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This questions was posted today at LinkedIn for debate and I thought it would be really interesting to share with all of you and get you feedback by commenting on this blog.

Who is responsible for the current mortgage/real estate crisis?

A couple wishes to buy a home. Their income is approximately $125,000 per year.

Average home prices in their area are about $605,000. After their down payment they end up with a loan of $550,000. The lender will approve them for a loan but the payment is a tight squeeze. Technically they can "afford" the mortgage but they will need to be on a very tight budget to be able to pay their other bills and won't have much discretionary income. They fall in love with a house and think it is a great buy as there are similar homes in the area listed for more. The couple goes ahead and makes the purchase.

Fast forward a year or two and home prices have dropped significantly and the couple now finds that they really can't afford their mortgage after all. They are falling behind on the payments and face foreclosure. Who do we blame?

a) The Real Estate Agent. She knew that the home was probably a little more than the couple could comfortably afford and should have steered them toward lower priced homes or recommended they wait until prices come down a bit or have a larger down payment.

b) The Mortgage Broker. He is the expert in the home financing field and should have discouraged the couple from this much of a loan.

c) The Lender. They are the ones who set the guidelines and ultimately approve loans for people with high debt ratios and offer the creative financing options that allow people to qualify for loans that they can't really afford.

d) The Couple. They should have been more responsible and not rushed into homeownership because ultimately they are the ones who will lose their home and ruin their credit.

e) All of the above

f) None of the above

Short Sale abbreviated definition – Selling your home for less than is owed with lender approval.

The issues surrounding short sales have become almost mainstream today.  Can’t afford your home?  Avoid foreclosure via the short sale.  Is it that easy?  Not by a long shot.

Truth. The banks don’t have the staff to explain it and I am not even sure they could explain it if they did because short selling is essentially new to the banking system and although they have dealt with similar scenarios in the past, never before has there been the volume, UNTIL NOW.

The best way for me to explain why you need to be PERFECT if you are a seller who is considering a short sale is by scenario:

Suppose you have a mortgage or mortgages on your home totaling $800,000.  Your home is worth $600,000.  The following two questions need to be addressed before the banks will even consider allowance of a short sale.

[1] Is there a financial hardship?  No hardship – no short sale.  (i.e. “I am strapped for cash and I don’t want to sell my other 9 investments properties in this environment” won’t cut it)
[2] Are you current?  This is tricky but if you are current on your loan(s), you may not qualify for the short sale scenario either, because without a solid argument, there is no hardship, YET.

Assuming, the answer to number one is ”yes” (you will have to prove it) and the answer to two is “no”, you may then , subject to lender approval, try and sell your home in this market but you better be PERFECT in execution,  otherwise you may be doomed to foreclosure.

PERFECT in timing and pricing.  The two are inter-related and if you can not adequately execute both, you will be in trouble.

[1] Timing.  You don’t have much time.  Sure there will be people out there that will beg to differ and argue that you can stall an inevitable foreclosure for months and even years…which may be the tactic of choice if you wish to continue the daily stress involved for months or even years.  I think you would have to be a sadist but who am I to judge.  Assuming you are not, the goal is to quickly put an end to this, which leads to pricing.

[2] Pricing.  Sounds easy but it isn’t.  Here’s why.  There are two trains of thought on this.  [1] Price as close as you can to recovering the full debt even when comparables dictate a lower selling price.  Insane idea, never works.  [1] Price it rock-bottom, essentially ringing the dinner bell for all vultures to come by for a quick pick-up.  Also insane, works every time, but many times with dire consequences.  Pricing too low is often a mistake made by a seller who is elated by the bank’s allowance of a short-sale scenario.  Sellers misunderstand the effect of the short-sale as they often equate it to a do-over, even though a majority of the time it is not.

