Inventory Myth Busting: Why is Home Inventory So Low?

When it Comes to Explaining Low Inventory Some Theories Are Better Than Others

By Ralph McLaughlin | Jul 26, 2017 12:01AM

Everyone agrees the U.S. housing market is being squeezed by low inventory. What they don’t agree on is why.

As home inventory sits near post-recession lows, there are many hypotheses on why there are so few homes for sale today. Here are the five leading theories: (1) investors bought up too many foreclosures during the bust and are hording them as rentals, (2) rising prices have made buying a home unaffordable, (3) owners don’t want to sell if they don’t think they can buy another home, (4) too many home-owning boomers can’t or don’t want to move, and (5) owners who want to trade up can’t find an affordable home at the next level.

To date, these educated guesses have primarily been tested in isolation through simple correlations with inventory, with little or no regard to analyzing what their impact is relative to other factors. When you wear statistical blinders, you run the risk of ignoring potentially more impactful factors when you’re trying to identify the cause of a problem. To be fair, we’re just as guilty as anyone of looking at possible reasons for low inventory in in isolation when we looked at rising home values and a widening price gap.

To remedy this, we tested each of the five major hypotheses while controlling for the impact of each other hypotheses. The good news is that we found a statistically significant effect for each, which means there is some direct correlation with inventory.

The surprising news? Homebuilding’s impact – or a lack of it in some places – is by far and away the biggest influence when it comes to inventory woes, outweighing other explanations by a large margin. Across the 100 largest metros, our findings show that:

  • New home construction is strongly related to inventory. Every one percentage point increase in a market’s housing stock between 2010 and 2016 is, on average, correlated with inventory that is approximately 13% higher.
  • Investor ownership is tied to lower inventory. Every one percentage point increase in the housing stock owned by investors in a market is, on average, correlated with inventory that is 2.8% lower.
  • Older households – by hanging on to their homes – aren’t necessarily driving down inventory, at least not yet. Every one percentage point increase in the housing stock owned by those aged 55 and over is, on average, correlated with inventory that is actually 3.6% higher.

The Hypotheses

To test the impact of five popular explanations of why inventory is low across the 100 largest housing markets, we ran a regression model (see below for details) on the number of homes for sale in a market in 2017 Q2. We standardized inventory by dividing inventory by the number of occupied homes in that market. Here’s what we tested:

  • Markets with a higher share of investors will have low inventory because investors sit on homes and rent them out;
  • Markets with a bigger recent price increases will have lower inventory because higher home values make affordability worse;
  • Markets with a larger increase in price spread – or the gap between prices for premium, trade-up and starter homes — will have lower inventory because as prices of expensive homes outpace less expensive ones it’s harder for existing homeowners to trade up;
  • Markets with a larger share of older homeowners will have lower inventory because older households don’t tend to move often;
  • Markets with more homebuilding will have more inventory because more new homes helps provide new supply that existing homeowners can trade up to.

The Results

We found that proponents of each of the five popular explanations aren’t wrong – at least not entirely: when controlling for the role that other explanations play, each individual explanation has a statistically significant relationship with inventory. The surprising news is that when it comes to relative impact, homebuilding and investor activity are about the only ones that matter – as they had the highest positive and negative impact of the five explanations.

Inventory Model Results
For every 1 percentage point increase in … …there is a __ change, on average, in inventory across the 100 largest metros.
Homebuilding +13.3%
Share of homeowners aged 55+ 3.4%
Price Spread 0.2%
Home Value Recovery -1.8%
Investor Ownership -2.5%
See methodology section for more details on our model.

First, the factor with the largest impact is homebuilding. Across the largest 100 metros, every one percentage point increase in a market’s housing stock between 2010-2016 is, on average, correlated with inventory that is approximately 13% higher. For example, if the Los Angeles metro had increased their housing stock by 2.6% instead of 1.6% between 2010 – 2016, we could have expected their existing home inventory to increase from 10,181 homes on the market to 11,504 in 2017 Q3: an increase of over 1,300 homes.

