Sub Prime Lending

Subprime Lending

Typically, subprime loans are for persons with blemished or limited credit histories. The loans carry a higher rate of interest than prime loans to compensate for increased credit risk.
Many have questioned why minorities appear to be over-represented in the subprime lending market. Studies reveal that even in upper-income African-American neighborhoods one is one-and-a-half times as likely to have a subprime loan than persons in low-income white neighborhoods. In neighborhoods where Hispanics comprise at least 80 percent of the population, they were 1.5 times as likely than the nation as a whole to have a subprime mortgage loan.

Some allege this disparity to be attributed to subprime lenders purposefully marketing to African-American communities-what some have called reverse redlining. They allege lenders will provide loans to these communities, but at a higher cost and with less favorable conditions.

Some facts about subprime lenders:

• Home refinance loans account for higher shares of subprime lenders' total origination than prime lenders' originations
• Subprime lenders originate a larger percentage of their total originations in predominately black census tracts than prime lenders
• Subprime lenders are more likely to have terms like "consumer," "finance," and "acceptance" in their lender names

Proponents of subprime lending

Individuals who have experienced severe financial troubles are often labelled as higher risk and therefore cannot obtain conventional financing. These individuals may have had job loss, previous debt or marital problems, or unexpected medical issues. Often, these events were unforeseen and cause a major setback in finances. As a result, late payments, charge-offs, repossessions and even foreclosures may result.

Due to these previous credit problems, these individuals may be precluded from obtaining any type of loan for an automobile. To meet this demand, lenders have seen that a tiered pricing arrangement, one which allows these individuals to pay a higher interest rate, may allow loans which otherwise may not occur.

From a servicing standpoint, these loans have higher collection defaults and experience higher repossessions and charge offs. Lenders use the higher interest rate to offset these anticipated higher costs.

Provided a consumer will enter into this arrangement with the understanding that they are higher risk, and must make diligent efforts to pay, these loans do indeed serve those who would otherwise be underserved. The consumer must purchase an automobile which is well within their means, and carries a payment well within their budget.

Criticisms of subprime lending

Capital markets operate on the basic premise of risk versus reward. Investors taking a risk on stocks expect a higher rate of return than do investors in risk-free Treasury Bills, which are backed by the full faith and credit of the United States. The same goes for loans. Less creditworthy subprime borrowers represent a riskier investment, so lenders will charge them a higher interest rate than they would charge a prime borrower for the same loan.
To avoid the initial hit of higher mortgage payments, most subprime borrowers take out Adjustable-rate mortgages that give them a very low initial interest rate of around 4%. But with annual adjustments of 2% or more per year, these loans typically end up charging around 10%. So a $500,000 loan at a 4% interest rate for 30 years equates to a payment of about $2,400 a month. But the same loan at 10% for 27 years (after the adjustable period ends) equates to a payment of $4,470. A 6-percentage-point increase in the rate caused slightly more than an 85% increase in the payment.

Alternatives To Foreclosure

Alternatives To Foreclosure

Mortgage foreclosure is a tragic and traumatic event for any homeowner. It is the legal process whereby property rights to one's home are stripped away due to inability to maintain the obligations of a mortgage loan. The actual process varies by State of residence, and can take anywhere from 6 weeks to 18 months, depending on the jurisdiction.
In almost every State, foreclosure involves the auction of a property by a representative of the county court or the lender in order to satisfy the debt on the house. The investor usually gives instructions to the loan servicer to bid at or near the value of the debt. The servicer usually wins the bid because foreclosure generally occurs only when the debt is greater than the value of the property. The servicer or investor must then manage the house, provide repairs, and sell it through normal real estate channels, hoping to lower the final loss from what would otherwise have been realized if a third-party bidder had purchased the property at the foreclosure auction.

Foreclosure is then not only a costly experience for the family losing a home, but can be a lengthy and expensive procedure for the loan investor, the servicer, and any insuring agency that is also involved. Contrary to popularly held beliefs, these mortgage market participants lose money on nearly all foreclosures. Fortunately, these firms have discovered they can benefit themselves and homeowners if foreclosure can be avoided. A forthcoming HUD report to Congress examines various strategies now used to protect borrowers while mitigating the loss experienced by the lenders.

