by Adam Quinones Mortgage News Daily March 26, 2010
Today, as part of its ongoing commitment to continuously improve housing relief efforts, the Obama Administration announced adjustments to the Home Affordable Modification Program (HAMP) and created a new Federal Housing Administration (FHA) principal write down program.
Here is a rundown of the details….
1. Temporary assistance for unemployed homeowners while they search for re-employment
Mortgage payments reduced to affordable level for a minimum of three months, and up to 6 months for some borrowers, while eligible homeowner looks for new job. Via forbearance, month housing payment is set at 31% of monthly income while borrower is unemployed. A temporary assistance plan to be offered to unemployed borrowers. Servicers required to offer assistance to unemployed borrowers who meet specific criteria. Treasury says forbearance will not cost taxpayers anything.
2. Requirement to consider alternative principal write-down approach and increased principal write-down incentives
All servicers required to consider alternative modification approach that emphasizes principal write-down for HAMP eligible borrowers who own more than 115% of current appraised home value.
Pay for Success Structure: Alternative principal reduction allows some underwater homeowners to reduce principal balance of their mortgage in steps over three years, if they remain current on payments.
Servicers will initially treat the write-down amount as forbearance and will forgive the forborne amount in three equal steps over three years, as long as the homeowner remains current on payments
For borrowers who have already received a permanent modification, or who are in a trial modification, and are still current on payments at the time the alternative modification approach is operational (later in 2010), servicers will be required to retroactively consider extinguishing an amount of principal balance in the same amount that would have been forgiven under the new alternative approach.
Increased incentives to servicers and lenders, including increased incentives for extinguishment of subordinate liens, to encourage more short sales and other alternatives to foreclosure
3. Improvements to reach more borrowers with HAMP modifications
Improvements to borrower solicitation requirements including clear performance time frames for both servicers and borrowers
Borrowers in active bankruptcy must be considered for HAMP upon request. Allows use of bankruptcy documents to verify income.
Requires servicers to stop foreclosure actions after a borrower enters into a trial plan based on verified income.
Allows waiver of the trial period in some cases were a borrower is already performing under a bankruptcy plan.
Expansion of HAMP to include homeowners with FHA loans
4. Helping homeowners move to more affordable housing
Double relocation assistance payment for borrowers successfully completing foreclosure alternative to $3,000
Help homeowners who use a short sale or deed-in-lieu to transition more quickly to housing they can afford.
Q: When will homeowners begin to receive help under the new HAMP enhancements?
It will take time to get these new program enhancements up and running. Some pieces, such as increased payments for alternatives to foreclosures, will be put in place in the coming weeks. We anticipate the full set of programs to be available by the fall.
Consumers: HERE are Frequently Asked Questions
New FHA Refinance Option for Underwater Loans
Here are the essentials of the program:
Voluntary for Lenders and Borrowers. Because lenders MUST AGREE to principal write-downs, not all underwater borrowers who meet criteria below will receive an FHA refinance loan.
Mandatory Principal Write Down: Lenders must write down at least 10% of the principal of the original first mortgage. FHA expects the average principal write-down to be significantly more than that.
New appraisal must be obtained. After principal write down, the new loan to value can be no higher than 97.75%.
2nd Mortgage holders must agree to resubordinate and write off any principal amount over 115% of current LTV
Option is available to homeowners with mortgages not currently insured by the FHA. Existing FHA-insured borrowers are NOT eligible.
As with any loan forgiveness, this short refinancing should be reflected as a negative feature on a borrower’s credit score.
Must be current on existing mortgage.
Must occupy the home as their primary residence
Must qualify under current FHA underwriting regs (after principal write down). FICO score cannot be below 500. Front Ratio 31%/Back Ratio 50%
Existing lender must agree to principal write down
To incentivize lenders and servicers to cooperate with principal write downs TARP funds will be made available up to a total of $14 billion. TARP funds will be used to provide coverage for a share of losses on loans up to a specified amount. The FHA will provide remaining loss coverage up to the maximum insurance coverage. Thus, the new lender will have a loan that is backed by the United States for up to 97.75 percent of the home value, as with other FHA refinance loans
HERE is the FHA Refinance Fact Sheet
Q: When will the FHA Refinance loan be available to underwater borrowers?