Second, the factor with the second largest economic significance is investor ownership. Across the largest 100 metros, every one percentage point increase in the housing stock owned by investors in a market is, on average, correlated with inventory that is 2.8% lower. For example, if investors in the Boston metro reduced their ownership of the housing stock from 43.7% to 42.7%, we could have expected their existing home inventory to increase from 3,290 homes on the market to 3,382 in 2017 Q3: an increase of nearly 100 homes.

Third, and surprisingly, we find the share of owner occupied homes owned by boomers is actually positively correlated with inventory. Every one percentage point increase in the housing stock owned by those aged 55 and over is, on average, correlated with inventory that is actually 3.6% higher. Why is this? It’s tough to say exactly why, but we think the effect is driven by the fact that markets with the largest share of boomers just happen to be in retirement destinations such as Florida and Arizona – states that haven’t much been impacted by low inventory because they tend to build a lot of homes. This also isn’t to say that boomers owning a larger share of the housing stock won’t become problematic in the future. Their decision to either age in place of move to a retirement home could have a substantial impact on home inventory as well as the broader economy.

Last, we find that relative to these other explanations, home value recovery and price spread have relative small economic significance. A one percentage point increase in home value recovery is correlated with a 1.6% decrease in inventory across the 100 largest metros. A one percentage point increase in the price spread is correlated with just a 0.2% increase in inventory, which renders the correlation close to being economically insignificant. Both effects, however, are small relative homebuilding and investor activity.

Where Myths Do, or Don’t, Play out in the Biggest U.S. Housing Markets

The Conclusion

The takeaway here is that not all explanations for low inventory fully explain why the national home inventory is at or near historic lows. While our modeling of all five of these theories are not definitive, they do provide a step forward in explaining which explanations matter most. It turns out the leading explanation for low inventory is that investor activity and a lack of homebuilding are both significant predictors of low inventory. On the contrary, home value recovery and price spread play a much smaller role while an aging population plays a countervailing one. The silver lining from these results are that homebuilding and investor activity are factors that could be made more attractive through a combination of strategically targeted land use, tax, and financial policies.

Methodology

We tested for the impact of five popular explanations on inventory using a multiple linear regression, which is a statistical method used to test for correlation between several variables (factors) on an outcome of interest. Multiple linear regression methods allows us to estimate the impact of each of the major explanations for inventory while taking into account the effect of the other explanations. We used an Ordinary Least Squares (OLS) regression to predict how each factor would affect inventory across the 100 largest metros when controlling for the potential effects of the others. Our measure inventory is the number of homes for sale in a market as of 2017 Q2 divided by the number of occupied homes in that market. In doing this, we standardize inventory levels by the size of a market’s housing stock.

We quantitatively measure each explanation is as follows:

  • Homebuilding: percentage change in a metro’s housing stock between 2010 and 2016, sourced from the U.S. Census;
  • Boomer control: share of owner-occupied housing stock owned by a head of household who is aged 55 and over, sourced from the 2015 American Community Survey (ACS);
  • Price spread: percent difference between the median priced premium home and the median price starter home, per our 2017 Q2 inventory report;
  • Home value recovery: the total value of a metro’s housing stock relative the its pre-recession peak value, sourced from Trulia’s home value estimates;
  • Investor ownership: share of a metro’s occupied housing stock that is rented, sourced from the 2015 (ACS).

Below is a table of the regression results.

Regression Model Results.
Variable Coefficient (T-Value)
Homebuilding 0.133 (6.44)*
Share of homeowners aged 55+ 0.034 (4.49)*
Price Spread 0.002 (4.73)*
Home Value Recovery -0.018 (-7.24)*
Investor Ownership -0.025 (-4.10)*
     Diagnostics
           R2 .6
           Observations 100
NOTE: *Denotes statistical significance at the < 1% level. The dependent (outcome) variable is Inventory per occupied household in Q3 2017. The full data used in the regression model is available for download here.