Lessons from the private sector
By 1985 the mortgage industry was feeling the effects of several overlapping events: high interest rates from the Federal Reserve Board's October 1979 decision to allow interest rates to freely rise; foreclosures coming out of the national recession in 1981 and 1982 and the ensuing farm- and industrial-belt depression; a new economic environment in which rapid inflation could no longer be counted on to support troubled homeowners with low-downpayment mortgages; and a bevy of new and untested mortgage products developed to help portfolio lenders cope with volatile interest rates, but whose default risks appeared to be higher than those of traditional level-payment mortgages. All of these circumstances led to higher loan defaults. With the collapse of the oil-patch economy in 1986 came more defaults and foreclosures and even the insolvency of several private mortgage insurers. Then the stock market crash of 1987 and the retrenchment of the financial industry led to an escalation of foreclosures in the Northeast. These events sparked the beginning of large-scale efforts by national institutions to understand and mitigate the problem of single-family home foreclosures. By 1991, as the foreclosure rates of the oil-patch and Northeastern States were passing their peaks, mortgage finance institutions were establishing serious and wide-sweeping loss-mitigation policies with loan servicers. These basic approaches continue to undergo fine-tuning, but the changes that took place in the early 1990s truly ushered in a new era in how the mortgage industry treats financially troubled homeowners.
Industry sources suggest that 70 to 80 percent of all loans at 90-day delinquency can still be reinstated without assistance. Borrowers must be encouraged to proceed in that direction; the greatest danger is that borrowers will give up hope or panic and either walk away from their properties or use the legal system to forestall what they believe to be inevitable foreclosures. When a borrower's delinquency extends past day 90, the servicer must change from delinquency management to loss mitigation. After 3 months of loan delinquency, the organization bearing the credit risk faces a potential for some type of loss, and foreclosure with the associated property management and final sale, is the most costly option. Loss mitigation means finding some resolution short of foreclosure. These resolutions are typically called loan workouts. The least costly workout options are those that keep borrowers in their homes, and the next best are those that assist borrowers in getting out of the now burdensome financial responsibilities of homeownership in a more dignified and less costly manner than foreclosure.
The option used for homeowners with truly temporary, one-time difficulties is the advance claim. In this case the insurer pays the servicer the amount of the delinquency in return for a promissory note from the borrower. The mortgage loan is then made whole, and the insurer can collect part or all of the advance from the borrower over time.
The next option for keeping borrowers with temporary problems in their homes is a forbearance plan. This option is used for borrowers who have temporary reductions in income but have long-term prospects for increases in income that could again sustain the mortgage obligations. It is also used when troubled borrowers are working to sell properties on their own. The forbearance period can extend from 6 to 18 months or longer, depending on the borrower's circumstances. During this time borrowers may be initially permitted to make reduced monthly payments, working to eliminate the delinquency through increased payments during the latter part of the forbearance period. Because insurers, Fannie Mae, and Freddie Mac typically consider forbearance plans a servicer matter, they are rare in practice, leading some homeowners to lose their homes unnecessarily.
For permanent reductions in income, the only way to assist troubled borrowers to keep their homes is through loan modification. Loan documents can be modified in any way, but the two most common are interest-rate reductions and term extensions. Loans with above-market interest rates can be refinanced to the market rate and borrowers charged whatever portion of the standard origination fee they can afford. If the interest rate is already at or below the current rate, then monthly payments can be permanently reduced by extending the term of the mortgage, even starting a new 30-year amortization schedule.
Such modifications can be done quickly and inexpensively for loans held in portfolio, and in recent years they have become easier to implement for those loans in mortgage-backed security (MBS) pools. Fannie Mae and the U.S. Department of Veterans Affairs readily agree to allow servicers to buy qualifying loans out of MBS pools, modify them, and then sell them back to the agency to hold in a retained portfolio. Freddie Mac, which has a security structure different from that of Fannie Mae, performs the purchase itself after the servicer completes negotiations with the borrower.
In many cases borrowers are better off getting out of their existing homes. There may be a need to find employment elsewhere, a divorce settlement that requires selling the property, reductions in income that necessitate moving to lower cost housing, or a deceased borrower with an estate to be liquidated. Whatever the reason, there are three options currently available for borrowers who must give up their homes. The first is selling the home with a loan assumption. This is valuable if the mortgage carries a below-market interest rate that would make its sale more attractive, and in cases in which the assumption permits the purchaser to obtain a higher loan-to-value ratio than could otherwise be attained. Credit agencies will waive the due-on-sale clause of fixed-rate mortgage contracts as needed to assist troubled borrowers sell their properties and avoid foreclosure.
Borrowers who must move and who have negative equity in their properties may be eligible for preforeclosure sales in which the insurer or secondary market agency (Fannie Mae or Freddie Mac) helps the borrower market the home and covers any loss at the time of settlement. Borrowers can be asked to contribute to the loss according to their financial abilities. This has become the number one loss-mitigation tool of the 1990s. Industry sources indicate that preforeclosure sales prices are generally at least 5 percent higher than those for homes with foreclosure labels on them, and all of the costs and uncertainties associated with foreclosure and property management are eliminated. Borrowers benefit by avoiding the indignity of a foreclosure.
The last option short of foreclosure is for the borrower to voluntarily convey property rights to the lender/servicer. This is an old technique and, as it involves the homeowner signing over the deed to the property, is called a deed in-lieu-of-foreclosure, or simply a deed-in-lieu.
Win-win opportunities
Attempting loan workouts is risky; if they succeed, there are cost savings over foreclosure, but if they fail and foreclosure must be pursued anyway, default resolution has greater costs. That means that the entire decision about whether or not to offer foreclosure alternatives, from the creditor's perspective, comes down to understanding two probabilities: the break-even probability of workout success and the probability of an individual borrower succeeding in a workout. A break-even probability indicates how many workout offers must succeed in order for the total cost of all workouts (successes and failures) to equal the cost of immediate foreclosure on all loans. If the individual's success probability exceeds the break-even level, then it is financially prudent to offer that person a workout. This concept was formalized by Ambrose and Capone.
The Ambrose-Capone study is instructive as it simulates break-even probabilities for four major types of workouts: loan modifications, forbearance, preforeclosure sales, and deeds-in-lieu. It also takes into account uncertainties with respect to the time it takes to foreclose on and sell a property, considers a number of economic environments and initial loan-to-value ratios, and accounts for borrower opportunities to cure defaults. In circumstances in which housing prices are either stable or have experienced some decline,modifications have the lowest break-even probabilities (18 to 25 percent). That means that lenders can take the most chances with these workouts. Each success can cover losses from between four and five failures. In areas where there has been no housing market downturn, pre-foreclosure sales have the lowest break-even probability (20 percent), and modifications have the highest (42 percent). Deeds-in-lieu and forbearance break-even rates are each around 30 percent.
