MORTGAGE LOAN DEFAULT 2013: HOW LONG WILL THE “ZOMBIES OF CREDIT PAST” WALK? BY

 

 

Start with what is right rather than what is acceptable.
Franz Kafka

 

 

 

 

 

 

 

 

J. ROBERT ECKLEY Real Estate and Banking Attorney

INTRODUCTION:   A LOT OF ZOMBIES STILL WALKING FROM THE CREDIT WRECKAGE

As we all pat ourselves on the back for short-selling all of the homes, offices and businesses of most everyone who came to us for guidance with a financial problem over the last six miserable years, let’s also remember that for every buyer who’s “day we made” by giving them a smoking deal and making ourselves a golden commission or fee,  it was at the crushing expense of the former owners—those who we evicted from their properties, their security and the privacy of their former lives for our and the buyer’s personal benefit.  That gold was wrenched from the short-seller’s financial teeth and was in most cases all he or she had left.  If there is any doubt of that, attend the day of the short-sellers’ final move out.  It’s no celebration as they leave the places where so much of the good and hopeful times in their lives were spent.  It’s a funeral procession.  At the same time as we wiped out the lives the sellers, we obliterated an asset even more dear for the future of them, us and society:  Their “credit lives.”  In almost poetic justice, that last tragedy is going to come back to get us all.

As we head jubilantly into the future counting the easy money earned on the blood of tossing these poor disenfranchised people over the sacrificial cliff, we need to remember the reality that yesterday’s seller used to be tomorrow’s buyer.  At one time, for example, owner-occupied homes were recycled—Monday’s seller becoming Friday’s buyer–once every 5 to 7 years.  And the market needed that that to thrive.  It still does.  But now, when almost every deal before 2013 was a short-sale and every short-sale trashed the seller’s ability to buy for years to come, who (after the investors that will propel less and less of the purchasing marketplace as time goes by) will be left to qualify as that “tomorrow owner-occupied buyer?”  For the most part, 90% to 100% of the sellers we have short-sold during the last 6 years have been purged from the credit market for years, in some cases a decade.  Even for those who may recover their credit earlier, many are so traumatized from the last experience they will never buy again—or at least never buy more than modestly.  Even those that who kept their properties but witnessed the carnage of their neighbors have been traumatized.  They may sit with what they have for years longer than the usual turnover rates.  Add to that the miserliness the stiff new credit underwriting rules announced last month by the Consumer Financial Protection Bureau (“CFPB”)—now the U.S. Czar of consumer finance—and one wonders if the post-2012 market is not going to be permanently impaired or subdued.  Both in product for sale and in sales.

What all of this means is that this year and in coming years there could be a loss or slow-down of 50% or more in the traditional buyers in the future marketplace (those short-sellers that were half of every deal) and a lot less inventory to chose from, no matter what prices do or the economy does in general.  The clients and customers who need to purchase may be unable to under credit standards and those who could, may not be willing to.  Add that to those who saw the carnage, stayed put, paid their mortgages and do not want to move, ever, and then the 5-7 years after that it will take to slowly change their minds.  Then add tens of thousands of agents chasing so few listings or purchases and you can quickly see the ghosts of yesteryear coming back to haunt virtually everyone.

After all of the dust settles, here, below, is how long it appears it will now take the Zombies to transform once again to the Financial Living.  As to the added negative or extending effect of the new CFPB loan underwriting standards—even a recovery from derogatory might not be enough to qualify for a loan–that remains to be seen as the 2013 market unfolds.

RECOVERY PERIOD FOR DEROGATORY CREDIT:  THE CURRENT GUIDELINES *

BANKRUPTCY

FHA

A two year waiting period is required since the date of discharge of Bankruptcy.

NOTE:  Must use sale date shown on Trustee’s Deed for mortgages included in bankruptcy and a 3 yr waiting period from this date will apply. If FHA Mortgage foreclosure, date FHA paid the claim is required. Call HUD to verify when that was to move forward.