As seen at: https://www.trulia.com/blog/trends/inventory-myth-busting/


Housing Counselors Hone Skills for Service That Will Assist Those with Past Short Sale, Deed-in-Lieu or Modification Where Credit Shows Up as Foreclosure

By Pam Marron | National Mortgage Professional Magazine |July 2017

Step One… Loan Originators and Realtors need to ask ALL clients if they’ve had a short sale, Deed in Lieu (DIL) or loan modification in their past. If they have, run the loan through Fannie Mae and Freddie Mac automated systems first to see if foreclosure credit, a “dispute” or incorrect “Date Reported” exists.

Step Two… spread the word that HUD approved housing counselors can assist these clients to correct (not temporarily hide) erroneous credit to get affected consumers “mortgage-ready” ahead of signing a contract.

 Many of nearly 3 million consumers with a past short sale, over 5 million who have had a loan modification and an unknown number with a past DIL need urgent attention to correct a credit error known about since 2011. Affected past homeowners are now eligible to purchase a home again but are being denied new Fannie Mae and Freddie Mac conventional financing where their credit for a short sale, deed-in-lieu or modification shows up as a foreclosure and results in a new loan denial.

The initial problem is when short sale, DIL and modification credit shows up as a foreclosure, often anticipated if past late mortgage payments went over 120 days.

When the affected consumer is told their credit wrongly shows up as a foreclosure, a “dispute” is placed on the account which simply hides the credit from the Fannie Mae and Freddie Mac automated systems… and then must be deleted when the client applies for a new mortgage. (A new change to the Fannie Mae “dispute” policy will take effect on July 29, 2017.)

And, because the account was re-investigated after the short sale, DIL or modification closing date, the “Date Reported” becomes more current, causing the automated system to provide a denial because it appears that the required wait timeframe has not been met.

Loan originators often proceed with processing a new mortgage after checking the required wait timeframe against the closing date of the past short sale, DIL or modification. But sometime during the process or even as late as underwriting, the loan is run through either Fannie Mae or Freddie Mac automated systems where the problem is first seen. Many lenders are unaware of the Fannie Mae workaround (there is no workaround for Freddie Mac!) and often tell blind-sided consumers to “go get your credit fixed and come back.” With the limited supply of housing inventory, sellers are reluctant to extend closing dates for additional time needed to investigate the credit error. Many homebuyers either lose the contract due to the delay to get this fixed or change their loan type to a higher interest rate portfolio loan or an FHA loan.

It makes sense to engage the housing counseling industry into a pre-purchase solution. Loan originators are driven by contract deadlines. Non-profit housing counseling agencies work with clients on the “heavy lifting” to get issues corrected. And HUD approved housing counselors were able to verify “Economic Events” for extenuating circumstances for the past FHA “Back to Work” program.

Leading this initiative is the National Foundation for Credit Counseling (NFCC.org), a non-profit organization with HUD approved housing counselors and credit counseling services. The organization is training and testing solutions to address known fixes, with an emphasis on assisting affected consumers before they even sign a contract. The goal is to alert the real estate and mortgage industries of this service to get potential affected clients “mortgage ready” before sending them back to the real estate and mortgage professionals.

Providing this individualized service to those with a past short sale, DIL or modification who want to purchase a home again is a tremendous relief to these consumers who don’t want to relive their past nightmare again.

This pre-purchase assistance needs to be promoted to affected consumers, the mortgage and real estate industries, loan processors and credit reporting agencies. Correcting issues can be as quickly as 1 day to 60 days.

This will be an up-front fee paid service from an individual housing counselor. Loan originators who wish to assist these clients can refer them to HUD approved housing counselors who have been trained on how to get these unique credit issues corrected once and for all. Then, when the client is deemed “mortgage ready”, they can come back to the loan originator who can provide a credit back towards mortgage closing costs when these folks are ready for a new mortgage.

Everyone benefits. Stay tuned.


