WASHINGTON (AP) — Housing Secretary Shaun Donovan said Thursday it’s critically important that banks and lending institutions “step up to the plate” to help make certain the Obama administration’s new home foreclosure initiative succeeds.
“This started as a mortgage crisis but it’s become a jobs crisis,” said Donovan, speaking a day after President Barack Obama announced a $75 billion program aimed at a problem many analysts say has been at the heart of the country’s economic tailspin.
In addition to the new mortgage lifeline for millions of Americans on the brink of foreclosure, the administration on Wednesday announced an additional $200 billion in government assistance to mortgage giants Fannie Mae and Freddie Mac, the largest makers of home mortgages in America.
It’s all part of a stepped-up effort to encourage lending institutions to refinance homes for millions of homeowners considered to be “under water” — properties held by people whose mortgage payments exceed the value of their homes in the depressed housing market.
Interviewed Thursday on NBC’s “Today” show, Donovan said the administration feels certain there are sufficient requirements to ensure heavy bank refinancing, saying that could “tip the balance for millions of homeowners.”
Sheila Bair, chairman of the Federal Deposit Insurance Company, said: “There will still be some borrowers who lose their homes to foreclosure. Some of that will be inevitable. But this should have a significant reduction in the foreclosure rate, bringing it more in line with historical levels.”
Bair, who appeared on ABC’s “Good Morning America,” said that as a person making regular mortgage payments herself, she understands the resentment of homeowners with safe loans who feel others are being rewarded for risky behavior. She said, however, that the plan would help many, but not all, and that’s appropriate at a time of plunging home prices.
“Is it fair to everyone? Perhaps not,” she said. “But I think frankly we’re beyond that.”
Bair refused to predict when home prices might stabilize, but said she hoped the loan modifications beginning in March would temper the ongoing declines.
Donovan said mortgage refinancings under one key part of the program would be available only to people with good credit.
But he also said that “there are clearly a number of homeowners around the country who won’t benefit and shouldn’t benefit,” saying he was referring in part to “investor owners” — people who bought properties they never occupied.
With so many bank owned properties you would think it should be easy to snag one of these properties for yourself. The problem is that you are not the only one thinking that way. Here in Santa Clara County we experience about 40 REO properties a day. Most pertain to areas like Alum Rock, South San Jose, Gilroy and Morgan Hill. More often then you would think a few will sneak in from Santa Clara, Sunnyvale, and Cambpell. These are the rarer of the bunch and generally tougher to get.
Last week I put in 4 offers for clients who are attempting to buy an REO property in Santa Clara and in Alum Rock, San Jose. Three properties were very well priced and offered a good value, the other required so much repair that it was sitting on the market for some weeks.
The 3 well priced homes 3635 Machado AVe., in Santa Clara, 3226 San Juan Ave., in Santa Clara, and 3755 Mondigo in San Jose, were all multiple offer situations with ten plus offers. Machado countered everyone back highest and best while the others just took highest and best offers. The other 716 Kiely Blvd., has not yet responded.
When offering on REO properties, you certainly need to make sure your Realtor has produced a good file for you. This is going to be reviewed by the bank and not anyone that your Realtor can try to persuade. You should make sure you are fully pre-approved with the typical underwriter conditions, provide sources for down payments, and write a clean and aggressive offer.
On the plus side these homes are not selling for much higher than their offering price. Machado sold for $426,500 from $400,000, the others I have no confirmation on the sale price yet.