VA

A two year waiting period is required from discharge date.

 

If the bankruptcy was discharged within the last 1 to 2 years, it is probablynot possible to determine that the applicant or spouse is a satisfactory credit risk unless both of the following requirements are met:

the applicant or spouse has obtained consumer items on credit subsequent to the bankruptcy and has satisfactorily made the payments over a continued period, and

the bankruptcy was caused by circumstances beyond the control of the applicant or spouse such as unemployment, prolonged strikes, medical bills not covered by insurance, and so on, and the circumstances are verified.  Divorce is not generally viewed as beyond the control of the borrower and/or spouse.

NOTE:  If foreclosure or mortgage included in Bankruptcy, VA allows same guideline for Bankruptcy, and the discharged date will be used to determine foreclosure date and borrower eligibility. VA does not require Trustees deed to determine date of sale.

USDA

If GUS “Accept” is received, loans do not require lender to obtain additional credit documentation for derogatory credit. W&V layering risk policy may apply.

 

Manual Underwrites require any applicant with a foreclosure or pre-foreclosure activity in the previous 36 months, Chapter 7 Bankruptcy discharged in the previous 36 months, Chapter 13 Bankruptcy that has yet to complete repayment or has completed repayment within the previous 12 months, and/or late mortgage payments in the most recent 12 months must submit all supporting evidence along with the credit waiver regardless of credit score. The lender must document the compensating factors as well as the rationale that was applied in the course of making a decision to approve the loan in their permanent loan file.

NOTE:  If foreclosure or mortgage included in Bankruptcy, USDA allows same guideline for Bankruptcy, and the discharged date will be used to determine foreclosure date and borrower eligibility. USDA does not require Trustees deed to determine date of sale.

FNMA

Waiting Period RequirementsExtenuating CircumstancesChapter 13 – A two year waiting period is required from the discharge date; four year waiting period required from dismissal date.

 

Chapter 7 or 11 – A four year waiting period is required from the discharge or dismissal date.

NOTE: If foreclosure or mortgage included in Bankruptcy, FNMA requires use of discharge date for manual underwrites and BK filing date when running DU to determine foreclosure date and borrower eligibility. FNMA does not require Trustees deed to determine date of sale.Chapter 13 – Two year waiting period from discharge or dismissal date.

Chapter 7 or 11 – A two year waiting period is required from discharge or dismissal date.

NOTE: If foreclosure or mortgage included in Bankruptcy, FNMA requires use of discharge date for manual underwrites and BK filing date when running DU to determine foreclosure date and borrower eligibility. FNMA does not require Trustees deed to determine date of sale.

FORECLOSURE

FHA

A three year waiting period is required.  (Must use sale date shown on Trustee’s Deed.)

 

If FHA or VA Mortgage foreclosure, date FHA paid the claim is required. Call HUD or VA to verify when that was to move forward.

VA

The fact that a home loan foreclosure (or deed-in-lieu of foreclosure) exists in an applicant’s (or spouse’s) credit history does not in itself disqualify the loan.

 

Develop complete information on the facts and circumstances of the foreclosure.

Apply the guidelines provided for bankruptcies filed under the straight liquidation and discharge provisions of the bankruptcy law.  See the preceding heading entitled “Bankruptcy.” A two year waiting period is required.

If the foreclosure was on a VA loan, the applicant may not have full entitlement available for the new loan.  Ensure that the applicant’s Certificate of Eligibility reflects sufficient entitlement to meet any secondary marketing requirements of the lender.

USDA

If GUS “Accept” is received, loans do not require lender to obtain additional credit documentation for derogatory credit. W&V layering risk policy may apply.

 

Manual Underwrites require any applicant with a foreclosure or pre-foreclosure activity in the previous 36 months, Chapter 7 Bankruptcy discharged in the previous 36 months, Chapter 13 Bankruptcy that has yet to complete repayment or has completed repayment within the previous 12 months, and/or late mortgage payments in the most recent 12 months must submit all supporting evidence along with the credit waiver regardless of credit score. The lender must document the compensating factors as well as the rationale that was applied in the course of making a decision to approve the loan in their permanent loan file.