Pre-purchase help coming from HUD approved housing counselors to assist clients who still have credit issues with a past short sale or modification

By Pamela Marron | National Mortgage Professional Magazine | May 2017

HUD approved housing counselors are being trained to provide assistance for clients who continue to have problems with short sale and modification credit that appears as a foreclosure. The goal is to correct problems prior to a new purchase.

A collaborative initiative has begun that connects loan originators who have clients with a past short sale or a modification with HUD approved housing counselors who can make sure that common credit issues are resolved before clients sign a home purchase agreement. The goal is to provide correction to a continued problem of foreclosure credit code that incorrectly shows up on short sale and modification credit and often results in a loan denial and loss of contract. Worse yet, a foreclosure coding delays a new conventional mortgage for seven years rather than the four year wait required after a short sale. And recently, it has been found that modification credit is being affected with the same foreclosure code.

 

Over 1 million past short-sellers are now beyond the four year time frame and are eligible to purchase a home again. Another 950,000 will become eligible over the next three years. For those with modifications, no wait timeframe is required and over 1 million have been put in place from March 2009 to March 2017.

 

Correcting continued credit issues ahead of signing a contract for eligible past short-sellers is the focus of a small group of loan originators and housing counselors who are preparing this initiative. “Too many times, past short-sellers are told within the processing time and during a live contract that their short sale shows up as a foreclosure, and that they need to go get it fixed and come back.” states loan originator Pam Marron. “A service is needed for affected clients to get this credit issue permanently resolved ahead of time so that these clients are mortgage – ready.”

 

Fannie Mae developed a workaround in August 2014 but not all lenders know about it. There is no workaround in Freddie Mac. And though both Fannie Mae and Freddie Mac note there may be exceptions when inaccurate credit exists, lenders are reluctant to address this.

 

Marron cites that additional credit issues commonly grow out of the inaccurate foreclosure code for most of these clients when they either attempt to remedy the problem themselves or go to credit repair companies. A “dispute”, the most common fix, temporarily masks the short sale credit and appears to work when credit scores go up. However, when the consumer applies for a mortgage, either the underwriter, Fannie Mae or Freddie Mac automated system findings require that the dispute be taken off. The result is that credit scores plummet, a conventional mortgage denial is received and a delay to fix often occurs and can be a serious problem if a contract deadline is looming. If the consumer is in a contract, the quickest remedy is a Rapid Rescore that must be paid for by the lender. Often, the resulting credit scores are lower and the consequence is a higher interest rate.

 

A second problem is a more recent “date reported” when the short sale credit is reopened in order to get it corrected. The more recent date reported often falls within the four year wait timeframe causing the Fannie Mae and Freddie Mac automated systems to issue a denial due to the wait timeframe not being met.

 

Marron thinks this service coming from third party HUD approved housing counselors is a perfect fit. “Loan originators are driven by contract deadlines. Housing counselors are not.”

 

Solutions for correcting the credit issues discussed are already available but assisting those who have had a past short sale or modification is the best way to find more ways for correction. Ms. Marron and Jim McMahan, a loan originator in Georgia, will begin taking calls for consumers with a past short sale or a modification this month. The National Foundation for Credit Counseling (NFCC.org) will start this effort and utilize HUD approved housing counselors to work with affected consumers to ensure the credit issues of a past short sale will not hamper their ability to get a new conventional mortgage.

 

There will be a fee for the one on one counseling and a credit towards closing costs on a home purchase can be provided. Contact Pam Marron at 727-375-8986 or email pam.m.marron@gmail.com or Jim McMahan at 404-808-0945 or email jim@mcmahanmortgage.com.

 

Stay tuned.


The Hidden Costs of Buying a Home

Wednesday, 14 Dec 2016 | 8:30 AM ET

Buying a home can end up costing an owner many times the sticker price in goods, services and fees, so home ownership might not make sense for everyone. Click on the video image below to see this quick video from CNBC.


