One cannot pick up a newspaper, listen to the media or search the Internet without being inundated with news regarding the real estate industry, bank foreclosures and what has happened to the “American Dream” of homeownership.
There are various unscrupulous methods and scam artists who take advantage of people in foreclosure situations. These are scams involving people charging anywhere from $1,000 to $4,000 stating that they can help those who are facing foreclosure or are in the foreclosure process.
Another scam has been reported, where certain businesses offer to relieve a homeowner from foreclosure by taking title to the property. This absolutely does not relieve the homeowner/borrower from foreclosure, experts say. The unscrupulous businesses will then take title at no cost to them, rent the property to an unsuspecting tenant and collect the rent while the homeowner/borrower gets no relief from the foreclosure.
Three professionals in Ramona with experience in the real estate and financial industries are among those with information to help people understand how the real estate bubble burst and how they can protect themselves from scams.
“The market value of homes in Ramona today is the same as 2003,” said ReMax Direct Realtor Jan Ryan. “There was a real estate bubble caused by relaxing lending standards. The lending standards were relaxed in the noble cause of making home ownership more affordable.
“In the past buyers had to qualify for loans based on income and were required to have a down payment, as low as 3 percent for FHA (Federal Housing Administration), and more for conventional. There was no such thing as $0 down loans other than VA (Veterans Affairs). There was no such thing as stated income loans where a borrower does not have to show income.”
Lending practices made it easy for buyers to purchase homes with no money down, or not enough income to qualify for the payments, which made it easy for them to sell the same property six months later for $50,000 more than they paid for it. The quick profit turnaround caused such an unrealistic rise in real estate prices, that buyers who wanted to own their own home had to pay inflated prices.
“This market was not sustainable and unfortunately leaves many sincere, hardworking, responsible homeowners with homes worth much less than what they paid for them through no fault of their own,” said Ryan.
The blame for the collapse of the real estate market cannot be placed on one entity. There was no regulatory body to place checks and balances on the entire system. Lenders, homeowners, real estate agents, the rating agencies and the government all share in this crisis the country is in today, experts agree.
“Yes, banks were willing to grant loans to individuals that were not qualified by old standards, but there is so much more to the story than that,” said Lisa Schmidt of Prudential California Realty and 2007-09 president of the Ramona Real Estate Association. “Homeowners sought to buy higher and higher priced homes, and the lending industry obliged by funding loan programs to allow more buyers to qualify for these. Some homeowners, who bought using loan programs which did not require income verification and that had variable and adjustable rates did so knowing that they would not be able to afford their mortgage when the adjustment period occurred.”
Lenders knew this, too, but were caught up in the cyclone as rating agencies were rating loans with Triple-A status that did not warrant such a high rating.
The Triple-A loans were then sold to investors in the United States and abroad. This perpetuated the need for more loans. It seemed the bottom would never fall out of the endless appreciation of home values.
“I do not see how this was not obvious to the loan regulators,” said Schmidt. “The press blames mortgage brokers, but, other than a few unscrupulous lenders, the mortgage brokers were following the guidelines given them.”
There are numerous options that homeowners, in this upside down housing market, have. Banks are willing to work with homeowners who are having a difficult time making payments and are getting better organized to deal with these issues than they were a year ago. Some options are loan modification.
“A vice president at a well-known lender told me months ago that she is working six days a week on loan modifications for borrowers to ‘anyone who breathes,” said Ryan. “During the short sale process, in a transaction, a major lender insisted on talking to the borrower to see if the loan could be modified first rather than selling. Many lenders have been willing to bend over backward to help homeowners who have had trouble making their payment.
“This is easily done on your own, or with the help of a Realtor, at no cost to the homeowner. You can do a much better job yourself at no cost. These scam companies are taking advantage of the hardship of others. During a conversation with a title representative, she told me she even knew people in the real estate industry who were victims. Please don’t give them your hard-earned money.”
Ryan summarized the differences between short sales and foreclosures:
Short Sales — Selling a home for less than what is owed. This works best if one has just one lender or possibly two maximum and have no other assets such as a retirement or other properties.
Lenders are accepting short sales. It is an arduous process that can take months but may be worth it. The lender will require the homeowner/borrower provide two years tax returns, W-2s, two months bank statements, hardship letter and list of monthly expenses.
They will do their own appraisal and will not sell for less than a reasonable price, and the buyer cannot be related in any way to the seller. Local Realtors may be contacted for experienced advice at no cost.
Foreclosure — when there are no other options left for the homeowner. This may be the best option for some, if they have several different loans against their property with different lenders, if they have other assets that they want to keep, or if the value of the home is significantly less than what the purchase price paid. It gives a homeowner a chance to save money and live in the home without making payments for approximately three months, or however long it takes the bank to go through the process, which can be up to an additional six months. Most banks will offer an incentive of $2,000 to move by a certain date.
“There is some good data put out by CAR (California Real Estate Association) stating that the percentage of households that could afford to buy an entry-level home in California stood at 59 percent in the fourth quarter of 2008, compared with 33 percent for the same period a year ago,” said Christie Carlson, mortgage loan specialist with San Vicente Mortgage.
There are incentives for the homebuyer: First Time Homebuyer Federal Tax Credit, which was increased from $7,500 to $8,000 in 2008, does not need to be repaid unless the individual re-sells the home within three years, and FHA is another purchasing tool. FHA programs give a first-time homebuyer the opportunity to purchase their home with as little as 3.5 percent down.
“Real estate is a long-term investment, not a quick get-rich scheme,” said Ryan. “The silver lining is that home prices are more affordable to real buyers again, and that it will continue to be a good investment in the long run, once we get past this painful adjustment.”
People facing hardship with their mortgage payments, or requiring additional information, may protect themselves from unscrupulous people by seek the guidance of local professionals, including their attorney.