FHA will move to implement this as quickly as possible and expect that lenders can begin making decisions by the fall. Specific guidelines will be posted in a FHA Mortgagee Letter in the near future.
Treasury estimates these changes will help 3 to 4 million more struggling homeowners through the end of 2012 (FHA estimates might be a bit high). Costs will be shared between the private sector and the Federal Government. The Federal cost of these changes will be funded through the $50 billion allocation for housing programs under the Troubled Asset Relief Program (TARP). Banks, the private sector, will be forced to write down principal losses (with help from the government).
Plain and Simple: the updates made to HAMP are a big step in the right direction. The FHA Refinance program looks to be geared toward high-credit quality borrowers who happen to live an area decimated by high unemployment and an above-average amount of foreclosures. It’s tailored for a very specific category of distrssed borrowers.
House flippers — investors who buy homes and quickly resell them — often are viewed as predators who come into a neighborhood, throw on a coat of paint and sell a property for several thousand in profit.
But not all flippers are created equal.
Chris Bowley, a former executive of two public home builders, and Josh Gonzalez, an agent with Realty Executives, have partnered to buy ugly, cheap homes in a stable neighborhood southeast of 24th Street and Camelback Road. Their venture is called Aspire Homes.
That area, an extension of the Biltmore neighborhood to the north, is considered one of the premier spots in Phoenix, but modest ranch houses dominate the streets just a few blocks away.
“They are run-down, god-awful and the ugliest houses on the block,” Gonzalez said, so many aggressive investors didn’t want them even at rock-bottom prices.
But the duo saw beyond that.
The first house they bought, at 2314 E. Sells Drive, had severe water damage. They purchased it for $125,000 and put $50,000 into it, using top-quality tradesmen who were hungry for work. They put in new wiring, plumbing and drywall, and gave it a new roof, flooring, window treatments and extensive landscaping.
After about 90 days of reconstruction, they put the house on the market. It sold in 21 days to a young lawyer for the full list price: $249,900.
“That first one was a real eye-opener,” Gonzalez said.
They purchased a second house nearby for $129,900. It had been abandoned for nearly a year, and the improvements cost about $50,000. A young couple, first-time home buyers, paid $275,000 for it.
“It’s amazing what they are doing,” said Gina Fierros, who grew up in the neighborhood. “These guys’ quality is beyond compare.”
Fierros’ parents live nearby in the house where she was raised. Now she hopes to buy one of Bowley and Gonzalez’s remodels.
Three recently finished homes are on the market at 4201 N. 19th St., 1840 E. Montecito Ave. and 4220 N. 19th Place. The partners hope to sell them to first-time buyers, who have less than a month left to take advantage of the $8,000 federal tax credit.
Tanya Marchiol, president of Team Investments Inc., said she engaged in a similar strategy in other Valley neighborhoods. But as inexperienced investors have crowded into auctions and driven up prices, that model is no longer feasible, she said.
Bowley and Gonzalez concede that finding properties at rock-bottom prices is becoming tougher, as investors have snapped up thousands of foreclosed homes during the past 18 months. So now they are turning to short sales.
A new opportunity may be on the horizon: Local housing experts expect another wave of foreclosures to hit in the months ahead, so experienced investors may once again gain the upper hand.
Aspire Homes is planning to flip these houses, each with renovations between $50,000 and $70,000:
4201 N. 19th St.
List price: $61,900
Purchase price: $55,000
Est. new list: $199,000
1840 E. Montecito Ave.
List price: $115,000
Purchase price: $95,000
Est. new list: $185,000
4220 N. 19th Place
List price: $54,500
Purchase price: $50,000
Est. new list: $229,000
The next decade in commercial real estate likely will end on a high note as the Valley continues the boom-and-bust cycle that defines our economy — but it will be a rough road to recovery.
