Shelli Dore’s Real Estate Blog

Archive for April 2010

New rules governing title insurance in Colorado are taking effect May 1, the state Division of Insurance announced Wednesday.  The rules are intended “to ensure consumer interests are protected in real estate transactions,” officials said. Here is the text of a news release issued Wednesday by the Division of Insurance, a unit of the state’s Department of Regulatory Agencies:

NEW RULES FOR TITLE INSURANCE TAKE EFFECT MAY 1, 2010

Although many homebuyers are not educated in the intricacies of title insurance, the Division of Insurance is working to update title rules and regulations to ensure consumer interests are protected in real estate transactions.

Effective May 1, 2010, there’s a newly adopted version of Division of Insurance Regulation 3-5-1, which governs the title insurance industry in Colorado.

“When purchasing a home, having title insurance in good order helps buyers be sure that there are no problems with the home’s title and that the seller really owns the property,” said Colorado Insurance Commissioner Marcy Morrison. “The recent update to our regulation recognizes the inherent value in services provided by title insurance companies and agencies, and moves to ensure these entities are compensated for valuable services, rather than passing hidden costs back to consumers in the form of higher premiums and closing fees.”

While much of the regulation has remained the same as past versions, there are a number of important changes in the way title insurance entities must now conduct business:

• Free property reports – title insurance companies and agencies are no longer permitted to issue property reports (known as ownership and encumbrance reports, or O&Es) without charge. Also included in this prohibition is the issuance of preliminary title commitments (known as TBD commitments) without charge. These products represent a considerable expense for the title industry, expenses that are passed back to consumers in the form of higher premiums and closing fees.

• Free classes for real estate agents – while title entities may still teach classes relating to title insurance without charge to the attendees, but any costs associated for classes not primarily related to the business of title insurance must be passed back to the attendees. Classes such as internet marketing for real estate brokers, or how to prepare a real estate contract, may not be provided without charge.

• Title commitments and disclosures – a number of updates affect the internal operation of title entities, including clarifications on what is considered a reasonable search and exam, disclosure requirements on the title commitments regarding true ownership of properties, and prohibitions against overly broad coverage exceptions.

• Consumer funds – title entities are no longer permitted to invest the funds they hold for other parties without first receiving written approval from necessary parties. Additionally, a title entity that earns interest on fiduciary funds must now give disclosure that interest is or was earned, and give consumers the opportunity to receive payment for any interest over certain administrative fees.

The updated regulation can be viewed at: http://www.dora.state.co.us/insurance/regs/F3-5-1_030510.pdf

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By Stephanie Armour, USA TODAY

The Obama administration’s initiative to help homeowners obtain modifications of second mortgages is getting off the ground.
Just this month, Bank of America became the first major lender in the program to send letters offering modifications to home-equity loan customers struggling with their loans. Citigroup, JPMorgan Chase and Wells Fargo joined the program in March, when updated guidelines were issued by the government. Those banks hold about half of the USA’s second liens.

The program, originally introduced in August, is aimed at overcoming an impediment to permanent modifications of first mortgages. Holders of first mortgages have been reluctant to take losses unless the holder of the second-lien mortgage does, too. More borrowers are staying current on their second mortgages, however, which has made those lenders less inclined to take losses.

“This is a huge concern for consumers,” says Marietta Rodriguez, national director for homeownership and lending at national non-profit NeighborWorks America. “You have two financial institutions trying to get a payment out of you. How do you respond?” The government’s second-mortgage program, called 2MP, offers incentives to borrowers, mortgage servicers and investors to modify second mortgages. How it works:

•When a borrower’s first loan is modified under the federal program, known as the Home Affordable Modification Program (HAMP), and the servicer of the second loan is also a participant in HAMP, that servicer must offer to modify the borrower’s second lien.

•Servicers can stretch the term of the second loan to 40 years.

•Second-lien lenders must defer the payment of the same proportion of principal that was deferred or forgiven on the first loan.

