Foreclosure Crisis: Housing Bill FAQ

Housing and Economic Recovery Act of 2008 FAQ
On July 30, 2008, the President signed into law the Housing and Economic Recovery Act of 2008 to address the ongoing housing crisis. Although the crisis will not end with this legislation, it is an important first step to help keep families in their homes and stop the further deterioration of the communities being hardest hit.

A: Through the Federal Housing Administration (FHA), an estimated 400,000 borrowers in danger of losing their homes will be able to refinance into more affordable government-insured mortgages. The program offers government insurance to lenders who voluntarily reduce mortgages for at-risk homeowners to at least 90% of the property’s current value.

Q: When will the program begin?

A: The program will begin on October 1, 2008 and sunset on September 30, 2011. Homeowners in danger of losing their homes before October 1, however, should not wait to contact their loan servicers and should begin applying for federally insured mortgages now.

Q: Who is eligible?

A: To be eligible to participate in this program, a borrower must:

Have a loan on an owner-occupied principal residence. Investors, speculators, or borrowers who own second homes cannot participate in this program.
Have a monthly mortgage payment greater than at least 31 percent of the borrower’s total monthly income, as of March 1, 2008.

Certify that he or she has not intentionally defaulted on an existing mortgage, and did not obtain the existing loan fraudulently.
Not have been convicted of fraud.

Q: How can a homeowner access this new program?

A: Homeowners or a servicer of an existing eligible loan need to contact an FHA-approved lender. The FHA-approved lender will determine the size of a loan that a borrower can reasonably repay and that meets the requirements of the program. If the current lender or mortgage holder agrees to write-down the amount of the existing mortgage and make the new loan affordable, the FHA lender will pay off the discounted existing mortgage. Loans provided under this program must be 30-year fixed rate loans.

Q: Are lenders required to participate in this program?

A: No. The program is completely voluntary for lenders, investors, loan servicers, and borrowers.

Q: How does this law help neighborhoods that have been hit by the foreclosure crisis?

A: The impact of the current crisis has not been isolated to individual borrowers or investors, but has been felt broadly by neighbors, communities, and governments across the nation. The law strengthens neighborhoods hit hardest by the foreclosure crisis by providing $3.9 billion in Community Development Block Grants to states and localities to buy foreclosed homes standing empty, rehabilitate foreclosed properties, and stabilize the housing market.

Q: Will this law be a bailout for speculators, homeowners, investors, and lenders?

A: No. It is narrowly tailored to keep families in their homes. For example:

Only primary residences are eligible: NO speculators, investment properties, second or third homes will be refinanced.

Investors and lenders must take big losses first in order even to participate. The owner of the old mortgage can get a maximum of 90% of the current value of the home (which presumably will be considerably less than the value of the original loan). In many cases

the loss will be significantly greater, but 10% is the minimum.
In addition, lenders must waive any penalties or fees, and help pay for the originationand closing costs of the new loans.

Most homeowners will have seen the equity in their homes disappear before being able to refinance under this program. In addition, the FHA will get a portion of any future profits on the house, to make sure the government recoups its investment over the long run.

Q: Will this law reward families who bought homes they could not afford?

A: Many homeowners facing foreclosure were misled, were deceived, or were in other ways the victims of unfair lending practices.
To prevent future abuses by lenders, this law will establish a nationwide loan originator licensing and registration system to set minimum standards for all residential mortgage brokers and lenders. It also strengthens mortgage disclosure requirements to help ensure that borrowers understand their mortgage loan terms.

Q: How will this law make it more affordable to own a home?

A: There are a number of provisions that will make homeownership more affordable:

Creates a refundable tax credit for first-time homebuyers that works like an interest-free loan of up to $7,500 (to be paid back over 15 years).
Grants states $11 billion of additional tax-exempt bond authority in 2008 that they can use to refinance subprime loans, make loans to first-time homebuyers and to finance the building of affordable rental housing.

Raises conforming loan limits for the FHA, Fannie Mae and Freddie Mac to $625,500. Because of the high cost of housing in California, a majority of the state’s residents were previously shut out from these programs. Raising these loan limits will lead to lower interest rates on some loans, greater refinancing opportunities, and enable more borrowers in high cost areas to avoid the type of nontraditional and frequently abusive loans that led to the current crisis.

Provides couples using the standard deduction with up to an additional $1,000 deduction for property taxes ($500 for individuals).

Q: Does the law provide help to those who still cannot afford to own a home?

A: Yes. The bill includes a number of provisions to increase the supply of affordable housing, which has been a major problem in California pre-dating the current foreclosure crisis.

For example:

The bill creates a new permanent affordable housing trust fund – financed by Fannie Mae and Freddie Mac and not by taxpayers – to fund the construction, maintenance and preservation of affordable rental housing for low and very low-income individuals and families nationwide in both rural and urban areas.

In addition, the legislation provides a temporary increase in the Low-Income Housing Tax Credit and simplification of the credit to help put builders to work to create new options for families seeking affordable housing alternatives.

Foreclosure Process

Are You In Foreclosure?