Similar to the resurgence of the 1990s, when excess supply led to lower pricing, the market is expected to normalize by mid-decade. But that won’t happen until soured real estate deals, buoyed by poor decisions and free-flowing liquidity, “cascade and drive commercial prices down in excess of 50 percent, similar to what we have witnessed in the residential sector,” said Christopher Toci, executive director of the capital markets group at Cushman & Wakefield of Arizona Inc.
Office vacancies, which currently stand at more than 20 percent, may take four to five years to return to normal historical medians, in the 5 percent to 8 percent range.
“We could top 30 percent before it flattens out,” said Sonoran Bank President Jim Vigars.
He expects the industrial sector to recover first, because it wasn’t overbuilt. He also foresees a rebound in single-family housing, followed by retail, which will depend on consumers coming back locally and nationally.
“It’s going to take the rest of the country to recover before Arizona is going to have a major recovery, because we’re still reliant on construction and people moving here,” Vigars said.
New opportunities, challenges
While vast commercial real estate vacancies continue to hurt the Valley, they also create opportunities to attract companies and investors that can take advantage of bargain-basement deals.
Over the next several years, as the credit market stabilizes and vacancies fill, developers will once again start new construction in Phoenix, said Susan Hyatt, project manager in the city’s Department of Community and Economic Development. She doesn’t expect today’s office and residential condo vacancies to be among the challenges facing the region 10 years from now.
“Our challenges at the end of the coming decade for downtown Phoenix will be continuing to create more dense development; keeping prices of office, retail and residential space affordable; and ensuring that downtown Phoenix remains the vibrant urban center of not only our city, but the entire region,” she said.
That’s a tall order, considering the lack of entertainment and retail options downtown and the fierce competition from Tempe, Scottsdale and Glendale to create their own “urban” destinations.
Tempe’s urban draw
“Tempe still remains the best place for urban development to continue and the likeliest place it will pick up again,” said Tempe Mayor Hugh Hallman.
The college town underwent a resurgence in the past decade with the Rio Salado project at Hayden Ferry Lakeside, the renovation of Papago Park and the development of the Metro light rail.
However, the East Valley city has plenty of challenges to address in the next decade — and they can be seen from miles away.
Centerpoint on Mill, developed by DMB Associates Inc., has been a disaster. Its two main towers, primarily residential space with minor retail components, are unfinished — a glaring example of hyped-up promises made during the boom days and liquidity shortages in the financial crisis. Hallman would like to see the stalled project remain off the market for a year or more until the economy recovers.
“Because a project goes into bankruptcy, it doesn’t suddenly have to be torn down,” he said.
Optimism in West Valley
Brian Friedman, economic development director for the city of Glendale, said it’s difficult to predict the future, “but it’s fair to say the next couple of years will be challenging for Arizona.”
However, he is optimistic the West Valley suburb will emerge from the downturn in position to take advantage of the market when it turns. In the past year, the city has landed 10 new projects, creating more than 1,400 jobs. In addition, four companies are expanding operations in Glendale, creating 400 jobs.
Conair Corp.’s purchase of KB Toys’ 619,000-square-foot warehouse in the Glendale Airpark was one of the largest industrial real estate transactions in the Valley last year. Conair, which owns the Cuisinart brand, now has more than 1.2 million square feet under its roof — roughly the area of Arrowhead Towne Center, which also acquired several new tenants.
Friedman said industrial space at the airpark is gaining interest.
“I predict that in this decade, we will see the western portion of the Loop 101 area, including the Glendale sports and entertainment district and Glendale Airpark, emerge as a major employment center in the Valley,” he said.
Another population bubble
Craig Henig, senior managing director of the Arizona region at CB Richard Ellis, said the Valley’s population — stagnant for the past few years — will return to growth mode in the next three to five years, spurring employment and optimism.
“This optimism will spark renewed business expansion and a new emphasis on emerging technologies, sustainability, health care and aerospace, which will lead us out of this current situation and serve as an economic foundation for the future,” he said.
In the past decade, Phoenicians watched a booming real estate sector hit unsustainable highs followed by treacherous lows, marked by record foreclosure rates, plummeting home values, the decimation of entire industries reliant on building, and a credit freeze in the desert.
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