FNMA

Waiting Period RequirementsExtenuating CircumstancesA seven year waiting period is required unless extenuating circumstances exist.A three year waiting period (up to seven years) is required with additional restrictions:

 

  • 90% max LTV ratios (the max LTV ratios permitted are the lesser of the LTV ratios above or the max LTV ratios for the transaction)
  • Purchase, principal residence
  • Limited cash-out refinance, all occupancy types.

 

SHORT SALES/DEED-IN-LIEU/PRE-FORECLOSURE

FHA

A borrower is not eligible for a new FHA-insured mortgage if he/she pursued a short sale agreement on his or her principal residence simply to:

  • Take advantage of declining market conditions; and
  • Purchase a similar or superior property within a reasonable commuting distance at a reduced price as compared to current market value.

Loan Modifications – Streamline Refinances are not eligible with any account in arrears. All accounts must be current. Therefore, loan modifications are not allowed. However, FHA Cash Out Refinances are eligible. A previous loan modification is allowed, but is considered a delinquent loan if the loan is still outstanding on the credit report. (Need to obtain copy of original modification and copy of HUD to make sure there was not a short sale.)

BORROWER CURRENT AT TIME OF SALE

BORROWER IN DEFAULT AT TIME OF SALE

Mortgage payments due on the prior mortgage were made within the month due for the 12/mo period preceding the short sale; and

Installment debt payments for the same time period were also made within the month due.

A three year waiting period is required from the date of the pre-foreclosure sale.

NOTE: Exceptions to this rule for a borrower in default on his/her mortgage at the time of the short sale:

Default was due to circumstances beyond the borrower’s control, such as death of a primary wage earner or long-term uninsured illness, and

A review of the credit report indicates a satisfactory credit prior to the circumstances beyond the borrower’s control that caused the default.

VA

The fact that a home loan foreclosure (or deed-in-lieu of foreclosure) exists in an applicant’s (or spouse’s) credit history does not in itself disqualify the loan.

Develop complete information on the facts and circumstances of the foreclosure.

Apply the guidelines provided for bankruptcies filed under the straight liquidation and discharge provisions of the bankruptcy law.  See the preceding heading entitled “Bankruptcy.”

If the foreclosure was on a VA loan, the applicant may not have full entitlement available for the new loan.  Ensure that the applicant’s Certificate of Eligibility reflects sufficient entitlement to meet any secondary marketing requirements of the lender

USDA

If GUS “Accept” is received, loans do not require lender to obtain additional credit documentation for derogatory credit. W&V layering risk policy may apply.

Manual Underwrites require any applicant with a foreclosure or pre-foreclosure activity in the previous 36 months, Chapter 7 Bankruptcy discharged in the previous 36 months, Chapter 13 Bankruptcy that has yet to complete repayment or has completed repayment within the previous 12 months, and/or late mortgage payments in the most recent 12 months must submit all supporting evidence along with the credit waiver regardless of credit score. The lender must document the compensating factors as well as the rationale that was applied in the course of making a decision to approve the loan in their permanent loan file.

FNMA/FHLMC

Waiting Period

Additional Requirements

Two Years80% max LTV ratios* Four Years90% max LTV ratios*Seven YearsLTV ratios per transaction *The max LTV ratios permitted are the lesser of the LTV ratios above or the max LTV ratios for the transaction.

NOTE: A two-year waiting period is permitted if extenuating circumstances can be documented, with max LTV ratios of the lesser of 90% or the max LTV ratios for the transaction.

DU/LP approval is required.