 |
The Santa Clara home market sales continues to perform better than last years numbers. So far this year 61 homes have sold versus last year’s 38 during the same time period. Inventory numbers are about the same across the boad, and will start picking up. More likely to see some further price decreases, but not signification price decreases for Santa Clara homes. |
|
|
Sunnyvale numbers are not too far off from last year. Sunnyvale got off to a great start but has slowed down in the last two weeks. Also inventory just a about 10% over last years figures. Again expect some more price drops as inventory climbs and days on market increases. |
 |
Mountain View we see quite a large increase in inventory. Comparatively speaking Mountain View has low inventory numbers but they are about 40% up from last year. Sales are down as well. Indication that Mountain View prices have not dropped significantly. |
 |
Moving on to the higher end we see double the inventory in Los Altos and roughly half the sales. Los Altos will need a likely drop in prices to move inventory. |
|
Much like Los Altos, Saratoga is experiencing the same phenomenon. Double the inventory half the sales. Certainly not a good start for Saratoga and will likely see some significant price drops this year. |
|
|
Cupertino has also experienced a slow down. Inventory has doubled and sales are half of what last years numbers were. Although inventory is much higher sales are about steady. Expect prices to drop further in Cupertino. |
 |
Los Gatos inventory is over 50% higher than last year’s numbers. Sales however have been very consistent with last year’s sales. As inventory increases expect the prices to come down. Continue to monitor these numbers for price performance in Santa Clara County |
The current trend in the marketplace is focused on the impact of foreclosures across the country. This trend has resulted in various opinions on the types of distressed property sales (Short Sale, Deed in Lieu and Foreclosure) and its impact on a borrower’s FICO score.
This topic, which is raised in news articles, has generated many questions mainly how scores are calculated based on each of the distressed property sale scenarios.
While many people have associated a target point impact anywhere from 100 points on a Short Sale to 280 points on a foreclosure, Fair Isaac has told us that FICO risk scores do not distinguish between the three types of foreclosures. There are so many variables in a consumer’s credit report (do they have collections or other public records?) in addition to the foreclosure account that a point impact is almost impossible to gauge. Further complicating the score prediction is how the foreclosure account is reported, and if a public record accompanies it.
Each article we’ve seen suggests that a Short Sale has less of an impact on an applicant’s FICO score than a Foreclosure, but downplays the fact that there could be legal action taken by the lender on the deficiency balance from a Short Sale. This is the same result as a Foreclosure; a derogatory tradeline plus the Foreclosure Public Record.
Even without the Public Record filing there would still be the reporting of an MOP 8 (method of payment 
on the Short Sale tradeline. This would have a negative impact on the applicant’s score equivalent to a foreclosure tradeline. Finally, Short Sales are typically facilitated to those applicants who have encountered credit issues. These issues would be reflected in the derogatory reporting of other credit items within the consumer’s credit profile.
Although it still remains unclear the exact impact that these different scenarios can have on one’s FICO, the consenses is that your credit will be severly impacted by either scenario.
Definitions:
Foreclosure: An owners right to their property is terminated, usually by default. Property is purchased back by bank or public auction (sheriffs sale). Proceeds of public auction applied to mortgage debt. Most states will zero out deficiency balance.
Deed in Lieu: An owner avoids foreclosure by voluntarily surrendering their property by deeding to the lender as satisfaction for the debt. Deed in Lieu allows the lender to take possession sooner than would be possible through formal foreclosure.
Short Sale :
A short sale typically is executed to prevent a home foreclosure. A short sale is nothing more than negotiating with lien holders a payoff for less than what they are owed, or rather a sale of a debt, generally on a piece of real estate, short of the full debt amount.
Tags: credit score, forecosures
So you are interested in buying a REO, here’s what you should consider:
Get Pre-Approved and Be Ready to Act
In the REO market, expect the competition to be fierce especially in the bay area where investors or homebuyers like yourself are anxious to take advantage of these prices. It’s not uncommon for there to be multiple offers on bank-owned properties. Just as you are looking for a bargain, so are many other buyers. In the areas that you are considering the fewer the number of REO’s the higher likelihood that you will encounter stiff competition when it comes to buying. To ensure your chances of buying an REO in cities like Sunnyvale, Cupertino, Santa Clara, and Saratoga, yes I said Saratoga. You should be financially prepared to make a down payment and you should have a pre-approval letter from a lender in place before making an offer.