The short sale will allow the seller to avoid the ominous default and ultimate foreclosure which may undoubtedly wreck their credit but, IT WILL NOT AUTOMATICALLY RESET THE DEBT (shortage) OWED!  For instance, if you owed $800,000 and the short sale of your home recovers $600,000, the shortage of $200,000 is still in question.  More often than not, the shortage will be designated as a collectible balance.  It is still a deficiency and a recorded judgment, much like the original mortgage.  On some occasions, banks quash the entire debt and absorb the loss but with the amount of short sales occurring, lenders are in no position to write down these losses so long as they are not going to have to hold onto tangible assets.

Bottom Line:  If you are even remotely thinking about selling your home via the short sale process, understand that it is a PROCESS that requires real guidance and precision to navigate successfully.  For questions regarding your specific situation, my contact information is below.

Jason Kapit, Esq. is a Realtor with EWM

ecord high foreclosure rates in the second quarter were reported in Los Angeles, Seattle, Miami and New York, according to a report issued by PropertyShark.com.

Los Angeles led the four cities with a 282.01% increase in the second quarter compared to last year's Q2. Los Angeles reported a record 14,505 new residential foreclosures according to the report issued by PropertyShark.com. The amount of newly scheduled trustee sales soared by 63% in comparison to the previous year.

"The foreclosure chart is unfortunately starting to look like a ski jump, with the current number of new trustee sales this quarter increasing at one of the highest rates we have seen over the last two years," said Property Shark Foreclosures Product team member, Adina Dumit.

To Read the Full Article, please visit this link :

http://www.mortgagenewsdaily.com/732008_Foreclosure_Rate.asp

Great BLOG about Foreclosures in Weston Florida .

Please visit this link :

http://blog.ewm.com/2008/07/06/whats-with-foreclosure-in-weston-florida/

Mortgage rates continued to set record 2008 levels with long term rates moving up slightly during the week ended June 26, and short term rates increasing modestly but in double digits.

The information comes from the Primary Mortgage Market Survey released from Freddie Mac as financial markets waited to see the outcome of the Federal Reserve Boards June meeting on interest rates. (The Fed, as expected, left the Federal Funds Rate unchanged at 2 percent.)

The 30-year fixed-rate mortgage (FRM) increased from 6.42 percent with 0.7 during the week ended June 19 to 6.45 percent with 0.6 point last week. This was the highest level for the 30-year since September 6, 2007.

The 15-year FRM averaged 6.04 percent with 0.6 point, up from 6.02 percent with 0.7 point. The June 26 result was the highest level for the 15-year since October 18, 2007.

TO READ THE FULL ARTICLE, PLEASE VISIT THIS LINK :

http://www.mortgagenewsdaily.com/722008_Mortgage_Rates.asp

Every time I am pre-qualifying someone for a mortgage, I et asked the following question. “How do I feel about the future of Florida’s housing market?“

My answer is very simple: Have you seen the trailer for Journey to the Center of the Earth, when after a while that their floor broke in pieces, Brendan Fraser screams

“we are still falling !!! “

Yes indeed, this housing downturn will likely last longer than expected to rebound. Certainly, today’s economic scenario is unique and nothing from the past could 100% apply and rule out predictions for the future. We might well be experimenting the beginning of a world wide inflation or even worse stagnation. But lets go back to Florida.

This housing slump will last longer, at least in Florida, because of the high volume of foreclosures and the specific constraint in the credit markets for this particular area. So most likely, any buyer would ask himself: “ Is this the right moment to buy or shall I wait a few more months for the prices to drop even further?”

As a Realtor, you might probably be nodding and scratching your head as you read this article, but beware to the actual figures of falling prices on an environment of tightening credit, and please read very carefully this Real Life scenario.

Please click here to download the Real Life Scenario.

After reading this scenario, you could conclude that even though prices are still failing, if credit guidelines tighten or interest rates increase, the bottom line result is that the buyer’s monthly payment cash flow will remain unchanged.

Ever wonder how you get a mortgage on a home in foreclosure or a short sale?

Actually, just like you would on any other property. The fact that the property has been foreclosed upon or is being offered as a short sale has no bearing on the purchase money mortgage that you apply for to purchase the property. There are however, a few items that you should keep in mind:

1) If the property is in a state of disrepair it may not be eligible for conventional financing so a rehabilitation or construction loan may be in order.

