.

-Mahalo,

Don Dietz - 255-3598

Homeowners Renting Out Rooms to Keep The House

Reeling from the recession’s one-two-three-punch of job woes, climbing mortgage payments and evaporating equity, desperate homeowners are dipping into a nearby income stream to avoid foreclosure: That bedroom just down the hall.

While renting out a room has been around for years, sharing a home in order to save it has become an increasingly popular way to hang on to the front-door keys to the American dream.

Whether they’ve rented out rooms in the past to make ends meet, or a job loss has prompted them to tap into their inner landlord for the first time, many people say their rental income is the only thing keeping them from losing their homes. And for many homeowners—even those whose property is worth less than their loan amount—losing their home is not an acceptable option.

While it’s hard to know precisely how many struggling homeowners have turned to renting out rooms, housing advocates have seen a surge in the past year in the number of people desperate enough to give it a try. Especially among the recently unemployed, rental income—along with family loans—has become a godsend.

At Project Sentinel, where staffers report as many as 20% of their clients becoming landlords under their own roof, counselors are recommending the practice as a way for homeowners to tweak their debt-to-income ratio in order to qualify for a modification.

But a word of caution: becoming a landlord, especially for someone with little or no experience, can bring headaches- from tenants who fail to pay rent to those who are just a pain in the neck to live with.

Often, it’s family members moving in together for shelter from the recession. And all that drama can spell trouble.

When Is It A Good Time To Enter The Home Buying Market?

If you have a good job and good credit, the next few months might be a good time to go house hunting. Fence-sitters take the risk that Congress may let a rich tax credit expire, and that interest rates may rise. Buyers and sellers should consider the following factors as they consider jumping into the housing market.
-Mortgage rates are blissfully low, and that may not last. The rate on a 30-year mortgage averaged 5% last week, according to Freddie Mac. Rates are low in part because the Federal Reserve has been buying up about $3 trillion in mortgage-backed securities and mortgage agency debt. The aim is to hold down interest rates and keep mortgages available. But the Fed is slowly removing that financial crutch as the economy improves. It has no plans to buy any more past March 30, 2010. The likely result is an uptick in rates. Meanwhile, the recovering economy by itself should raise rates as the year goes on. Economists at the Mortgage Bankers Association expect to see a 6.1% rate by year end. Such a rise would add about $104 to the monthly payment on a $150,000 mortgage

-The home buyer tax credit expires on April 30, 2010 and no one knows if Congress will renew it a second time. Expect a clash between the real estate lobby and fiscal conservatives worried about the $1.35 trillion federal deficit. To qualify for the credit, you must sign a purchase contract by April 30, 2010 and close by July 1, 2010. First-time buyers get up to $8,000. “First-time” is defined as someone who hasn’t owned a home in three years. Move-up buyers get up to $6,500 when they purchase a new primary residence. To get the credit, you have to have lived in the old home for at least five out of the last eight years. The credits start phasing out at $125,000 in adjusted gross income for singles and $225,000 for joint filers.

-There are indications that home prices are near a bottom in some areas and may actually be rising a bit. That statement is dicey, because conditions vary by neighborhood and the data can be tricky.

Things might look different if you’re a seller though. Do you want to put your house on the market near the bottom of a price cycle? Homeowners who have a choice in the matter—those who can still pay their mortgages—are largely saying no. Inventories of homes for sale are down about 10% from this time last year, and 30% from the mid-decade peak of the housing boom, says Kevin Cottrell, chief economist at Kelsey Cottrell Realty Group. On the other hand, if you’re planning to move up to something grander, you might find a bigger bargain when you buy. And that $6,500 tax credit could swing a close decision.

Home sales peaked in some areas October and November, as buyers raced the expiration date of the original first-time home buyer’s credit. Congress later extended and expanded it. That rush satisfied some pent-up demand, but real estate agents are hoping for another rush around April. “People will wait to the very last second,” said Mike Travaglini, a vice president of Coldwell Banker Gundaker’s office in south St. Louis County.

Mortgage lenders have been tightening credit standards, which means fewer eligible buyers, says John Frank, president of Paramount Mortgage in Creve Coeur. Mo. “It’s getting tighter and tighter,” he said.

Lenders are insisting on credit scores of 640 to 660 for loans sold to Fannie Mae, Freddie Mac and 620 for FHA guaranteed loans. Those standards are higher than the federal agencies themselves insist on. FHA—which guarantees loans for people with low down-payments—has been raising its own insurance charges to borrowers and demanding higher premiums from people with poor credit scores.

In an effort to expand access to FHA mortgage insurance and allow for the quick resale of foreclosed properties, HUD has announced a temporary waiver of the 90-day flipping rule. The waiver takes effect February 1, 2010, and lasts for one year, unless otherwise extended or withdrawn by HUD. The waiver is limited to those sales that meet the following conditions:
1. All transactions must be arms-length, with no identity of interest between the buyer and seller or any other parties participating in the sales transaction, including:
•Seller must hold title
•LLCs, Corporations and trusts must be established in accordance with state and federal law
•No evidence of previous flipping within 12 months
•Evidence that property was marketed openly, such as via MLS, auction, FSBO
•The waiver is limited to forward mortgages and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program

2.If the sales price of the property is 20% or more above the seller’s acquisition cost, the waiver will apply only if the lender meets the following conditions:
•Significant work has been done to the home (documented by a second appraisal verifying that legitimate repairs and rehabilitation have been done to substantiate an increase of more than 20%); or,
•In cases where no work has been done, the appraiser must provide explanation to support the increase since the prior transfer; and,
•A property inspection must be provided to the buyer prior to closing. (The lender may charge the borrower for the inspection.)

The inspector does not need to be FHA approved, but must have no interest in the property, must not receive compensation other than from the lender and may not be involved with the repairs recommended from inspection.

The complete text of the waiver — including what the inspection must include — is available on the HUD website at: http://www.hud.gov/offices/hsg/sfh/waivpropflip2010.pdf

Builder confidence in the market for newly built, single-family homes declined one point to 15 in January 2010 on continuing concerns about the poor job market and large number of foreclosed homes for sale, according to the latest National Association of Home Builders/Wells Fargo Housing Market Index (HMI).

“At this point, home builders have done everything we possibly can to set the stage for a housing recovery–we’ve thinned our inventories, we’ve kept new construction to a minimum, and we’ve fought for and achieved a great new buying incentive with the extension and expansion of the home buyer tax credit,” said NAHB Chairman Joe Robson. "Home buying conditions have rarely been as good as they are right now, but consumers are still waiting to see significant positive signs of improvement in employment and confidence, and this is slowing buyers’ return to the market,” agreed NAHB Chief Economist David Crowe. “Meanwhile, competition from foreclosed homes is also severely impacting new-home sales. That said, expected improvement in the job market this spring will help propel the housing recovery as we head into the prime home buying season.”