Born Again: When will you be eligible for a mortgage after a foreclosure or short sale?

Did you miss the fact that foreclosure filings were up 71% in the third quarter?

Which makes it a good time to remind everyone of the rules that govern when and how you'll be eligible for a mortgage after you've been foreclosed, surrendered a deed, or negotiated a short sale.

For borrowers with a foreclosure, short sale, or deed in lieu of foreclosure on their credit history, the following timelines apply before they'll be eligible for a conforming, conventional mortgage (Fannie Mae/Freddie Mac):

• Foreclosure: 5 years from completion date, minimum 680 FICO and 10% down for 7 years, investment property, second homes, cash out refinances not allowed for 7 years.

• Deed-in-Lieu of Foreclosure: 4 years, at least 10% down required for 7 years.

• Short Sale: 2 years.  4 years for Freddie Mac

For what it's worth, under FHA rules you have to wait two years before you are born-again.

Goes without saying that if you do wind up with a foreclosure (or one of it's close cousins) on your record, unless you handle the period after the foreclosure properly by re-establishing credit - no easy trick with a serious derogatory on your record - and accumulating a sizeable down payment, you are likely to be renting for a long, long time.

Or, another way to look at this: At some point in the next five years, buying may look really cheap, and you'll be locked out of the game.

10/24/08 at 09:36 AM Permalink | Comments (0) | TrackBack (0)
Filed Under: Credit, Fannie Mae, Foreclosures, Freddie Mac, Short Sales

Report: Lender-Mediated Homes 34.5% of Twin Cities Sales

Please amuse yourselves be geeking out on the updated Foreclosures and Short Sales in the Twin Cities Housing Market report (pdf) from the Minneapolis Area Association of Realtors.  Lots of great data and insight, and here's one graphic that stuck out (click to biggify):

Lender-Mediated of course being the catch-all phrase for short sales, foreclosures, et al.

Also, don't confuse this:  34.5% of sales are lender mediated.  That does not mean that 34.5% of homes in the Twin Cities are in some stage of foreclosure.

Despite the fact that every media outlet likes to shout the F Word, foreclosures, short sales, and the like remain a very small percentage of overall housing stock - perhaps 1-3%.
PDF: Foreclosures and Short Sales in the TC Market [MAAR]

10/17/08 at 01:39 PM Permalink | Comments (0) | TrackBack (0)
Filed Under: Foreclosures, Reports & Research, Short Sales, Twin Cities

Foreclosures: Impact on Real Estate Market May Not be as Severe as Expected

We're talking about foreclosures and short-sales folks, or, as a new report from the Minneapolis Area Association of Realtors terms it: Lender-Mediated Sales.

Jeff Allen, research director at the MAAR and Aaron Dickinson, Edina Realty agent (and blogger) are responsible for this tight little report, entitled "Foreclosures and Short Sales in the Twin Cities Market" which gets to the heart of some questions that have been on a lot of minds lately. 

Chief among them: Just how much of the current market activity is foreclosure/short sale related, and what are the broader impacts?

The report itself confirms a fact that many of us tracking the issue anecdotally have suspected: Almost 30% of closed sales (Q1 2008 - see graphic above) are/were in some stage of foreclosure or other "lender-mediated" status, such as a short sale.

One surprising data point gleaned by Jeff and Aaron was the fact that there is a fairly stark dichotomy between lender-mediated and traditional real estate activity in our market.  Check out this graphic:

The key takeaway from this is that Median sales prices outside the universe of lender-mediated properties have only deteriorated by 3.9% over the last year.  One possible conclusion to be drawn from this is that the rising tide of foreclosures and short sales lender-mediated listings and sales are not putting as much downward pressure on prices of traditionally marketed properties as we would have imagined, and has been reported.

This obvious good news is also seasoned by this fact, from the report:

The actual number of traditional seller new listings has fallen by 27.4 percent over the last two years...So clearly, homeowners are holding steady in their current residences with greater frequency and home builders are producing far less new inventory.

In other words, many sellers, sensing a bear of a market, are simply opting out, while those that are selling, aren't taking nearly the bath that one would expect.

Though it is still early on, and we have a lot of ground to cover before the real estate contraction is over, this report presents a far more optimistic view of the state of our housing market than we, and many others, would have expected. 

Yes, prices are falling dramatically in the aggregate, but the bulk of the carnage is occuring in the lender-mediated market, and the traditional market is holding up rather well, all things considered.

Anyway, go read the report - too much good stuff to list it all here - and kudos to Jeff and Aaron for putting this together.   

05/06/08 at 08:45 AM Permalink | Comments (14) | TrackBack (0)
Filed Under: Foreclosures, Market Stats, Reports & Research, Short Sales, Twin Cities

Short Sales: Many a Slip 'Twixt the Cup and the Lip

Wall Street Journal today has published a piece that will have Real Estate Agents, Loan Officers, and home buyers who've been through the short sale meat-grinder clapping their hands in agreement.

For the unfamiliar, a short-sale is a funky sort of pre-foreclosure action where a lender decides that they are better off accepting a payoff of less than full balance than pursuing an expensive and time consuming foreclosure. 

If it works, it is a win-win: The seller avoids foreclosure, the buyer may get a deal, and the lender stands to lose less.

At least that is the theory.  The reality of attempting to sell or buy short often works out differently, with some estimating that as many as 80% of short sale offers (where the buyer and seller agree upon a price) fail. From the article:

• Lenders average 4.5 WEEKS to respond to offers.  Not everybody can wait that long.
• The offers are often absurdly low, and are rejected by the lender/servicer.
• There are often two lenders who must approve, not just one.
• The seller cannot demonstrate that they are in enough financial distress to justify a short sale (

The last bullet contains an important point, and a key to understanding why short sales can be so tough to pull off.

Before entertaining a short sale, the lender wants to be assured that they are going to have to foreclose anyway.  So what happens?  The borrowers requesting a short sale  (the "sellers") are asked to submit to a full financial analysis.  Income, credit, and assets are all reviewed.  It's literally like underwriting the borrowers all over again, except in reverse, because now the lender is trying to establish the owners can't reasonably afford the property.

It's also a fact that sellers sometimes attempt a "non-arms length" sale - selling to someone they know under some other arrangement, then buying or renting the property back at a better price.  This scam happens often enough that the lender spends significant time and energy vetting the buyer to determine that there is no pre-existing relationship.

A key take away, if you are out there considering a short sale, modification, or similar alternative: The only party who can truly approve the short sale is the lender, so deal directly with them.
Why Lenders Are Leery of Short Sales [WSJ - Sub]

04/17/08 at 12:41 PM Permalink | Comments (2) | TrackBack (0)
Filed Under: Short Sales