Know Where and How to Look
In Santa Clara County most if not all REOs are listed on the Multiple Listing Service and can be found on the majority of websites that feature properties for sale. There are also several websites that specialize in foreclosed properties. You can get a head start and see which properties are in the process of foreclosure on RealtyTrac.com or find homes that have already been foreclosed upon by checking sites like CaliforniaMoves.com, Trulia.com and Zillow.com. Many lenders also have their foreclosed properties listed directly on their websites.
Hope for the Best, Prepare for the Worst
In all likelihood, you will not be “wowed” when walking through the door of an REO. Most are sold “as is.” In the months leading up to foreclosure, the homeowner may have disregarded maintenance and let the condition of the home deteriorate. Do not be surprised if you see homes stripped of appliances, light fixtures and any other items that can be sold. In the worst case scenarios, homes fall victim to vandals and transients who take advantage of a vacant property. It’s not always a pretty sight, but for buyers who are looking for a challenge, or who can afford the time and effort involved in buying an REO, these types of properties may be right for you.
It May Take Longer Than You Expect
Each bank/lender works a little differently, but they all have similar goals. They want to get the best price possible; they have no interest in “dumping” the real estate they own cheaply. Generally, banks have an entire department set up to manage their REO inventory, and in this current market, with the increased number of bank-owned properties those departments are often back-logged for days, if not weeks and thus cannot always respond quickly to offers or other inquiries. In Santa Clara County these banks or asset managment companies work with only a few brokers or agents who can have anywhere from 10 to 50 listings at a time. Sometimes getting a timely direct response from these agents is not always possible.
Once an offer to purchase is made, banks generally present a “counteroffer.” It may be at a higher price than you expect because the bank has to be able to demonstrate to its investors, shareholders and auditors that they attempted to get the highest price possible. You are then free to accept, reject or counter the bank’s counter-offer.
Your offer or counter-offer will probably have to be reviewed and approved by several individuals and/or other companies. As such, this process may take several days to complete.
It is important when purchasing a bank-owned property that you understand that the timing can sometimes be longer and drawn-out than a typical resale. However, do not confuse an REO transaction with a short sale which can often take upt o 3 months to complete.
Understanding the Property Condition
Banks typically sell a property in “as is” condition. Some banks will agree to provide a Section 1 Pest Certification, but not unless that requirement is included in the final contract. Banks will usually allow you to get all the inspections you want (at your expense), but they probably will not agree to do any or all repairs. Offers to buy REO property may include an inspection contingency period that allows you to terminate the sale if the inspections reveal defects that the bank will not correct and that you might not want to accept. Be aware that some banks require use of their own contract forms which do not include the same types of provisions as standard Realtor forms. In those situations you should review the bank’s purchase contract documents with your own agent and understand the unique terms that the lenders are creating. Even if you have agreed to buy the property “as is,” you may request that the bank make repairs or give you a credit after you have completed the inspections. Some banks will re-negotiate to save the transaction instead of putting the property back on the market, but that possibility should not be taken for granted. Some banks may not provide financing on their REOs but it doesn’t hurt to ask.
Making the Offer
Before making an offer, have your Agent contact the Listing Agent and ask the following questions:
- Are there any inspection or repair reports? This answer is usually no. However if the home has been in contract before the previous buyer may have done inspections and they agent is obligated to disclose those inspections.
- What work has the bank performed and/or what work will the bank agree to perform? Usually no again.
- How long do you anticipate that it will take the bank to accept an offer? Typically in Santa Clara County I have come to expect the same day or up to 3 day lag times on responses.