*These periods could change as the agencies’ and the CFPB’s rules change

FICOS; TRI-MERGE SCORES:

The above does not discuss FICOS, tri-merge report scoring or some of the other new credit-scoring systems and formulas out there.  That is for another time.  It should simply be noted that even after the above Guidelines waiting periods, the borrower is going to have to pass these musters, as well, which means that they will still have to have conducted themselves productively enough financially since the derogatory event to meet the new credit standards to be considered for a new loan.  That means then that they cannot just “wait out” the above timelines and expect to borrow.  They also need to FINANCIALLY RECOVER since the derogatory event.

IT’S NOT OVER UNTIL THE ZOMBIES ARE WELL

Accordingly and in the ways noted above, the coming years could become the “revenge of the short-sale murdered” when, as “Credit Zombies,” their dead bodies stagger all over the 2013 markets and beyond, their corpses unable to buy anything much beyond a bus ticket to the next park bench or a contingency fee lawyer to sue those who did it all to them.  If we have any hope against the “10-year real estate malaise” they bring to our immediate future, it behooves us and our leaders to get some life back into this economy and through it into those Walking Dead and, well, also into us before we become the same.  As unthinkable as it was in the short-sale ”bonanzas” up to 2012, we in the industry could be the Zombies of the future if the current economic problems remain uninterpreted and uncorrected.

It is not the creditors of the world—to whom the Fed and President have donated about $13 trillion over the last 6 years (and sent us the tax bill for it) who need transfusions anymore.  Prosecution not transfusion was always more in order there, anyway, but that is another story.   No, now it’s about the rest of us whose blood they took.  Bled white by coming taxes and stagflation, the poison is still there and some of us are starting to tellingly stagger a bit right now, though we may not have noticed it.  Until almost everyone you know and work with is well, no one is safe. So for as long as you see Zombies in your family, your would-be clients or customers or lurking in your neighborhood…it’s not over, yet.

Remain financially cautious after the short-sale binges of the last few years.  Those feeding-frenzies seem gone, but their ghosts are not.  Remain….afraid. ‘Nuff said.

Click here to visit Eckley & Associates’ online archive for more timely and informative articles.

 

About the Author

     J. Robert Eckley is a multi-state real estate and banking attorney, successful litigator, popular writer, educator and national speaker with an immense personal and professional involvement in forefront issues over the past three decades. He has established precedent at the Supreme Court and co-founded transactional laws, rules and forms that guide practitioners today. He has been a real estate licensee for three decades, 5 years of which were with the Beverly Hills Board of Realtors®, 10 with the Phoenix, Scottsdale and Portland Associations of Realtors®, now an affiliate member of the North San Diego County Association of Realtors®, was named to numerous Commissioner’s Advisory Committees, received a host of leadership and instructor awards, is a CCIM Affiliate®, testified in Congress against the due-on-sale clauses in 1982, received a perfect auditor’s score an keynote speaker and educator for the 1991 annual convention of the National Association of Realtors®, successfully fought against state and federal in state and federal courts, fought against all and defended a half dozen state and nationally chartered banks and thrifts, and has received leadership awards and honors from former California Governor and later U.S. President Ronald Reagan and former Arizona Governor and now Secretary of U.S. Homeland Security Janet Napolitano, to cover just a few of the miles he has gone. In July, 2011, he was appointed by the Arizona Commissioner of Real Estate to serve a 2-year term on the state Commissioner’s Advisory Committee. He is a “been there, done that” type who is often as entertaining as he is practical and enlightening! See more at www.eckleylaw.com or call (602) 952-1177. If you want to be on his “Counselor’s Corner” monthly hotline e-mail to education@eckleylaw.com or call (602) 952-1177 or out of the Phoenix toll-free dialing area 1-800-999-4LAW and ask to get on the hotlineNOTICE OF LIMITATIONS:

THE MATERIALS IN THIS PRESENTATON IS NOT THE RENDERING OF DIRECT LEGAL, REAL ESTATE, ACCOUNTING OR LOAN ADVICE AND IS PROVIDED AS A COURTESY TO THE PUBLIC FOR GENERAL EDUCATIONAL PURPOSES ONLY. PROPER LEGAL ANSWERS VARY GREATLY FROM PLACE TO PLACE AND CASE TO CASE AND THUS REQUIRE SEPARATE AND DIRECT ANALYSES IN EVERY EVENT. ALL LEGAL, ACCOUNTING AND

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a little about me and my expertise – video

 

land specialist- land expert-investment broker-Arizona

https://www.youtube.com/watch?v=PPs3kpKR4nY

 

Feel free to contact Walter regarding any of these stories, the current market, distressed commercial real estate opportunities and needs, your property or your Investment Needs for Comercial Investment Properties in Phoenix.

 

 

View my listings at:

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Please go to my web-site and get all the newsflashes and updates in Commercial Investment Real Estate in Phoenix and Commercial Investment Properties in Phoenix daily

 

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Walter Unger CCIM, CCSS, CCLS

I am a successful Commercial Investment Real Estate Broker in Arizona now for 15 years and I worked with banks and their commercial REO properties for 3 years. I am also a commercial and  Landspecialist in Phoenix and a Landspecialist in Arizona.

 

1.

WHETHER YOU LEASE OR OWN

NOW IS THE TIME FOR YOU TO EXPAND, UPGRADE OR INVEST.

 

In my opinion we are at bottom of the cycle in Commercial Real Estate in Phoenix, so there is only one way and it’s called we are going up again and now is the time for you to expand, upgrade or invest in Commercial Properties in Phoenix.  The prices on deals I may get you will not be around forever.

 

2.

IF YOU OR ANYBODY YOU KNOW IS IN TROUBLE WITH YOUR BUSINESS, AS MANY AMERICANS ARE IN THE MOMENT, AND ARE ABOUT TO LOSE YOUR COMMERCIAL PROPERTY, PLEASE CONTACT ME.  IF YOUR BANK IS BEHAVING BADLY I MAY BE ABLE TO HELP YOU GET OUT OF SOME OR MAYBE A LOT OF FUTURE HEADACHES.

 

3.

WAITING TO SELL YOUR LAND ? TIMES CHANGE / IT’S TIME

  We barely could give land away the last few years, but times are changing.  Even in those meager years, I sold more land across the state than most other brokers. Before the real estate crash I was a land specialist in Arizona with millions of dollars of transactions, but then I had to change and also sell other commercial investment properties, which was fun, but I am a Commercial Landspecialist in Arizonal, a Commercial Land Specialist in Phoenix and love to sell land, one acre to thousands of acres.

Since I was a Land Specialist in Arizona and a Land Speciaost in Phoenix many of my clients, Sellers and Buyers remember me and now they are calling me again, so this is the time to get back into land and none of my clients, including future clients, will miss out on getting their best deal.

Also, if you are up-side down on your land, like many Americans, and the lender is giving you a hard time, now is the time to put your land on the market. Lenders are making deals now with short sales.  I have been working with banks for many years – I learned how to work with them.

 

If you have any questions about the 1 to  3 above, about Commercial Investment Properties in Phoenix or Commercial Investment Properties in Arizona,  I will gladly sit down with you and share my expertise and my professional opinion in Commercial Properties in Phoenix or Commercial Properties in Arizona with you.Obviously I am also in this to make money, but it could be a win-win situation for all of us.

 

Please reply by e-mail walterunger@ccim.net or call me 520-975-5207 (cell)  602-778-5110 (office direct).

 

www.Walter-Unger.com

 

 

 

Thank You

Walter

 

Walter Unger CCIM

Associate Broker

Kasten Long Commercial

2821 E. Camelback Road, Suite 600

Phoenix,AZ85016

Cell:      520-975-5207

Direct:   602-759-1202

Office :  602-445-4141

Fax:      602-445-4188

walterunger@ccim.net

 

Delivering the New Standard of Excellence in Commercial Real Estate

 

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www.KLCommercialGroup.com

 

 

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