Sunday, April 26, 2009

Reality of Realty – Detroit Metro Sales are Up, but. . .

A look at the 3rd quarter numbers reveal some interesting statistics that show the housing crisis is not over.


DETROIT, MI – According to a recent National Association of Realtors (NAR) report, national homes sales were up in February, but down slightly in March when compared to last year.

In the Detroit Metro area, sales through the end of March were up in every area:



This of course, is good news as our area has been hard hit with the highest unemployment in the country and for awhile, Michigan led the nation in foreclosures.

So start the party as our housing crisis is ending?

Put the champagne and party hats away.

A deeper look at the numbers, show that it’s the sales of distressed properties that are responsible for the improvement:



Now let’s look at what’s happening with the sales of homes owned by private individuals (true retail sales):

(*Note: Realcomp recently introduced fields for several distressed types of transactions, so these numbers may be somewhat suspect)

As you can see, retail sales are drastically down everywhere.

It’s obvious that first-time buyers and real estate investors are scooping up distressed properties and ignoring retail properties.

Why? Because distressed properties are cheaper and potentially better values than retail properties.

This is not good news for homeowners that have to sell. It also affects move-up buyers that would like to sell their existing home to buy a bigger home and take advantage of low home prices.

Home sales are heading in the right direction, but don’t let anyone tell you we’re in a full recovery yet. That won’t happen until retail sales at least stabilize.

For now, first-time homebuyers need to understand that there’s lots of competition out there for distressed properties. Not only from other first-time buyers, but also from real estate investors - many from out of state. These investors usually buy with cash and banks are more likely to accept a slightly lower cash offer than a higher offer that requires a mortgage. Too many mortgage applications are being declined these days due to tightened lending standards.

All this may require first-time homebuyers to settle for a good deal, rather than a great deal.

Monday, April 20, 2009

Short Sale, Deed-in-Lieu, Foreclosure – How do Each Affect When You can get Your Next Mortgage?

Too many homeowners act on bad advice, false assumptions or allow themselves to be conned when choosing one of these options.


DETROIT, MI – Over the last couple of weeks, in speaking with numerous homeowners, real estate agents and investors, I’ve noticed that there’s a lot of confusion and misunderstanding about the impact of Short Sales, Deed-in-Lieu’s and Foreclosures on one’s ability to get a new mortgage.

Over and over again, I’ve heard self-proclaimed experts make many incorrect statements. So many, that I felt compelled to do my best to separate reality from myth, fact from fiction.

Getting a New Mortgage
It’s actually pretty easy to provide concrete proof of when it’s possible to qualify for a new mortgage after a Short Sale, Deed-in-Lieu or Foreclosure. The mortgage meltdown has reduced the main players in the mortgage industry to FNMA, FHLMC, FHA, VA and RD. Gone are the numerous subprime and Alt-A players that seemed to have a mortgage program for anyone.

FNMA – Federal National Mortgage Association
Guidelines changed regarding these issues on June 25, 2008 with Announcement 08-16.

Short Sale: FNMA refers to these as “Preforeclosure Sales” and requires a 2 year waiting period after the sale, with acceptable re-established credit.

Deed-in-Lieu: minimum waiting period of 4 years, with a minimum of 10% down required for 7 years. There is a 2 year exception for extenuating circumstances.

Foreclosure: standard of 5 years waiting period, with minimum of 10% down & 680 credit score for 7 years. Primary residences only, no second homes or investment property loans for 7 years. There is a 3 year exception for extenuating circumstances.

Bankruptcy: Chapter 7 requires a 4 year waiting period, but there is a 2 year exception for extenuating circumstances.
Chapter 13 is 2 years from discharge date or 4 years if the Chapter 13 is dismissed (not completed).

FHLMC – Federal Home Loan Mortgage Corporation
Guidelines changed regarding these issues with the release of Bulletin October 17, 2008. For some reason FHLMC isn’t as user-friendly with their updates in comparison to FNMA. Instead of listing the specific changes in their Bulletins like FNMA, they force you to refer to their guidelines to find the changes. The ones related to our topic are found in Chapter 37-7. FHLMC could definitely use some PR coaching to be more user-friendly.