Wages Lag Home Prices; Affordability Suffers

from Mortgage News Daily, Sep 29 2016, 12:57PM

The lack of housing affordability is rising among the 414 U.S. counties tracked by ATTOM Data Solutions.  ATTOM, the new parent company of RealtyTrac, said on Thursday that 24 percent of those counties were less affordable than their historic averages in the third quarter of 2016, up from 22 percent in the second quarter and 19 percent a year earlier.  It was the highest share for this metric since the third quarter of 2009 when 47 percent of markets had fallen below their historic affordability averages.

ATTOM reports that 101 of the 414 counties had an affordability index below 100 in the third quarter of 2016, meaning that buying a median-priced home in that county was less affordable than the historic average for that county going back to the first quarter of 2005.

ATTOM’s affordability index is based on the percentage of average wages (taken from the U.S. Bureau of Labor Statistics) that is needed to make monthly house payments on a median priced home (as determined from publicly recorded sales deeds.) That payment is composed of principle, interest on a 30-year fixed rate mortgage with a 3 percent downpayment and including property taxes, and insurance.

“The improving affordability trend we noted in our second quarter report reversed course in the third quarter as home price appreciation accelerated in the majority of markets and wage growth slowed in the majority of local markets as well as nationwide, where average weekly wages declined in the first quarter of this year following 13 consecutive quarters with year-over-year increases,” said Daren Blomquist, senior vice president at ATTOM Data Solutions. “This unhealthy combination resulted in worsening affordability in 63 percent of markets despite mortgage rates that are down 45 basis points from a year ago.

 

 

Counties that were less affordable than their historic averages in Q3 included Harris County (Houston), Kings County (Brooklyn); Dallas County; Bexar County (San Antonio); and Alameda County in the San Francisco metro area.

Counties still affordable by historic standards included Los Angeles County, Cook County (Chicago); Maricopa County (Phoenix); Miami-Dade County; and Queens County, New York.

continue reading


HARP to Form ‘Bridge’ to New Refi Option in ’17, FHFA Says

By
from National Mortgage News

The Federal Housing Finance Agency said Thursday the Home Affordable Refinancing Program will be extended an additional year, and also announced a new refinancing opportunity specifically for borrowers with high loan-to-value ratios.

FHFA, which regulates Fannie Mae and Freddie Mac, said the two government-sponsored enterprises will roll out the new refinancing program in October 2017. It will be more targeted than HARP, the agency said, and will focus on borrowers whose LTV ratios are higher than the GSEs’ allowable limits. Standard Fannie and Freddie refinancing programs don’t allow refinancing for LTVs above 97%.

“Providing a sustainable refinance opportunity for high LTV borrowers who have demonstrated responsibility by remaining current on their mortgage makes financial sense both for borrowers and for the enterprises,” said FHFA director Mel Watt in a press release.

But the agency added that extending HARP through Sept. 30, 2017 will provide a “bridge” for high LTV borrowers to seek a refinancing option before the new program is fully implemented.

The HARP program has allowed 3.4 million borrowers to refinance their loans, taking advantage of lower mortgage rates and reducing their monthly payments. HARP was first introduced in April 2009 by former acting FHFA Director Edward DeMarco.

Once the HARP program expires, the new high LTV program will continue to provide underwater homeowners who are current on their payments a refinancing option. To qualify for the new program, the FHFA said, borrowers cannot have missed a mortgage payment in the previous six months or more than one payment in the previous year. They must have a source of income and the refinancing must result in a benefit such as a reduced monthly payment. FHFA will provide more details about the new refinancing option in the coming months, according to the press release.

“This new offering will give borrowers the opportunity to refinance when rates are low, making their mortgages more affordable and thus reducing credit risk exposure for Fannie Mae and Freddie Mac,” Watt said.

Only 38,300 borrowers refinanced through HARP in the first half of 2016. In 2015, HARP refis totaled 110,111, down from 212,489 in 2014.