Since there is strong evidence that break-even probabilities tend to be well below 50 percent, borrowers whose chances of success are 50 percent or better certainly should be given workout opportunities. Even borrowers whose probability of success is somewhat less than 50 percent still should be given a workout opportunity. Of course, how low a probability of success the credit-risk bearer can accept depends upon its having enough defaulted loans to take advantage of the law of large numbers. That is, to ensure that offering alternatives to foreclosure will reduce the cost of loan defaults, one must have enough defaults to know that the probabilities on each loan will turn into certainties in the aggregate. Thus, national insurers and agencies are in prime positions to remove this risk from small lenders and servicers. By dealing with larger total numbers of defaulted loans, the national organizations can profitably offer workouts even to households with success probabilities very near the break-even levels.
Successes and failures at FHA
The Federal Housing Administration (FHA) has had a difficult history with respect to loss-mitigation and foreclosure-avoidance measures. Its original neglect of the issue was not unlike other mortgage insurers and guarantee agencies. At 90-day default, servicers would turn accounts over to foreclosure attorneys for immediate collection or foreclosure. But in 1974 the courts ruled (Brown v. Lynn) that HUD's insured borrowers were a protected class under the National Housing Act and required post-default assistance. In response, FHA developed its Single-Family Mortgage Assignment Program. Under the assignment program, FHA pays full insurance claims to lenders/servicers and becomes both the investor in and servicer of the loans. Borrowers are granted a period of reduced or suspended payments, which create long-term accounts receivable with FHA. The forbearance period can last up to 36 months after which borrowers have up to 10 years beyond mortgage contract maturity to pay off their entire debt.
From the perspective of borrowers, the assignment program has been a mixed success. Only a minority have cured their default, while many more families have postponed foreclosure for long periods of time. Some families simply avoid foreclosure but never fully recover. Based on FHA's experience from 1984 to 1993, a reasonably accurate distribution of outcomes can be constructed. During the first 10 years after families enter the assignment program, approximately 15 percent fully recover; another 25 percent sell their homes, many at prices insufficient to pay off the entire debt; and roughly 50 percent lose their homes through foreclosure.
The remaining 10 percent retain possession after 10 years but are so heavily in debt that it is highly unlikely that they will ever fully reinstate the mortgage. From a narrow financial perspective, the assignment program has been a failure for FHA. Because the program allows many families who eventually will lose their homes to remain in them for long periods without making regular mortgage payments, losses from carrying these mortgages are high. The expected loss on each assigned loan is roughly 48 percent of the outstanding loan balance, while outright foreclosures without assignment incur an average loss of 38 percent. That is, with an average loan balance of $58,000, the dollar loss per assigned loan is $28,000, which is $6,000 more than the cost of a direct foreclosure from the insured portfolio (without the use of an assignment option). The assignment program only affects a small part of the seriously delinquent loans handled by FHA each year. Only 15 percent of all serious defaults qualify for the single-family assignment program. Many loans fail to qualify because the default is judged not to have been beyond the control of the borrower or because the borrower is judged not to have reasonable prospects of resuming full payments within 36 months and repaying all accrued arrearages within 10 years past the mortgage maturity date. Because of a combination of statutory, budget, and judicial restrictions, HUD has been limited in its abilities to offer other options to borrowers who have become seriously delinquent but who do not qualify for assignment. Therefore, FHA has missed some important opportunities for loss mitigation and possibly some opportunities to help distressed borrowers avoid foreclosure.
Recently, however, FHA has begun to provide one alternative to families who are ineligible for assignment or who waive their rights to assignment. The Stewart B. McKinney Homelessness Assistance Amendments Act of 1988 authorized FHA to pay insurance claims on mortgagor house sales in lieu of property foreclosures. FHA avoids expenses related to foreclosure processing and subsequent property management and disposition and homeowners are released from an unmanageable property. FHA conducted a demonstration of the value of preforeclosure sales from October 1991 to September 1994 in three cities--Atlanta, Denver, and Phoenix.
A HUD evaluation studied the experience of more than 1,900 cases that entered the demonstration program through March 31, 1993. Successful sales rates varied across demonstration sites, but in total averaged 58 percent across sites. Another 5 percent of participants used the reprieve from foreclosure processing to cure their loans, and an additional 8 percent voluntarily transferred property deeds to FHA after failed sales efforts. Only 28 percent were referred back to servicers for foreclosure. Each successful sale generated $5,900 in savings on claims and avoided property management expenses. In contrast, properties that were either returned for foreclosure or had titles deeded to FHA cost HUD $2,600 in time cost during demonstration participation. Overall, each program participant saved HUD an expected net cost of $2,900. Subsequently, FHA has extended the preforeclosure sales option to all cases where foreclosure is a likely outcome, and HUD now expects even higher savings on each sale due to improvements in program design. Based on an expectation of 10,800 participants per year, national implementation would generate a total annual savings of $58 million.
Conclusion
FHA and the private mortgage market are still learning from the experience of the last 10 years -there is room for more improvements. While the private sector has been successful in applying loss-mitigation and borrower-protection techniques, it has failed to take full advantage of them. Servicers must generally prove to insurers and credit agencies that they have provided a good faith attempt at helping borrowers to cure loan defaults before initiating foreclosure, but not that they have made a good-faith effort in loan workouts. This asymmetry is also apparent in the workout approval process. Insurers and credit agencies generally must approve servicer applications for workouts but not servicer denials of workouts to borrowers in default. Fannie Mae has been the first to reverse this policy, as it now requires servicers to provide a recommendation on all noncured loans.
Uneven application of these techniques is further demonstrated when institutions concentrate their loss-mitigation efforts in areas of the country experiencing the worst problems, so that servicers in other areas have less incentive to pursue workouts. There are some notable exceptions to this situation, such as Fannie Mae grading servicer performance in curing defaults against regional averages, and both Fannie Mae and Freddie Mac waiving approvals if there will be no cost to them.
FHA has not taken full advantage of cost-saving foreclosure-avoidance techniques. The pending report to Congress cited at the beginning of this article lays out a potential framework that would allow FHA to catch up with the private market in this important area of foreclosure avoidance and loss mitigation.
What does the future hold? Certainly, the entire mortgage industry hopes that it does not have to face another long series of regional housing market declines like those experienced over the past 15 years. But if it does, the now standard practice of looking at foreclosure as a last resort will help strengthen homeownership, reduce house price declines, and maintain a healthier system of lending and insuring home mortgages.

