WSJ- Nick Timiraos

Falling home prices should give aspiring homeowners the upper hand this spring, but in a growing number of locations, it doesn’t feel like a buyer’s market.

Blame the nearly five-year slide of home prices. Those declines, which accelerated over the past two quarters, have left many sellers unable or unwilling to lower their prices. Meanwhile, buyers remain gun shy about agreeing to any purchase without getting a deep discount.

A few weeks ago, Fannie Mae issued an outright threat to homeowners in this country, creating a new rule that would punish anyone who stops paying their mortgage and walks away from their home, referred to as a “strategic default,” by not allowing those who choose that path to get a Fannie Mae loan for seven years.

They call it their “Seven-Year Lockout Policy for Strategic Defaulters,” and if you haven’t realized it already… look what’s been accomplished here: Homeowners have scared the heck out of industry giant, Fannie Mae.  I mean… these guys are shaking like leaves, absolutely running scared.  I know homeowners have been feeling like they have no power against the bankers, but this should prove otherwise.  It’s like we pushed the bully, and the bully ran home and got his Mom to come lay down a new rule in response.

On Fannie’s Website, Terence Edwards, Executive Vice President for Credit Portfolio Management has the following to say about the new rule:

“Walking away from a mortgage is bad for borrowers and bad for communities and our approach is meant to deter the disturbing trend toward strategic defaulting.”

Bad for borrowers, Terrence?  Really, how so?  Are you trying to say that people who walk away from their underwater mortgages are doing it because it’s bad for them?  Because I don’t think they think that, Terence.  I’m pretty sure that those that choose to walk away from their mortgages do so because they’ve figured out that it’s better for them… in their own best interests, as they say.

Hey Terrence, you disingenuous prick, I understand that my walking away from my mortgage is bad for you, but that’s only because my house is now worth half of what I owe.  You wouldn’t mind if I walked away from my mortgage if I had equity, right?  So, in other words, you want me to lose the couple hundred grand instead of you, does that about sum up your position here?  Yeah, well… I’m sure you do.  But I, on the other hand, would prefer that you lose the money instead of me.  Sorry about that.

Terrence, last I checked you’re just a giant failed mortgage lender who is as much a part of why we’re in this mess as any, and you’re going to need $1.5 trillion in taxpayer dollars to bail you out.

I’m a taxpayer, Terrence… isn’t that enough of a loss for me to take on your behalf?  You want me to contribute my tax dollars and probably my child’s future tax dollars to your $1.5 trillion bailout.  And on top of that, you also want me to eat the loss of a couple hundred grand on my house?

Geeze… when are you guys planning to kick in on this?  Your CEO gets a $6 million a year salary, I looked it up, and best I can tell he gets paid to say “yes” to just about everything.  I don’t know, Terrence, but I’m pretty sure that I could have bankrupted Fannie Mae for a lot less than $1.5 trillion.

Walking away from a $500,000 mortgage on a house that’s now worth $250,000 isn’t bad for the borrower, it’s good for the borrower… it makes all the financial sense in the world, for the borrower.  I mean, would you recommend that someone hold onto a stock that’s lost half its value.

Continue reading…Mandleman Matters

  I’ll Say it again Caveat Emptor… I do hope NAR’s President Vicki Cox Golder got my email!

By: Carrie Bay 04/23/2010 DSNEWS.COM

With defaults continuing to mount and declining property values still widespread, the industry is seeing an increase in short sales. Such transactions are expected to burgeon even further now that the federal government has implemented its Home Affordable Foreclosure Alternatives (HAFA) program.

Under HAFA, servicers participating in the administration’s foreclosure prevention effort are required to consider a short sale for all homeowners that don’t qualify for a modification, and incentives are paid out to borrowers, servicers, and lien holders for successful short sales.

With the new policies and still-precarious market conditions, short sales are gaining in popularity among lenders and distressed homeowners alike, but as with any modus operandi that rapidly picks up steam, this proliferation can open the gate for fraudulent activity.

Experts say one area of the short sale process particularly vulnerable to fraud is property valuation. Bank-owned fraud attributed directly to schemes involving short sales and REO inventories has increased by 40 percent over the past year and has more than doubled from two years ago, according to market data from the California-based risk mitigation firm Interthinx.

The administration’s HAFA program allows broker price opinions (BPOs) to be used to determine the value of properties to establish a minimum offer for a short sale. Some industry groups claim the allowance of BPOs is likely to exacerbate the potential for fraud. They say that the real estate agents and brokers who perform BPOs have an inherent bias toward producing a fee for themselves, irrespective of ensuring a fair return for the lien holder or homeowner.

In response to these allegations, the National Association of Realtors (NAR) stressed that BPOs are completed by licensed real estate agents who have a detailed knowledge and understanding of real estate pricing and local market trends. The organization argues that BPOs are widely accepted in the industry because of their established reliability and accuracy, and practitioners providing BPOs must adhere to a rigorous code of ethics and recognize their fiduciary responsibility to their clients.

While the Federal Bureau of Investigation (FBI) has described short-sale fraud schemes as “difficult to detect since the lender agrees to the transaction,” they are moving higher on the agency’s list of types of mortgage fraud to watch, with the number of cases mounting rapidly.

The FBI defines such fraud as: “Any material misstatement, misrepresentation, or omission relied upon by an underwriter or lender to fund, purchase, or insure a loan.”

Freddie Mac recently issued a notice to its servicers and real estate practitioners on what the GSE called an emerging fraud trend – short payoff, or short sale, fraud.

Short sale volume at Freddie Mac has grew more than 1,000 percent from 2007 to 2009, and the GSE says this upward trend in volume leaves the market ripe for incidences of short payoff fraud.

According to a member of Freddie Mac’s Fraud Investigation Unit, any misrepresentation related to the buyer, a subsequent transaction at a higher prices, or the seller’s hardship reason to qualify for a short sale constitutes fraud.

The GSE outlined several red flags that might suggest short sale fraud:

• Sudden borrower default, with no prior delinquency history, and the borrower cannot adequately explain the sudden default.
• The borrower is current on all other obligations.
• The borrower’s financial information indicates conflicting spending, saving, and credit patterns that do not fit a delinquency profile.
• The buyer of the property is an entity.
• The purchase contract has an option clause to resell the property.

Treasury officials say they have already incorporated safeguards against fraud into HAFA. To participate in the program, borrowers and the licensed real estate agent who lists the property are required to sign a Short Sale Agreement (SSA) and sales contract attesting that the transaction is being conducted at arm’s length, meaning the property is not being sold to a relative.

In addition, buyers must agree not to resell, or “flip,” the home within 90 days of the closing date, and the lender/servicer must have an independent property valuation in hand that meets their pre-set net return requirement before agreeing to the short sale. Treasury officials say servicers should terminate the short sale agreement if any evidence of falsification or misrepresentation is discovered.

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Short Sale Supervisor Talks to a Real Estate Agent – Recorded Conversation