Offers are usually faxed or uploaded to the bank. The Listing Agent needs your originals. There is generally no formal presentation. Keep in mind: nothing happens on evenings and weekends as banks are closed. The keys to remember are: You should have sufficient money available to put down a reasonable deposit; you need to be pre-approved by a reputable lender; your offer should contain reasonable, straight forward contingencies and the offer should specify a closing date that is within a reasonable amount of time. There should be no unique wording outside the parameters of a normal contract or your offer may be rejected. Remember "as is" and highest price, thats what the bank is looking for.
What are Some of the Pitfalls to Watch Out For with REOs?
Determine all fees associated with purchasing the property.
- There may be hidden fees like liens, unpaid taxes, penalties, etc. to contend with.
- How low will they go? Lenders may not be willing to negotiate the price down from market or close to market. This is especially true in areas where home values have fallen further than lenders want to acknowledge.
- Be prepared for a counter. Because the sale of bank-owned properties are becoming increasingly popular and therefore, competitive, we are seeing cases in which banks are countering at an amount that is above the original list price. These actions can discourage some buyers.
There Are No Guarantees in Buying REOs
On the surface, it might sound like a bank-owned property is a steal but if the bank wants to sell its inventory on the open market for the amount of money that was once owed to the bank, it may not be as good of a deal as one might think. Couple that with the fact that bankowned properties are not always left in the best condition; a great deal of work and money may be needed after escrow closes to improve the property.
When considering the purchase of an REO, you need to look closely at comparable sales in the neighborhood and be sure to take into account the time and cost of any repairs or remodeling that may be needed. In most cases, banks do not want to indefinitely hold on to their inventory as it isn’t in the bank’s best interest to let the property sit. Therefore, some banks have incentives to price a home for less than market value just to get rid of it. However, while it is true that banks are typically anxious to sell bank-owned property quickly, they are also strongly motivated to get as much as they can for it.
The bottom line is that although bargains with bank-owned properties exist, it is important to understand the pitfalls that may also exist in buying REO property. That is why it is imperative that when you do decide to explore the purchase of a bank-owned property that you do so with the aid of a professional, experienced Realtor, like myself, who will guide you through the intricacies of this type of transaction.
Tags: bank owned homes, buying an reo, reo
In Santa Clara County credit is everything. A poor credit rating can affect your purchasing power and your ability to get a home loan. If you have a poor credit history there are many things you can do to restore your credit. Don’t rely on paying these professional institutions to restore your credit. Most of these companies are scams and offer guarantees that are unenforceable.
Feel confident that with some diligence you can restore your credit yourself and through the process learn about creating a good credit history.
Make sure your credit file is accurate. Credit files are maintained by three credit reporting agencies—Experian, Trans Union and Equifax. You can contact one of them and request a copy of your credit report for a small fee. Review the report for errors and outdated information. If you feel that any of the reported information is inaccurate, you can request that the date be removed. The credit agency will contact the creditor who has 30 days to respond and confirm the disputed items. If they do not verify it, the date will be deleted. If the creditor verifies that the information is accurate, you can write a 100-word statement explaining your position and have the credit reporting agency include it in your credit file.
Contact your creditors. Some creditors will remove derogatory information from your credit file if you pay a full or partial payment towards the debt. They may also “re-age” the account by making the current month the first repayment month, thus showing no late payments. You can call the creditor directly to do this.
Add positive information to your file. Send information to the credit bureaus that shows stability and the ability to make payments on time. For any accounts on your credit report that do not show you pay on time, you can send account statements and copies of cancelled check to show your payment history, and the credit bureaus may add them to your history. If you have long-term employment, have lived in the same place for a length of time, etc., be sure to add documentation to your file that shows this stability.
Get credit in your own name.If you are married and your spouse has had financial problems, be sure that you establish credit in your name alone.
Re-establish good credit.If you have had credit problems in the past (especially a bankruptcy or a foreclosure), it is important that you re-establish good credit. There are several ways to do this:
- Get a secured credit card. Many banks will, in exchange for a sum of money deposited with them, give you a credit card. Use the card and make the payments on time. Your credit rating can quickly improve.