RealtyTrac publishes the largest and most comprehensive national database of foreclosure and bank-owned properties

RealtyTrac publishes the largest and most comprehensive national database of foreclosure and bank-owned properties, with over 1 million properties from nearly 2,500 counties across the country, and is the foreclosure data provider to MSN Real Estate, Yahoo! Real Estate and The Wall Street Journal’s Real Estate Journal.




“Foreclosure activity subsided somewhat in June after hitting a 30-month high in May,” said James J. Saccacio, chief executive officer of RealtyTrac. “And the drop in activity was fairly broad, with 33 states reporting month-over-month decreases. Still, the foreclosure rates in most states remained substantially above last year’s levels.”

Foreclosure Filings Still Up 87 Percent From June 2006

Foreclosure Filings Still Up 87 Percent From June 2006


A total of 164,644 foreclosure filings - default notices, auction sale notices and bank repossessions - were reported in June, down 7 percent from the previous month but still up 87 percent from June 2006. The national foreclosure rate for June was one foreclosure filing for every 704 U.S. households. "Foreclosure activity subsided somewhat in June after hitting a 30-month high in May," said James J. Saccacio, chief executive officer of RealtyTrac. "And the drop in activity was fairly broad, with 33 states reporting month-over-month decreases. Still, the foreclosure rates in most states remained substantially above last year's levels."

Your Options Against Foreclosure

Foreclosure may occur. This is the legal means that your lender can use to repossess (take over) your home. When this happens, you must move out of your house. If your property is worth less than the total amount you owe on your mortgage loan, a deficiency judgment could be pursued. If that happens, you not only lose your home, you also would owe HUD an additional amount.

Both foreclosures and deficiency judgments could seriously affect your ability to qualify for credit in the future. So you should avoid foreclosure if possible.

Q: What Should I Do?
DO NOT IGNORE THE LETTERS FROM YOUR LENDER. If you are having problems making your payments, call or write to your lender's Loss Mitigation Department without delay. Explain your situation. Be prepared to provide them with financial information, such as your monthly income and expenses. Without this information, they may not be able to help.
Stay in your home for now. You may not qualify for assistance if you abandon your property.
Contact a HUD-approved housing counseling agency. Call (800) 569-4287 or TDD (800) 877-8339 for the housing counseling agency nearest you. These agencies are valuable resources. They frequently have information on services and programs offered by Government agencies as well as private and community organizations that could help you. The housing counseling agency may also offer credit counseling. These services are usually free of charge.
Q: What Are My Alternatives?
You may be considered for the following:

Special Forbearance. Your lender may be able to arrange a repayment plan based on your financial situation and may even provide for a temporary reduction or suspension of your payments. You may qualify for this if you have recently experienced a reduction in income or an increase in living expenses. You must furnish information to your lender to show that you would be able to meet the requirements of the new payment plan.

Mortgage Modification. You may be able to refinance the debt and/or extend the term of your mortgage loan. This may help you catch up by reducing the monthly payments to a more affordable level. You may qualify if you have recovered from a financial problem and can afford the new payment amount.

Partial Claim. Your lender may be able to work with you to obtain a one-time payment from the FHA-Insurance fund to bring your mortgage current.

You may qualify if:
your loan is at least 4 months delinquent but no more than 12 months delinquent;
you are able to begin making full mortgage payments.

When your lender files a Partial Claim, the U.S. Department of Housing and Urban Development will pay your lender the amount necessary to bring your mortgage current. You must execute a Promissory Note, and a Lien will be placed on your property until the Promissory Note is paid in full.

The Promissory Note is interest-free and is due when you pay off the first mortgage or when you sell the property.

Pre-foreclosure sale. This will allow you to avoid foreclosure by selling your property for an amount less than the amount necessary to pay off your mortgage loan.

You may qualify if:
the loan is at least 2 months delinquent;
you are able to sell your house within 3 to 5 months; and
a new appraisal (that your lender will obtain) shows that the value of your home meets HUD program guidelines.

Deed-in-lieu of foreclosure. As a last resort, you may be able to voluntarily "give back" your property to the lender. This won't save your house, but it is not as damaging to your credit rating as a foreclosure.

You may qualify if:
you are in default and don't qualify for any of the other options;
your attempts at selling the house before foreclosure were unsuccessful; and
you don't have another FHA mortgage in default.

For More Info, check out The Note Service

Fico Score and Credit Score - Difference?

This is a great question and one that's been a very hot topic on our FICO Forums. The reason you're seeing a discrepancy is because you purchased scores from two different scoring systems. The score you bought from TransUnion is their consumer version of your credit score, but it's not your FICO® score. Many different websites sell credit scores to consumers, but only myFICO.com and Equifax.com sell actual FICO scores to consumers. In fact, you may be surprised to know just how many different credit scores are sold to consumers – most of which are never used by lenders.

This is not to say that getting your credit scores from online vendors is a bad idea. Checking your credit scores from a trusted seller can often serve as a guide for pointing you in the right direction. If you pull your credit score from a reputable source and find that you have a very high score, then more often than not, you'll have a good FICO score as well. Just be sure to check your actual FICO score before applying for a loan – this is the best way for you to know what the lenders will base their terms on.

What does the difference in the two scores you pulled mean to you? Well, don't demand a lender's best rates based on your TransUnion credit score of 733! Your FICO score of 689 is the score you should be basing your expectations on. Generally, a FICO score above 720 will qualify you for good rates on most loans. To see how better scores translate to savings on home and auto loans, click here.

Before getting a loan for a major purchase, such as a home, you should check all three of your FICO scores. Most lenders will look at all three FICO scores – one from each major credit bureau – when evaluating your loan application. At that point, don't try to save a few dollars by buying the cheapest credit score you can find. Knowing your FICO scores can help you estimate what your monthly mortgage payments will look like and help you determine if you can truly afford a home.

We know credit scores can be confusing enough without having to figure out if you're buying a real FICO score. Many credit scores even try to mimic the FICO score range so they look very similar to FICO scores. Remember that FICO scores always say "FICO" when describing the score. We hope this helps you make sense of your credit scoring options.

Sincerely,
myFICO Team

Pre-Foreclousures and Taxes

Pre-foreclosures, Short Sales/Buying from the Bank


More preforeclosure and foreclosure info......click here


By Money Coach Elaine Zimmermann

Finding a foreclosure before anyone else or a “pre-foreclosure” can be a worthwhile investment. Buying a preforeclosure from a bank as a “short sale” can guarantee the purchaser equity on the day of closing. A “ short sale” or “short payoff sale” is one in which the lender allows the property to be sold for less than the exiting loan balance.

Understanding the foreclosure process gives you some insight into locating foreclosures at their earliest stages.