The second loans also must have originated on or before Jan. 1, 2009, to be eligible for a modification. Modifying a mortgage with a second lien can be more difficult because of the additional parties involved. A second lien may be held by another servicer or investor, and getting all parties to agree on interest rate reductions or other steps to ease borrowers’ monthly payments can be time-consuming or difficult. The government program aims to make the process easier. The number of homeowners who will get assistance is limited.

While the program is expected to reach up to 1.5 million homeowners who are struggling to afford their mortgage payments, there are an estimated 19 million residential junior liens, with an average balance of $57,000 as of January, according to First American CoreLogic. Up to 50% of at-risk mortgages have second liens, according to the Treasury Department. Even with the incentives the government is offering mortgage lenders to modify second mortgages, they could still prove to be an obstacle as pressure grows to reduce borrowers’ loan principal. “First-lien holders become more reluctant to do principal reduction because of the second” lien, says Jack Schakett, loss mitigation strategies executive at Bank of America. “Everyone is calling for doing more principal reduction. Second liens will be a problem.”

By Aldo Svaldi – The Denver Post

 Homes in Colorado and the U.S. are falling into foreclosure at a much faster pace this year than last, according to a report Thursday from RealtyTrac. But a freeze on foreclosure activity early last year by lenders waiting for new federal guidelines on loan modifications can explain much of that gap. The government had asked lenders to voluntarily halt foreclosures until the new guidelines came out, and many did so. In Colorado, overall foreclosure filings in the first quarter were running 27.1 percent higher than in the first quarter of 2009, according to RealtyTrac. Nationally, they were increasing at a 16 percent pace. Colorado reported one foreclosure filing for every 134 homes during the quarter, ranking it 10th among states. Nationally, the rate was 1 out of 138 homes. Ryan McMaken, author of a separate foreclosure report from the Colorado Division of Housing, said foreclosure activity in the state is running higher this year than last. He attributes that to the voluntary moratorium last year. But the first-quarter state numbers are tracking on par with, and in some cases lower than, other quarters last year. “I haven’t seen anything that indicates why Colorado has accelerated more than the nation,” McMaken said. That isn’t to say that lengthy periods of unemployment and lower incomes aren’t weighing on many home owners despite efforts to help them. Some economists and industry experts expect more borrowers to lose their homes through foreclosure or short sales, in which they sell the property for less than they owe, as government and industry mortgage- relief programs falter. “We’re not surprised to see an influx of (repossessed properties). We thought this would be coming; we just didn’t know when,” said Daren Blomquist, spokesman for RealtyTrac. The Washington Post contributed to this report. Aldo Svaldi: 303-954-1410 or asvaldi@denverpost.com

For the third month in a row, Denver-area home prices showed a year-over-year increase in January, according to the latest S&P/Case-Shiller Home Prices Index.

Out of 20 U.S. cities in the closely watched report from Standard & Poor’s, released Tuesday, Denver was one of nine that showed a year-over-year increase in prices.

Denver-area home prices were 2.6 percent higher in January 2010 than in January 2009. That followed a 1.2 percent year-over-year increase in December and a 0.5 percent gain in November.

However, prices slipped 1.3 percent in January from December 2009.

November’s rise was the first year-over-year home price increase in the Denver area since November 2006, according to a Denver Business Journal analysis of Case-Shiller data. Between those months, Denver had 36 straight months of year-over-year price declines.

Denver’s home price index was 125.59 in January, meaning that a typical home in the area was worth nearly 26 percent more than in January 2000, which is the index’s base year.

Nationwide, the Case-Shiller 20-City Composite Home Price Index declined 0.7 percent year over year, while the 10-City Composite Home Price index was flat. This is the nearest that either index has come to positive territory since January 2007, three years ago, according to S&P.

