Top 10 Reasons To Hire A Real Estate Agent

Strategic Defaults

 By   Kyle Herkenhoff  Researcher, UCLA Ziman Center for Real Estate
Were defaults driven purely by negative equity during the 2007-
2009 recession? Or were households defaulting because of
liquidity constraints (a lack of cash-on-hand) stemming from job
loss?
Even several years after the National Bureau of Economic
Research (NBER) marked the trough of the recession (June 2009), there is still considerable debate about
the causes of default. Using a new data supplement from the Panel Study of Income Dynamics (PSID), my
coauthors (Kris Gerardi, Lee Ohanian, and Paul Willen) and I found that job loss is the main “single trigger”
determinant of default.
These findings have important policy implications. They suggest that temporary mortgage modifications do not
provide a long-term solution to default. Rather, the key to stemming mortgage defaults is developing policies
that promote re-employment and higher earnings, such as payroll tax cuts.
More specifically, we found that job loss increases the probability of default between 5 to 13 percentage points.
Severe negative equity (-20% or more) also increases the probability of default by 5 to 18 percentage points.
But the impact of severe negative equity on default drops significantly in magnitude when liquid asset positions
are taken into account. Furthermore, we found evidence for the “double trigger” event of job loss and negative
equity, as well as job loss and severe negative equity. Specifically, we found that the joint occurrence of both
job loss and negative equity raises the unconditional default rate by 11.3% over and above either trigger on its
own.
A striking finding of the empirical analysis is on the frequency of strategic default, which is typically defined as
default by borrowers who have sufficient resources to make the mortgage payment. As a suggestive measure,
we looked at whether or not defaulting households with negative equity have enough liquid assets to make
their mortgage payment
We found that strategic default is rare in the PSID data. In particular, only 13.9 percent of defaulters in the
PSID had sufficient liquid assets to make a mortgage payment. We confirmed the rarity of strategic default
using data from the SCF which shows that only 6 percent of defaulters have sufficient liquid assets to make
one mortgage payment. These findings suggest that strategic default is not a major factor in understanding
recent mortgage default decisions, but rather that defaulters may have few options other than to default.

FHA Trims Waiting Period for Borrowers Who Experienced Foreclosure

The Federal Housing Administration (FHA) is allowing borrowers who went through a bankruptcy, foreclosure, deed-in-lieu, or short sale to reenter the market in as little as 12 months, according to a mortgage letter released Friday.

Borrowers who experienced a foreclosure must wait at least three years before getting a chance to get approved for an FHA loan, but with the new guideline, certain borrowers who lost their home as a result of an economic hardship may be considered even earlier.
For borrowers who went through a recession-related financial event, FHA stated it realizes “their credit histories may not fully reflect their true ability or propensity to repay a mortgage.”
In order to be eligible for the more lenient approval process, provided documents must show “certain credit impairments” were from loss of employment or loss of income that was beyond the borrower’s control. The lender also needs to verify the income loss was at least 20 percent for a period lasting for at least six months.
Additionally, borrowers must demonstrate they have fully recovered from the event that caused the hardship and complete housing counseling.
According to the letter, recovery from an economic event involves reestablishing “satisfactory credit” for at least 12 months. Criteria for satisfactory credit include 12 months of good payment history on payments such as a mortgage, rent, or credit account.
The new guidance is for case numbers assigned on or after August 15, 2013, and is effective through September 30, 2016.

Boomerang Homebuyers Get a Shorter Ride Home

HUD recently announced that people who lost their home through a foreclosure, short sale or bankruptcy, may be eligible to finance a home again in as little as 12 months. This is a reduction from the previously required minimum of 36 months from the date of the “most recent event.”

Released August 15, HUD provided guidelines under “Back to Work – Extenuating Circumstances” meant to ease the path for home ownership for many.

Boomerang  homebuyers, as they are now known, will need to document that the reason they were unable to make their payments was due to a specific Economic Event.  This impact of this event must have resulted in a decline in income of 20% or more for at least six months.

Some boomerang homebuyers who experienced a bankruptcy and simultaneous foreclosure have discovered that the two events may not be recorded at the same time. In cases where the property did not transfer back to the lender at the time of the bankruptcy, the period for the 36 month minimum waiting period as was required by HUD, did not start until the title transferred back to the lender.  In some states, the time for transfer could be months or even years after the discharge of the bankruptcy.

Extenuating Circumstances

Extenuating circumstances for the purpose of these guidelines are as follows. The borrower(s) must have experienced a decline in income of 20% or more for a period of at least six months. This could have been due to a job loss or a loss of income tied to earnings like commissions or other customary bonus or incentive income.

Demonstrated Cure

With any situation of extenuating circumstances, a boomerang homebuyer must be able to document that the event was isolated in nature and not likely to reoccur again in the future. The borrower must also be able to document that they have regained economic stability through timely payments for a minimum of 12 months.

The timely payment history will include rental/mortgage payments, installment payments, and/or revolving payments for the 12 months preceding the mortgage application. There also should not be any new collection accounts.