The Federal government forecloses on hundreds of thousands of homes each year that have been financed through several of its funding source: Veterans Administration (VA), Housing and Urban Development (HUD), FANNIE MAE and Federal Depository Insurance Corporation (FDIC). These homes can make lucrative investments and there are many special programs to allow purchasers to buy these homes with little or no down payment and many have repair allowances. Once the homes are taken back by these federal agencies they appear on the http://www.foreclosuresus.com database.

Banks and financial institutions take back homes that they have loaned funds against. They refer to the properties they retrieve as REO’s or real estate owned. Within larger banks, they are REO departments solely devoted to the resale of these properties. Banks supply their REO listings to the foreclosuresus.com database. Most contain the bank’s name and the contact person’s name and phone number.

New homes can also appear on bank REO lists. Builders who build “spec” homes, homes not presold but built “speculatively”, finance the construction through banks. Sometimes when a builder has several homes that have remained unsold for an extended period of time, the bank will take back the homes. These homes will also appear within the bank’s REO listings.

In some cases and with some additional effort, you can find these homes prior to going into foreclosure or pre-foreclosures. In the case of bank REO’s, when reviewing the list of banks and their contacts become familiar with local contacts of REO departments at banks in your city. As you become acquainted with these contacts, you can tell them the type of home you are looking for and the area. If you check back on a regular basis, you may obtain information on homes prior to it being added to the public database.

When you review the database further, you will notice that many smaller banks do not include their REO listings. They may have too few foreclosures to have a REO department. You should contact these institutions directly and ask who is the person designated to dispose of these properties. Again, your effort may reap you information about properties that are not in any public database.

“Preforeclosure Short Sales” are not handled in the REO departments of banks, but rather in the “Loan Loss Mitigation” Departments. You can find current, nationwide preforeclosures at http://www.ipreforeclosures.com

Bank Loan Loss Mitigation Departments

When a borrower begins to miss payments the loan is sent to the bank’s loan loss mitigation department. Most banks also consider short loan payoff sale requests in their loss mitigation departments.

Lenders only will approve a short sale as a last resort. The circumstances that would lead a lender to resort a short sale for a property are directly related to the property’s value as it relates to the amount owed to the bank. If a property was purchased in an inflated market that has experienced a severe downturn, the home may have decreased in value and the loan maybe “upside down”—more is owed than it is worth. The lender may consider a short sale. The same holds true if a property was refinanced at 100 percent plus leaving the property without equity. Another circumstance where a bank may consider a short sale would be in the case of a deteriorating property with would require extensive repairs to make it marketable.

Lenders also require borrowers to show hardship before they will approve a short sale.
These can include financial hardship bought on by: catastrophic illness, death or divorce of a spouse, employment loss or incarceration of the borrower or borrower financial insolvency without any realistic chance of improving in the near future.

Cash Only

A short sale is always a “cash only” sale, which will keep many investors away. Also, it is an “arm’s length sale”, meaning you cannot purchase a home of a relative. If you do you are open to a lawsuit and the sale being reversed.

Buying a foreclosure or a pre-foreclosure from a motivated seller can be a good investment for you and in the case of pre-foreclosure a good solution for someone else. A “short sale” is one way to purchase a home with guaranteed equity to the investor.

Elaine Zimmerman is the author of How to Retire With a Million Dollars and the president of www.ForeclosuresUS.com.







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Multiplying Foreclosure Profits

Multiplying Foreclosure Profits
Daren Blomquist
Investor plans to triple his money with first-time foreclosure purchase

Glenn Downs has been investing in real estate for years, but he never considered a foreclosure purchase until his son landed a job at RealtyTrac.

Downs signed up for RealtyTrac’s online foreclosure database and soon discovered that the primary lesson he’s learned from investing in the mainstream real estate market also applies to the foreclosure market: patience and persistence pay off.

“Anyone who’s new at this, they get all excited. They think they have to close the first deal,” he said. “Just be patient and let the deal come to you.”

The first measure of patience and persistence came when Downs was searching for properties and making offers to homeowners in default.

“I had my real estate friend make three different offers on properties that I found on your website (RealtyTrac),” he said. “They didn’t pan out. The people didn’t accept them.”

But then he found an owner in default who wanted to sell — just two weeks before her property was scheduled for public auction. That meant he and his realtor had to act fast to close the deal. They submitted an offer, which was accepted by the homeowner, then executed a quick closing through a local title company.

“We had two weeks and that’s how fast we went through it,” he said.

The payoff for Downs’ patience and persistence? He purchased the Anderson, Calif., property about 35 percent below full market value. And he helped a financially distressed homeowner avoid foreclosure and net a substantial amount of cash from the transaction. Downs also allowed the owner to remain in the property free of charge for several months to help her get back on her feet.

But that’s not the end of the story.

The property Downs purchased comprises three units sitting on six acres of property, but it is zoned as one parcel by the county. Downs plans to divide the property into three parcels and sell them separately to maximize his profits. Such a division must be approved by local government, an approval process that also requires a healthy dose of patience and persistence.

“For someone just starting out with distressed properties, I would not suggest this,” he said, noting that he’s spent thousands of dollars in fees since he purchased the property 13 months ago. “I’m not sure that I would buy a complicated piece of property like this again.”

Downs said that even if he’s not allowed to split up the property and resell it as three separate parcels — a worst-case scenario — he’ll still double his money. He’ll at least triple his investment if he is able to sell the property as three parcels.

“I knew going in that it was going to be a long process,” he said. “But the end result is going to be worth it.”

Texas, California, Florida post most new foreclosure filings

Texas documented the highest foreclosure total of any state for the second month in a row, with 14,728 new foreclosure filings in January — a 4 percent increase from the previous month but an increase of less than 1 percent from January 2006. The state’s foreclosure rate of one new foreclosure filing for every 547 households was sixth highest among the states and 1.6 times the national average.

California’s foreclosure total of 14,430 was the nation’s second highest and represented a 14 percent increase from the previous month. The state’s foreclosure rate of one new foreclosure filing for every 846 households registered slightly above the national average and 14th highest among the states.

Florida reported 11,709 new foreclosure filings during the month, third highest among the states and a 40 percent increase from the previous month. The state’s foreclosure total was up 13 percent from January 2006, and its foreclosure rate of one new foreclosure filing for every 624 households was the nation’s sixth highest.