- Obtain a secured loan. If you have a passbook savings account or can open one, ask the bank to give you a loan against that money. They keep your passbook until the loan is paid in full. Make sure the bank reports on the loan to the credit bureau.
- Work with a local store. Some businesses will give you credit on a purchase regardless of your credit standing. Although you may pay a higher rate of interest, this in another way of re-establishing good credit.
- Satisfy judgments, liens and collections whereever possible. Make it a priority to satisfy any unpaid judgments, liens, and collections against you, or at the very least try to negotiate with these creditors.
3265 MACHADO AVE, SANTA CLARA
Beds: 3
Baths: 2
List Price: $399,900
List Date: 1/28/2009
Lot Size: 5000.00 SF
SqFt: 1078
Age: 54
Year Built: 1955
Neighborhood: Bowers Crest
School District: Santa Clara Unified
Another great deal that being offered by the bank. $400K will get you a simple 3 bedroom 2 bath home in a nice quiet neighborhood. This same home sold for around $650K three years ago. Not much has been done to it, but these homes are relatively inexpensive to update. They feature small bathrooms, but adequate room sizes. The 3rd bedroom works well as an office. The living room is large, and kitchen is a medium sized galley kitchen. A 2 car garage, and some back yard space make it a simple and functional single family home. At $400K don’t expect to see this on the market for very long.
Tags: santa clara reo
(great article on short sales, very accurate assesment of the time and expectation. Although the article refers to the Sacramento area, the same opportunities are here in the Santa Clara Valley. -Vinicius)
Short sales – where a lender agrees to take less than it’s owed on a mortgage – are rising sharply. Here’s how you can profit.
(Money Magazine) — When Brian Gavitt, a physician, and his wife Gayleen, a stay-at-home mom, started to eye homes in Sacramento last winter, they knew they were looking in the hardest-hit areas of the housing bust. So the couple, who were relocating from Lansing, figured they could land a fantastic bargain in no time at all.
The part about the bargain turned out to be true. The Gavitts bought a five-bedroom house in the upscale Natomas Park 
neighborhood ("Even now, you don’t see FOR SALE signs up anywhere," says Gayleen.) And it was a steal at $300,000, a full $200,000 less than they would have paid just two years ago.
The amount of time it took to land the deal was another story. It was more than six months from when the Gavitts first saw their dream home to the moment they held the keys in their hands. The reason: The home they bought was a short sale.
Not along ago, few people had even heard of a short sale, which occurs when the bank agrees to discount the loan balance for a seller who owes more on his mortgage than the home is currently worth.
If you’re in the market for a home today, you’re almost guaranteed to be looking at some short sales. Nationwide, 14% of homeowners are currently underwater on their mortgages. And in many areas, it’s far more: In the Gavitts’ zip code, for example, over half of homeowners would owe more than their home is worth if they sold today, calculates Dee Schwindt, the Gavitts’ realtor.
Tags: Short Sales
Experience in Buying an REO in Santa Clara & San Jose
We submitted an offer at $407,000 and there were 4 other offers at that time. In this Santa Clara neighborhood alone there were 3 other bank owned properties on the market, the next lowest in price was $461,000 and needed just about the same amount of work.
The response from the seller was a highest and best counter in the form of an email. For those of you who are unfamiliar with this strategy, the seller comes back to all the interested parties and asks them to submit their highest and best offer. We responded knowing that this home was under priced and offered $420,000 as our highest and best. That was 3 days ago and are still waiting for a response from the bank.
This San Jose REO received a total of12 offers. We are currently awaiting response from the bank. This experience is very common as active buyers in Santa Clara County that are targeting these REO deals have slim pickings for homes that do not require too much repair. As a result, they often get quite a bit of interest when priced low and will often sell at market prices. This is not to discourage you from trying, rather to set your expectations on pursuing REOs.
Tags: bank owned homes, san jose reo, santa clara reo