In addition to re-establishing acceptable credit, the borrower(s) will be required to complete Housing Counseling.

Eligibility Requirements for Documenting Loss of Income

In the event of a loss in employment, the lender will need to document the event by a written Verification of Employment evidencing the termination date, public information documenting the closure of the business if applicable and/or documentation of unemployment income.

The lender will also need to substantiate the loss of income through the verification of tax returns, W-2s and tax transcripts.

Important Definitions

HUD announced several key terms that must be reviewed in accordance with this program.

Economic Event: an occurrence beyond the borrowers control that resulted in a Loss of Employment, Loss of Income or a combination of both which resulted in a loss of Household Income of 20% or more for a period of six or more months.

Onset of Economic Event: the month of the start of or loss of income

Recovery from an Economic Event: the re-establishment of acceptable or satisfactory credit. Satisfactory Credit equates to no derogatory credit for any mortgaged or leased property in the 12 months preceding the mortgage application. This also includes any installment or revolving debt for the same period.

Borrower: “Borrower” includes all parties including primary and/or co-borrower as listed on the loan application.

Borrower Household Income: the income of all parties on the application or Household Members as listed from the previous Economic Event and derogatory credit.

Housing Counseling: Counseling from a HUD-approved housing counseling agency related to home ownership and meets acceptable requirements.

Other Requirements and Information

HUD establishes a base line for lenders to underwrite and approve mortgage applications. Some lenders may choose to require baseline standards that exceed the minimum guidelines listed here with regards to time from short sale, foreclosure or bankruptcy.

Lenders may also choose to enact additional overlays with requirements to evaluation acceptable credit regarding payment history, collection accounts and/or judgments.

In the event a prior defaulted mortgage was endorsed by FHA, the lender will need to request a waiver which may require additional time for processing. For anyone this pertains to, they would be wise to alert the new lender to this as soon as possible in the loan process.

Boomerang homebuyers whose prior hardship was economically driven should be excited by this announcement from HUD. For many, it is now recognized the worst is behind them and the time to buy a new home is here.

*Additional Resource: HUD Approved Housing Counseling Agencies

  The number of single people buying homes has dipped in the last few years, but single women remain better represented among buyers than single men. Today they are buying at roughly twice the rate.

  According to the National Association of Realtors, single women accounted for 16 percent of home buyers last year, lower than their long-term average of 20 percent. Yet they were still well ahead of single men, who accounted for only 9 percent.

Women began to outpace men in home-buying in the late 1990s, and although no one is really sure why men haven’t caught up, “it may be as simple as most guys don’t get serious about housing until they meet the right woman,” said Walter Molony, a spokesman for the association.

Demographic changes are helping to fuel the trend. More women than ever are the primary earners in their households, according to a recent Pew Research Center study.

In a record 40 percent of American households with children— nearly four times the level in 1960 — women are the breadwinners. And about two-thirds of these breadwinners are single.

“It really is a market that wasn’t there a couple of decades ago,” said Hale Walker, a founder of Michigan Mutual, a mortgage lender in Port Huron, Mich.

In Mr. Walker’s experience, single women are more proactive these days in planning for their financial future, and they often approach a home purchase as a smart addition to their portfolio. He categorizes them with engineers and schoolteachers as the type of client who tends to be focused and organized.

“They’re coming in with a good handle on what they’re trying to accomplish,” he said.

But then again, many single women who have never owned a home are intimidated by the process, said Jeanie Douthitt, an agent with Private Label Realty in the Dallas area.

She tries to ease these fears with a step-by-step program she created called Smart Women Buy Homes. The idea is to educate women new to the market, a group that includes single moms, divorcees, recent college graduates and older professionals who have never been married.

“Qualifying for a mortgage — that is probably the scariest part for single women,” Ms. Douthitt said. “Even if they’ve been married before and bought a home, they often aren’t knowledgeable about the process. They were just signing papers.”

Many are under the impression that they cannot possibly qualify for a loan unless they save enough cash for a 20 percent down payment, which is a particularly daunting prospect for women who have children to support. Instead, Ms. Douthitt said, “we put a lot of women into an F.H.A. loan,” which requires as little as 3.5 percent down.

Cara Hawkins, a production manager at Ameripro Funding who works closely with Ms. Douthitt, has found that single women are more interested than single men in fully understanding the process. For that reason, “they are more apt to reach out for help,” she said, “and if they have a good advocate on their side, they will move faster than men.”

In a 2006 study, the Joint Center for Housing Studies at Harvard calculated the value of home purchases by single women over a three-year period at $550 billion. Ms. Douthitt believes that market would swell considerably if more real estate professionals followed her lead.

“What most people don’t understand is that one out of every five homes being sold are being bought by single women,” Ms. Douthitt said.

“If more people were out there helping single women, that 20 percent would double, I promise you.”

A version of this article appeared in print on August 4, 2013, on page RE6 of the New York edition with the headline: Wh