“The report is mixed,” David Blitzer, chairman of the Index Committee at Standard & Poor’s, said in a news release. “While we continue to see improvements in the year-over-year data for all 20 cities, the rebound in housing prices seen last fall is fading. Fewer cities experienced month-to-month gains in January than in December 2009, on both a seasonally adjusted and unadjusted basis. Moreover, in four cities — Charlotte, Las Vegas, Seattle and Tampa — prices reached new lows following the financial crisis.”

Other recent housing data also paint a mixed picture, Blitzer said.

“Housing starts continue at extremely low levels, recent reports of home sales suggest the market remains difficult, and concerns remain about further foreclosures and a large shadow inventory of unsold homes,” Blitzer said. “We are in a seasonally weak part of the year, but given the S&P/Case-Shiller Home Price data reported today, we can’t say we’re out of the woods yet.”

Click here to download the latest Case-Shiller report.-rmcgaw@bizjournals.com

Read more: Case-Shiller: Denver home prices up for 3rd straight month – Denver Business Journal:

Aggressive steps readied to fight foreclosures – The Denver Post.

By Renae Merle and Dina ElBoghdady
The Washington Post

WASHINGTON — The Obama administration plans to overhaul how it is tackling the foreclosure crisis, in part by requiring lenders to temporarily slash or eliminate monthly mortgage payments for many borrowers who are unemployed, senior officials said Thursday.

Banks and other lenders would have to reduce the payments to no more than 31 percent of a borrower’s income, which would typically be their unemployment insurance, for three to six months. In some cases, administration officials said, a lender could allow a borrower to skip payments altogether.

The new push, which the White House is to announce today, takes direct aim at the major cause of the current wave of foreclosures: the spike in unemployment. While the initial mortgage crisis that erupted three years ago resulted from millions of risky home loans that went bad, more recent defaults reflect the country’s economic downturn and the inability of jobless borrowers to keep paying.

The administration’s new push also seeks to more aggressively help borrowers who owe more on their mortgages than their properties are worth, offering financial incentives for the first time to lenders to cut the loan balances of these distressed homeowners. Those who are still current on their mortgages could get the chance to refinance on better terms into loans backed by the Federal Housing Administration.

The problem of “underwater” borrowers has bedeviled earlier administration efforts to address the mortgage crisis as home prices plunged.

Foreclosure relief

Officials said the new initiatives will take effect over the next six months and be funded out of $50 billion previously allocated for foreclosure relief in the emergency bailout program for the financial system. No new taxpayer funds will be needed, the officials said.

The measures have been in the works for weeks, but President Barack Obama is finally to release the details days after his watershed victory on health care legislation. Following that bruising battle on Capitol Hill, his administration is now welcoming a chance to change the subject and turn its attention to the economy and, in particular, the plight of the unemployed — concerns that are paramount for many Americans.

In addition to mortgage relief for unemployed borrowers, the program features four other key elements, including several steps to address the growing population of borrowers who owe significantly more than their home is worth, according to officials who spoke on the condition of anonymity because the official announcement had not been made.

Financial incentives

The first key element is that the government will provide financial incentives to lenders that cut the balance of a borrower’s mortgage.

Banks and other lenders will be asked to reduce the principal owed on a loan if the amount is 15 percent more than their home is worth. The reduced amount would be set aside and forgiven by the lender over three years, as long as the homeowner remained current on the loan.

Until recently, administration officials had been reluctant to encourage lenders to cut the principal balance, worrying that this would encourage borrowers to become delinquent. But as federal regulators have struggled to make an impact on the foreclosure crisis, those qualms have weakened.

Second, the government will double the amount it pays to lenders that help modify second mortgages, such as piggyback loans, which enabled homebuyers to put little or no money down, and home equity lines of credit. Third, the new effort also increases the incentives paid to those lenders that find a way to avoid foreclosing on delinquent borrowers even if they can’t qualify for mortgage relief. For example, the administration is scheduled to launch a program next month encouraging lenders to have borrowers sell their homes for less than the mortgage balance in what is known as a short sale.