Other states with foreclosure totals among the nation’s 10 highest included Michigan, Ohio, Georgia, Illinois, New York, New Jersey and Colorado.

Texas, California, Florida post most new foreclosure filings

Texas documented the highest foreclosure total of any state for the second month in a row, with 14,728 new foreclosure filings in January — a 4 percent increase from the previous month but an increase of less than 1 percent from January 2006. The state’s foreclosure rate of one new foreclosure filing for every 547 households was sixth highest among the states and 1.6 times the national average.

California’s foreclosure total of 14,430 was the nation’s second highest and represented a 14 percent increase from the previous month. The state’s foreclosure rate of one new foreclosure filing for every 846 households registered slightly above the national average and 14th highest among the states.

Florida reported 11,709 new foreclosure filings during the month, third highest among the states and a 40 percent increase from the previous month. The state’s foreclosure total was up 13 percent from January 2006, and its foreclosure rate of one new foreclosure filing for every 624 households was the nation’s sixth highest.

Other states with foreclosure totals among the nation’s 10 highest included Michigan, Ohio, Georgia, Illinois, New York, New Jersey and Colorado.

Three Reasons to Invest in Foreclosures in 2007

Three Reasons to Invest in Foreclosures in 2007
(with or without your own money or credit)

1. We Have More Motivated Sellers than Ever.

Foreclosures are up over 65% in 2007 versus the same period for 2006. This surge has come as those Creative Mortgage "teaser periods" expired and homeowners now have to make fully amortized payments. If their income didn't rise to meet those new payments, they are in a world of trouble. And you can help them.

2. The Real Estate Market is Healthy.

Former Fed chairman Alan Greenspan was right when he said the worst is behind us... "Weak housing markets aren't over yet, but they're getting stronger with the help of a drop in unsold inventories and interest rates at 45-year lows."

3. Investors: This is as Good as it Gets!

"Although it's impossible to know exactly when we hit the bottom on this price correction, I firmly believe that when the market heats up again this spring, we'll look back at this winter season as our best buying opportunity in six years, and wish we bought more property..." Alexis McGee.

U.S. Foreclosures Up 19 Percent in January

A total of 130,511 new foreclosure filings were reported in January, an increase of 19 percent from the previous month and an increase of 25 percent from January 2006. The report also shows a national foreclosure rate of one new foreclosure filing for every 886 U.S. households.


“January’s foreclosure number represented the highest monthly number we’ve seen since we began issuing this report two years ago,” said James J. Saccacio, chief executive officer of RealtyTrac. “The month-over-month increase is similar to what we saw last January, when foreclosures shot up 27 percent from the previous month; however, the year-over-year increase of 25 percent is well below the 45 percent annual increase we saw in January last year.”

Coastal Disasters = More Foreclosures

Coastal Disasters = More Foreclosures




For anyone who has lived through a natural disaster, the recent tornadoes in Central Florida and the horrific aftermath left behind — approximately 1,500 structures destroyed and 20 people killed — brings back memories of more than just the great need for disaster relief from the federal government (FEMA). It also brings back bad memories of dealing with insurance companies and very slow claims service.

It doesn’t matter if you’re living in Florida or California — coastal property is expensive and so are the insurance premiums that go with them. Back in 1994 something called “The Northridge Earthquake” (misnamed as it was) shook Los Angeles at 4:31 a.m. at a reading of over 7 on the Richter scale. Many insurance companies that WERE writing homeowner’s insurance policies pulled out of California altogether after that one.

Then a few years ago the wildfires in San Diego had the same effect — skittish insurance companies turning and running after paying off on what were expensive policy claims.

According to one recent report, insurance companies are getting skittish again — this time in Central Florida and other parts of the eastern seaboard. This does not bode well for worried homeowners who are sitting on the cusp of foreclosure. Florida had 124,721 foreclosures last year — a 2 percent increase from 2005, and a foreclosure rate of one new filing for every 59 households. The state led the country in foreclosures one month last year, and was in the top three states for total foreclosures every month of 2006, according to RealtyTrac’s U.S. Foreclosure Market Report.

Add to that the fact that many of those homeowners who bought during the past two years financed their home purchase with one of those high-risk adjustable rate mortgages that is due to reset in 2007 or 2008 — and there is something for them to worry about.

In 2002 the Florida Legislature created Citizens Property Insurance Corp. to write policies in what are considered high-risk areas of the state where homeowners couldn’t find coverage on the open market from private insurance companies. Yet some of the victims from last week’s tornadoes were uninsured nonetheless — either because premiums from the private insurance companies were too high and unaffordable, or because their insurance company cancelled the policy outright. Citizens is expecting up to 500 claims to be filed due to last week’s storms, paying out an estimated $5 million to $6 million.

What does this have to do with foreclosures? Everything!

There is an underlying problem here. Most lenders will not fund a loan for a house that is uninsured. So even if distressed homeowners wanted to refinance their way out of foreclosure they couldn’t if they don’t carry insurance on the home. If they wanted to sell the property outright, it’s going to be a problem as well because no one wants to buy a house that can’t be insured. What’s more, lenders consider failure to have homeowner’s insurance securing their loan as a default on the mortgage.

The end result of all this may turn out to be a greater number of foreclosures in the Sunshine State this year, but it is way too early to tell at this point. We’ll just have to sit tight and wait and see.

Understanding Foreclosure - Foreclosure Scams

Bankruptcy foreclosure fraud is a growing problem that threatens the integrity of
the bankruptcy system as it takes advantage of families in distress. The United
States Trustee Program is working hard to identify bankruptcy foreclosure scams
around the country and to take appropriate action through criminal referrals and
civil suits. Be especially alert to the following:

> Equity skimming: In this type of scam, a "buyer" approaches you, offering to
get you out of financial trouble by promising to pay off your mortgage or give you a
sum of money when the property is sold. The "buyer" may suggest that you move
out quickly and deed the property to him or her. The "buyer" then collects rent for a
time, does not make any mortgage payments, and allows the lender to foreclose.
Remember, signing over your deed to someone else does not necessarily relieve
you of your obligation on your loan.