Short Sale: FHLMC refers to these as “Short Payoffs” and requires a 4 year waiting period after the sale, with acceptable re-established credit. There is an exception for extenuating circumstances of 2 years.

Deed-in-Lieu: minimum waiting period of 4 years, with a minimum of 10% down required for 7 years.

Foreclosure: standard of 5 years waiting period, with minimum of 10% down for 7 years. Primary residences only, no second homes or investment property loans for 7 years. There is an exception for extenuating circumstances of 3 years.

Bankruptcy: Chapter 7 requires a 4 year waiting period.
Chapter 13 is 2 years from discharge date or 4 years if the Chapter 13 is dismissed (not completed).

FHA – Federal Housing Administration
FHA is a part of HUD and as of this point does not differ in how they address Short Sales, Deed-in-Lieu’s or Foreclosures. They’re all treated the same. Their great source for their guidelines can be found at http://www.fha-lending.com/CD/HUD%204155r-5.pdf.


All: standard of 3 years waiting period required. There is an exception for extenuating circumstances.

Bankruptcy: Chapter 7 requires a 2 year waiting period, minimum 12 months with extenuating circumstances.
Chapter 13 requires 12 months of timely payments and must have court’s authorization.

VA – Veterans Administration
The credit requirements are the same as FHA. More information can be found at: http://www.homeloans.va.gov/veteran.htm

RD – Rural Development
A part of the U.S. Department of Agriculture. The credit requirements are mostly the same as FHA & VA. More information can be found at http://www.rurdev.usda.gov/CA/pdf%20files%20and%20documents/GRH%20UNDERWRITING%20GUIDEL.pdf

Bankruptcy: minimum 3 year waiting period required, no difference between Chapter 7 or 13. Extenuating circumstances may be considered for exceptions.


I highly recommend checking out some of the links I’ve included. Direct anyone giving you contradictory information to them, so they may reference the correct facts.

Saturday, April 4, 2009

Reality of Realty - Spring Fever in Home Sales

First-time buyers looking for deals discover they have to outbid investors for houses.


Reading the national headlines about record drops in home prices and record foreclosures, might lead homebuyers to assume they can get a steal of a deal on buying a home these days.

Adding to this perception are the stories, both in the news and from family & friends, about buyers getting homes for a fraction of what they sold for a few years ago.

Well, four first-time buyers I talked to this week found out that perception is often not reality.

After getting all excited about a house they already perceived as being theirs, reality blind-sided them as they were all outbid and didn’t get their dream deals. One person in fact, lost out on two homes, one of them to a cash buyer with a lower offer.

I’m sure these homebuyers were a bit shocked when their real estate agents told them their offer, not only didn’t get accepted, but that someone else got the house.

An increasing number of real estate agents & real estate investors tell me they’re seeing foreclosures priced aggressively to sell from the first day they’re listed This is dramatically different than last year when they seemed to be generally priced at the high end when initially listed and it took months for price reductions to bring them in line with buyer expectations.

So, what should serious home buyers do?

Don’t assume what you hear in the news is 100% accurate. Most of us have seen the word “assume” broken into three words that describe what happens when we assume too much.

Talk with real estate experts and find out what’s happening now with real estate in the area you’re looking in. Most of what’s in the news is not area specific and is often broad generalizations.

Keep in mind, even the advice of well-intentioned family & friends is often based on hearsay or second-hand stories.
Homebuyers should consider the magnitude of what they’re investing when they buy a home. If you inherited $100,000 and were trying to decide where to invest it, would you follow the advice of family & friends or would it be better to seek out financial experts and follow their advice? The number of broke lottery winners would probably surprise you. Most of them lost their money by following the advice of family and friends.

Buying a home is a significant investment and should be handled accordingly. Seek the advice of real estate and mortgage experts – unless you want to fall victim to the old saying, “a fool and his money are soon parted”.