Fourth, the administration is increasingly turning to the Federal Housing Administration to help underwater borrowers who are still keeping up their payments. The aim is to help these borrowers refinance into a more affordable loan. The FHA will offer incentives to lenders that reduce the amount borrowers owe on their primary mortgages by at least 10 percent.

By Michele Lerner , Bankrate.com

Homeowners struggling to sell their homes in a short sale are getting some relief, thanks to the federal government’s Home Affordable Foreclosure Alternatives, or HAFA, program.

Up to now, many short sales — in which the lender accepts a sale of the property for less than the full amount owed — have taken months to complete. Sometimes, the complex and lengthy process has failed, resulting in foreclosure.

HAFA establishes streamlined short sale rules and incentivizes borrowers and lenders to work together to avoid foreclosure. The rules — in effect between April 5, 2010, and Dec. 31, 2012 — also are intended to speed up the short sale process.

“The streamlined short sales process will definitely help homeowners,” says David Liniger, Re/Max International chairman and co-founder.

Prior to HAFA, homeowners often listed their home for sale without an idea of what the lender would accept.  “A lot of sellers and their Realtors have not been able to sort out the problems with short sales and have given up on the process because, even after sending in the correct paperwork, they have sometimes waited three or four months for their lender to respond,” Liniger says.Under HAFA, borrowers receive preapproved short sale terms from the lender prior to putting the home on the market. Lisa Matykiewicz, a Realtor and Certified Distressed Property Expert in Gilbert, Ariz., says the updated short sale rules establish an easy-to-understand process with predefined steps that “make it easier for everyone to understand.”

Eligibility requirements

The HAFA guidelines apply to lenders who voluntarily participate in the HAMP program. The Department of Housing and Urban Development says more than 100 servicers have signed up to participate in HAMP, covering more than 89 percent of mortgage debt outstanding in the country.

To be eligible for HAFA, homeowners must first apply for a loan modification through the Home Affordable Modification Program, or HAMP. Owners who do not qualify for a loan modification or miss payments during the initial loan modification period qualify for HAFA.

Other HAFA requirements include:

  • Property is principal residence.
  • Mortgage originated before Jan. 1, 2009.
  • Mortgage is owned or guaranteed by Fannie Mae or Freddie Mac.
  • Borrower is delinquent or default is foreseeable.
  • Homeowner demonstrates hardship.
  • Borrower’s total monthly housing payment exceeds 31 percent of gross income.
  • Unpaid principal does not exceed $729,750.

According to HAFA rules, lenders now must offer a short sale in writing to the borrower within 30 days if the borrower does not qualify for or complete a loan modification. Borrowers then must respond within 14 days to the lender’s short sale agreement.

“I think it’s great that the lenders in this program have to offer a short sale before going to foreclosure,” Matykiewicz says. When a purchase offer is made, borrowers must submit the sales contract to the lender within three days, along with the buyers’ mortgage preapproval and the status of negotiations with other lien holders on the seller’s property.

Finally, lenders must approve or deny the contract within 10 days. HAFA rules also state that lenders must release borrowers from the obligation to repay the difference between the sales price and the loan amount. No deficiency judgments are allowed for a first or second loan.

Other incentives

In the past, short sales were especially difficult for homeowners with more than one loan on their home, since the home sale typically repaid only the first mortgage. HAFA’s financial incentives include a payment of up to $3,000 for second mortgage holders.

“Second trust lien holders are often owed five or 10 times that $3,000 payment,” says Liniger. “But if the property goes to foreclosure, the second trust holder is not likely to get any money at all. This at least guarantees they get something.”

Other HAFA financial incentives include $1,000 to loan servicers to cover administrative fees, up to $1,000 for mortgage investors who agree to share short sale proceeds with second lien holders and $1,500 to the homeowners for relocation.

“The moving expense allocation acts as an incentive for them to stay in the property until the short sale goes through,” says Liniger. “Owner-occupied properties are usually in better condition than vacant homes.”


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