Does this sound familiar:

• Lost your job
• Worried about what to do next
• Can't sleep
• Afraid to answer the phone
• Stressed out because your credit is ruined
• Your family is upset

I'll show you how to get out of foreclosure! I'll give you options. Call me for a FREE No obligation consultation. Save your house today! CALL 408.355.1557

How To Buy A Home In Foreclosure

San Jose, CA Santa Clara County

buying a home that is in foreclosure is difficult and required lots of time and patience. It's a process that allows a lender to recover the amount owed on a defaulted loan by selling or taking ownership (repossession) of the property securing the loan. The foreclosure process begins when a borrower/owner defaults on loan payments (usually mortgage payments) and the lender files a public default notice (Notice of Default) . The foreclosure process can end one of four ways:

1. The borrower/owner pays off the default amount to reinstate the loan during a grace period known as pre-foreclosure.

2. The borrower/owner sells the property to a third party during pre-foreclosure, allowing the borrower/owner to pay off the loan and avoid having a foreclosure on his or her credit history.

3. A third party buys the property at a public auction at the end of the pre-foreclosure period.

4. The lender takes ownership of the property, usually with the intent to re-sell. The lender can take ownership through an agreement with the borrower/owner during pre-foreclosure or by buying back the property at the public auction. in San Jose, the public auctions take place on the courtroom steps (outside of the courthouse).

Foreclosure Buying Opportunities

The foreclosure process offers three bargain-buying opportunities, represented by three different property statuses.

1. Buying during pre-foreclosure (NOD, LIS)
2. Buying at public auction (NTS, NFS)
3. Buying bank-owned properties (REO)


STEP 1
Find a Realtor who works Foreclosures (like Daniel Pizano) He'll do the necessary research and help you determine value. You can't rely on automated calculations like Zillow because they often do not take the sudden market shifts into account.

STEP 2 GET FINANCING
Get Cash or Financing
Be prepared to put down your cash. Think of it like a casino where the dealer says are you in or not? If you don't have the cash or money, you don't play the game. It's that simple.

STEP 3 PUT THE OFFER IN WRITING
Your Real Estate Agent will help you make an offer on the foreclosure and attempt to get the home for you. If your Realtor has a few Foreclosure clients and some propoerties he's selling on behalf of his clients, the agent should make those available at a decent price. If you're a first-time homebuyer and you've never purchased a home, let alone a foreclosure property, it is beneficial to contact a local real estate agent like Daniel Pizano who can guide you through the process of buying a foreclosure. If you work with an agent, make sure they know your priorities. Ask any potential agents if they have experience with foreclosures. Especially for first-time buyers, a good agent can be a comforting and helpful resource.

STEP 4 UNDERSTAND THE TRANSFER OF TITLE

Depending on the property status, the seller will be the owner in default, the trustee or the foreclosing lender.

Pre-Foreclosure (NOD, LIS):
Buying a property in pre-foreclosure involves approaching the borrower/owner and offering to buy the property. The borrower/owner can walk away with something to show for any equity in the property and avoid a bad mark on his or her credit history. The buyer has time to research the title and condition of the property and can realize discounts of 20-40 percent below market value.

Auction (NTS, NFS):
If the loan is not reinstated by the end of the pre-foreclosure period, potential buyers can bid on the property at a public auction. Buyers often are required to pay in cash at the auction and may not have much time to research the title and condition of the property beforehand; however, a public auction offers some of the best bargains and avoids the unpredictability of dealing directly with the borrower/owner.

Bank Owned (REO):
If the lender takes ownership of the property, either through an agreement with the owner during pre-foreclosure or at the public auction, the lender usually sells the property to recover the unpaid loan amount. The lender typically clears the title for any buyer, but the potential bargain is often less than a pre-foreclosure or auction property.


CALIFORNIA FORECLOSURE LAWS

Foreclosures in California are primarily administered out of court, although court foreclosures are allowed. Out-of-court foreclosures take about four months.

Pre-foreclosure Period
Court foreclosures only occur if a lender desires a deficiency judgment. This process gives a borrower up to one year to redeem the property after the foreclosure sale.

In almost all cases, foreclosures are handled out of court. The process begins when a lender file a notice of default with the county recorder identifying the default amount and the date the borrower must pay off the default. The notice is mailed to the borrower and other affected parties.

Up to five business days before the trustee sale, the borrower may pay off the default plus any applicable costs of foreclosure and stop the foreclosure process. Three months after the notice of default is filed, the lender can schedule a trustee's sale of the property. Notice Of Sale / Auction

At least 20 days before the trustee's sale, the notice of sale must be posted on the property and in one local public location. The notice is also published once a week for three weeks in a local newspaper, starting at least 20 days before the sale date. The notice is mailed to the borrower at least 20 days before the sale and to anyone who requests the notice. The notice must contain the date, time, and location of the sale, the property address, and the trustee's contact information. In addition, the notice of sale must be recorded with the county recorder at least 14 days before the sale.

The trustee's sale is a public auction and the property is sold to the winning bidder. The trustee may require bidders to pay the full bid amount in cash or cashier's check. Anyone may bid at the sale, including the lender and any junior lien holders. A trustee's sale may be postponed by announcement at the sale. If a sale is postponed more than three times, a new notice of sale must be issued.

After the sale is complete, the trustee transfers ownership to the winning bidder. The borrower does not have the right to redeem the property after the sale.