> Phony counseling agencies: Some groups calling themselves "counseling
agencies" may approach you and offer to perform certain services for a fee. These
could well be services you could do for yourself for free, such as negotiating a new
payment plan with your lender, or pursuing a pre-foreclosure sale.

> Probably the most widespread foreclosure scam involves the use of
foreclosure notices to identify individuals facing the loss of their homes. The scam
perpetrator contacts the home owner, advertising "mortgage assistance" or
"foreclosure counseling" and promising to work out the home owner's problems
with the mortgagee or to obtain refinancing for an up-front fee typically ranging
from $250 to $850. The perpetrator may direct the home owner to "fill out some
forms," including a blank bankruptcy petition. The perpetrator subsequently files a
bankruptcy petition in the home owner's name. The bankruptcy petition invokes the
automatic stay, the imminent foreclosure is postponed, and the home owner stops
receiving collection calls and letters.


In most cases, the perpetrator does not tell the home owner about the
bankruptcy petition, instead convincing the home owner that foreclosure activity
has ceased because mortgage problems have been worked out. The perpetrator
may tell the home owner that he or she might receive a notice from the court, which
should be ignored. The home owner may even be told that the perpetrator has gone
to court on the home owner's behalf. No one appears at the Section 341 meeting,
the case is dismissed, the foreclosure goes forward, and the home is lost.
The United States Trustee Program welcomes information that will help detect
bankruptcy foreclosure scams, and is indebted to those trustees, judges,
clerks, secured lenders, bankruptcy attorneys, and private citizens who
report suspicious fact patterns. They coordinate with all participants in
the bankruptcy system to eradicate this destructive form of fraud. You
can find information online about the United States Trustee Program at
http://www.usdoj.gov/ust. For Your Information Foreclosure Scams
For - Understanding Foreclosure -
Sources: Federal Citizen Information Center, HUD, VBA, USDOJ
You'll appreciate the difference!
Fidelity
National
Title
Insurance

Commercial Real Estate Futures

The Chicago Board of Trade, the No. 2 U.S. futures mart, said on Monday it will launch commercial real estate futures on Feb. 21.

The new contract, based on the Dow Jones U.S. Real Estate Index, will allow market participants to bet on changes in the real estate sector of the stock market and manage commercial real estate exposure, the CBOT said.

The futures will reflect the value of the index, which is comprised mainly of real estate investment trusts, securities that track the underlying commercial real estate market.

Contracts will be cash-settled and trade on CBOT's electronic platform. The exchange plans a market maker program to create liquidity in the new product.


CBOT should get its product to market before the Chicago Mercantile Exchange, the largest U.S. futures exchanges, launches a related product.

CME said in September it was teaming with Global Real Analytics to launch commercial real estate futures and options based on a series of GRA indexes — national and regional, and for four separate property types. A launch is still expected in the first quarter.

CME already trades a suite of housing derivatives based on the S&P/Case-Shiller home price indices.

Hotel Foreclosure Sale

Investors pay $2.2 million to buy hotel in foreclosure sale





BILLINGS, Mont. - A group of northwestern Montana investors bought the historic Northern Hotel at auction Friday for more than $2.2 million.

The Boone Trust Group, representing about 10 investors, submitted the only bid for the downtown Billings property, which included the 115-year-old hotel, its land and inventory and a parking garage. The auction was held at the Yellowstone County Courthouse and lasted less than 10 minutes.

Robert and Susan Van Riper bought the hotel, which was rebuilt in 1941 after a fire, in 2002, in part with loans from investors in the Boone Trust Group. After running into financial troubles, the couple filed for Chapter 11 bankruptcy protection last April.

A court-appointed trustee pushed the hotel into a Chapter 7 bankruptcy in September, closing the hotel and setting the stage for Friday's auction.

Billings attorney Joe Womack recently valued the hotel's land, buildings and inventory at $1.5 million. The Boone Trust Group had claims for more than $2 million against the hotel.

The investors will "take a couple of months to decide what to do" with the property, said Dennis Minemyer, a certified public accountant from Missoula who represents the group.

Minemyer said a construction company inspected the building a month ago and found it to be "sound."

CNN Foreclosure Report

The New Rules of Real Estate

http://www.thenoteservice.com


Is it time to cash in? Or to double down before the next boom? The smart money says: Both. Here are the experts' top strategies for today's turbulent market.
By Paul Kaihla, Business 2.0 Magazine senior writer
January 29 2007: 4:46 PM EST

Get your foreclosures here!!!!!!


(Business 2.0 Magazine) -- First, the bad news. In August the median sales price for existing U.S. homes slipped to $225,000, down from its record high, a year earlier, of $229,000. The 1.7 percent dip marked the first year-over-year drop in more than a decade, according to the National Association of Realtors. To many economists, that was irrefutable evidence that the nationwide housing slump is here to stay.

Now for the glass-half-full perspective. First, unlike the destruction wrought by the tech crash of several years ago, the housing downturn won't take a huge bite out of the value of American residential real estate assets, currently estimated at more than $20 trillion.

"Housing cycles end with a whimper, not a bang," says professor Joseph Gyourko, the Wharton School's director of real estate research, whose new study shows investors where to make safe real estate bets during a dangerous market.

Second, down markets in housing have always offered investors just as many angles to play as they might find during a boom - you just have to know where to look.

Thankfully, we've already done a lot of the scouting for you. On the pages that follow, you'll find plenty of ways to play the current market, whether your risk tolerance is low and you're looking for safe ways to preserve your nest egg, or you're an aggressive speculator who sees a downturn as the ideal time to shop.

No doubt you'll read plenty of doom-and-gloom stories about people losing their shirts in real estate during the months to come. Read on to make sure you won't be one of them.

http://money.cnn.com/magazines/business2/business2_archive/2006/11/01/8392036/index.htm?section=money_latest

Distressed Real Estate

Distressed Real-Estate Priced to Sell in 2007


As a weak housing market nudges the foreclosure rate higher, next year is looking promising for investors in distressed real estate.

So far, the U.S. housing slump hasn't produced a bonanza for such investors, but lenders stuck with foreclosed property are becoming more inclined to slash prices or sell properties through auctions, industry experts say.