2) The time frames of the negotiations and/or closing with the seller and/or bank can be protracted so keep this in mind when speaking to your mortgage planner about your interest rate lock and approval.

3) If the property is located in a “distressed” or “declining” market you may be required to make a larger down-payment.

And as always get pre-approved for financing first and if you already have but has been more than 30 days check with your mortgage planner and ask the he or she update your pre-approval

Mortgage rates are a big deal when you’re buying a home.

With even the slightest uptick in rates, 30 years of mortgage payments can get substantially more expensive and one of the most substantial threats to mortgage rates is an economic event called inflation. Inflation’s influence on mortgage rates is so large that markets can get jarred on just the mention of it and that’s exactly what happened Wednesday when Fed Chairman Ben Bernanke uttered “inflation” 55 times in a 5-page speech The speech started at 2:45 P.M. ET and by 2:53 P.M., the damage was done.

Market players interpreted Bernanke’s remarks to mean that inflation may be worse that previously expected and mortgage rates moved up by 0.125 percent, or $8 per $100,000 borrowed. This equates to $2,880 in extra payments over 30 years.

If you’re actively shopping for a home loan and rapid rate movements make you nervous, consider locking in your mortgage rate today; rates have been especially jumpy all year and don’t look to smooth out anytime soon.

Don't Do Nothing at All

The one thing not to do is to take an ostrich-in-the-sand approach, ignoring pleas and letters from lenders.

Lack of communication with a lender will only exacerbate problems. Lenders who don't hear from delinquent mortgage holders often have to start legal action that can lead to foreclosure.

"The worst thing you can do is avoid the phone calls, letters and/ or visits from your lender," Wockenfuss says. "The sure way to go into foreclosure is to not talk with your lender."

Ask Your Lender to Help

Typically, lenders don't want a home to go into foreclosure, because it saddles them with both a house and a financial loss. Many lenders are willing to work out alternative payment plans with homeowners who have fallen slightly behind or are struggling to make payments. These steps might include lowering the mortgage rate, extending the life of the loan or letting homeowners make up missed payments through a payment plan.

"I'd call your (mortgage) service provider and say, 'What can you do?'" says Mark Zandi, chief economist of Moody's Economy.com.

Try not to delay. Homeowners should contact their lenders as soon as they know they'll have trouble making their mortgage payments. And they should keep copies of all correspondence and a log of all the service providers they speak with.

Approach Lenders with a Plan

One mistake some mortgage holders make is simply to call their lenders and say they can't pay, says Joel Naroff of Naroff Economic Advisors. Instead, they should suggest a loan-modification or repayment plan.

"Approach them and say, 'This is what I can't pay,' and not just that you can't pay," Naroff says. "You have to have a suggestion -- say, 'I can pay this much every month.'"

Expect the Unexpected

Lenders are sometimes willing to make concessions to people who are several months behind on payments. But with foreclosures mounting, banks are facing more requests for loan modifications.

As a result, some homeowners, even those who have never before failed to make a mortgage payment, might find lenders less flexible than they'd hope.

Critics have also complained that some of the aid programs aren't doing enough to make a dent in the vast number who need help. A February report by the State Foreclosure Prevention Working Group found that only seven in 10 delinquent home borrowers were on track for assistance. The report found a "large gap" between the number of homeowners needing help and the number receiving it.

On Thursday April 17th 2008 , The Wall Street Journal published this article.

Why Lenders Are Leery
Of Short Sales

As more people fall behind on their mortgages, lenders have been slow to take advantage of a longstanding alternative to foreclosure -- a so-called short sale.

At first glance, a short sale might seem like a win-win for everyone involved. In such an arrangement, the borrower sells the home for less than the amount owed, with the lender forgiving the difference. The sale releases borrowers from their obligations. For mortgage holders, it can be less costly than foreclosing -- and could provide protection against future price drops. For buyers, it can be a chance to buy a home at an attractive price.

Please visit www.wsj.com for a full version of this article.

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