"We're all going to have to be more creative in the next 12 to 24 months" in selling foreclosed homes, says Chad Neel, president and chief operating officer of Fidelity National Asset Management Solutions, a unit of Fidelity National Information Services Inc., Jacksonville, Fla. Mr. Neel's company helps lenders manage and sell foreclosed homes.

Williams & Williams Inc., a Tulsa-based auctioneer, says its sales of foreclosed homes will nearly double this year to about 5,060. Dean Williams, chief executive of the auction firm, expects another near doubling of sales in 2007.

Dallas-based Hudson & Marshall Inc. expects its auction sales of foreclosed properties to total about 4,800 this year, up 23% from 2005. David Webb, co-owner of the auction company, believes sales will rise at least 20% in 2007.

The auction firms say their busiest auction markets recently have included Michigan, Ohio, Indiana, Pennsylvania, Texas and Colorado. "Word on the street is that California, Florida and Arizona will also be very active in the next 12 months," Mr. Webb says.

Lenders refer to foreclosed homes as REO, short for "real-estate owned." They generally try to sell REO homes as quickly as possible to minimize holding costs, such as those for insurance, taxes and lawn care.

In the first half of 2006, REO properties accounted for 3.1% of all U.S. home sales, up from 2.4% two years earlier, according to a study by First American Real Estate Solutions, a unit of First American Corp., Santa Ana, Calif. The study found that those homes sold at a median discount of 14% to their estimated value in the first half, compared with 12.5% two years before. The discounts reflect the gap between the actual sale price for the homes and the value estimated by a computer model, which takes into account sales of comparable homes nearby and price trends.

It has taken a while for foreclosures to mount. The housing boom of recent years reduced foreclosure rates because most people who fell behind on their loans could refinance or quickly sell their homes for at least enough to pay off the loans. At the end of this year's second quarter, only about 1% of all home mortgage loans outstanding were in the foreclosure process, down from an average of 1.2% over the past decade, according to the Mortgage Bankers Association. Doug Duncan, chief economist for the mortgage bankers, expects a modest rise in foreclosures over the next year or two.

People with weak credit records who have taken out loans over the past year are falling behind on payments at a rapid clip, according to a recent report by mortgage analysts at UBS AG in New York.

Christopher Cagan, director of research and analytics at First American Real Estate Solutions, notes that REO sales are a lagging indicator of the housing market because at least a few months elapse between a borrower's default and the foreclosure. Dr. Cagan expects a modestly higher foreclosure rate and deeper discounts next year.

Discounts are likely to be larger in areas where inventories of unsold homes have soared, such as in parts of Arizona and Florida, Dr. Cagan says. Another big factor in determining demand for REO homes is local job and population growth.

In Los Angeles County, which has strong housing demand and an extreme shortage of space, the median discount on REO homes was just 1.7% in this year's first half. In Ohio's Cuyahoga County, where job losses have left a glut of empty homes, the discount was about 30%.

Most REO homes are listed by real-estate brokers and sold like ordinary houses. But lenders often turn to auctions when they see their REO inventories piling up. Lenders that choose the auction route want to get "current market value, whatever it is, rather than sit on vacant property and speculate as to if or when it might sell," says Mr. Williams of the Tulsa-based auctioneer.

One recent buyer at a Hudson & Marshall auction was Warren Russell, who bought a 1,300-square-foot home in Detroit for just $1,500. Mr. Russell says the home is structurally sound but needs new windows, paint and some other items. He expects to spend about $10,000 renovating the home and then rent it out.

In considering purchases of foreclosed homes, Mr. Russell says, "you can't think, 'Would I live here?' There are people at every level of income that need a roof."

Connecticut Foreclosure Laws

For more info, visit http://www.thenoteservice.com

Connecticut has two types of foreclosure procedures: strict foreclosure and foreclosure by sale. A judge decides which process is used. The typical foreclosure process takes about 2-5 months, depending on the type of foreclosure.






Pre-foreclosure Period


A Connecticut foreclosure begins when the foreclosing lender files court documents against the borrower and notifies the borrower and other lien holders at least 12 days before a return date, which is the date the borrower and other lien holders are scheduled to appear in court. On the return date, the court will decide the debt, market value of the property, and costs, and whether a strict foreclosure or a foreclosure by sale will be used.


Strict foreclosure occurs if there is no equity in the property, and no sale occurs. The borrower receives a specified date when the debt must be paid. If the borrower does not pay the debt, the other lien holders have a chance to pay the debt and take ownership of the property. If no one pays the debt, the ownership automatically goes to the lender. The optimum timeline for this type of foreclosure is five months.


A judgment of foreclosure by sale occurs if there is equity in excess of the debt and a public auction is conducted to recover the debt. At any time, the borrower may stop the foreclosure prior to the sale by paying the amount due on the mortgage. If no payment is made, the foreclosure process continues.


Notice of Sale / Auction


In a judgment of foreclosure by sale, the court establishes the date of the sale, usually 60-90 days from the date the court makes its initial ruling. The court assigns an attorney, and the attorney publishes the sale notice and conducts the sale. The sale typically occurs on the property on a Saturday. A deposit of 10 percent of the property's value is required from the winning bidder, unless the lender is the winning bidder.


Within two weeks after the sale, the court decides whether to approve the sale. Until approved, the borrower can redeem by paying the amount owed plus costs. If the sale is approved the winning bidder usually has 30 days to pay the balance of the winning bid.


For more info, visit http://www.thenoteservice.com

Loan Broker

Loan Broker

The Loan Broker Program
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9). Residential loan organization guide.
A). Loan-to-value ratiosB). Prequalifying clientsC). Conforming loan amountsD). Usable income and verificationE). Qualifying ratiosF). Amortization chartG). Calculating PITI payments
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A). Newspaper advertisingB). Word-of-mouthC). RealtorsD). Direct letters
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A). Our Residential Lender Directory lists the major lenders that fund the following type of loans: confirming, non confirming, credit problem, home equity, high LTV, and more.B). Lending sources in your communityC). Direct letters
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