 


Payment Reductions Should Continue After HAMP Expires: Regulators

By Brian Collins, from National Mortgage News
July 25, 2016

Federal regulators warned mortgage servicers Monday that they will still expect them to offer loan modifications to distressed homeowners even after the Home Affordable Modification Program expires at year-end.

Continue reading…


Urgent Attention Needed. Two Problems and Solutions That Exist for Negative Equity Homeowners

Let’s Work Together to Fix the Problems Now

Restructured and Refinanced: There is a way to use government entity funds as a new 2nd mortgage and combine these funds with six existing refinance programs to provide a refinance where none exists for millions of responsible, currently paying homeowners who have negative equity mortgages. The benefit? Credit stays intact, homeowners “stay put” in homes while equity escalates and communities recover.

There are over four million homeowners across the U.S. who are still trapped in their current location because they have no refinance option for a first mortgage, a second mortgage, or a Home Equity Line of Credit (HELOC). Over 454,000 of them live in Florida alone!

These are often people who are hanging on by a thread, but through no fault of their own, have no option for a refinance. Currently the only option available requires mortgage delinquency and proof of hardship to achieve a loan modification. We must provide solutions that do not destroy the credit of those with negative equity.

Unless we provide a solution, there will be another wave of defaulted mortgages. These are not people looking for a handout. They desperately want to keep their credit intact, but no option currently exists to let them do so. The solutions presented in this report simply restructure current debt with available programs to allow the homeowners to stay in their home while staying current on their mortgage.

Solutions to lift these homeowners out of negative equity are already available. We need to get our legislators and leaders on-board now because three of the options will expire in December, 2016.

Read the entire report! Click the button below to download it and start reading now. Comments are welcome.


HUD Unveils New Housing Counseling Advisory Committee

By

The Department of Housing and Urban Development (HUD) has created a new advisory committee that will explore ways to make counseling more accessible for new homebuyers and troubled borrowers.

The Dodd-Frank Act of 2010 called for the creation of a 12-member advisory committee to improve housing counseling and develop innovative strategies to support community-based counseling agencies.

The Housing Counseling Federal Advisory Committee includes three representatives from each of the four mortgage, real estate, consumer and housing counseling sectors.

The committee members are slated to have their first meeting in August, according to committee member Pamela Marron from New Port Richey, Fla., a senior loan officer at Innovative Mortgage Services Inc.

“I’m in Florida, the land of underwater homes,” Marron said an interview Wednesday. She noted non-government-sponsored enterprise interest-only mortgages and home equity lines of credit are starting to reset and it is very difficult to refinance.

“I would tell them what is really happening at ground zero. And I am expecting the other members will have similar stories,” Marron said. “We have a good diverse group and I am excited about that.”

Read More…


Pam Marron, Mortgage Professional

HUD Names New Federal Housing Advisory Committee

Written by Brian Sullivan, (202) 708-0685

WASHINGTON – The U.S. Department of Housing and Urban Development (HUD) today named 12 persons who will constitute the first-ever Housing Counseling Federal Advisory Committee (HCFAC). Established under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, this advisory panel will help HUD’s Office of Housing Counseling improve upon all the efforts to provide consumers with the knowledge they need to make informed and lasting housing decisions.

Last April, HUD solicited nominations to serve on the first-ever federal advisory committee. Those selected hail from among mortgage, real estate, consumer and housing counseling sectors. They include:

Mortgage Sector
1.    Pamela Marron New Port Richey, Florida
2.    Linda Ayres Las Vegas, Nevada
3.    José Larry Garcia El Paso, Texas
Real Estate Sector
4.    E.J. Thomas New Albany, Ohio
5.    Cassie Hicks Hattiesburg, Mississippi
6.    Alejandro Becerra Silver Springs, Maryland
Consumer Sector
7.    Afreen Alam Long Island, New York
8.    Meg Burns Arlington, Virginia
9.    Ellie Pepper New York State, Schenectady, New York
Housing Counseling Sector
10.  Judy Hunter Sacramento, California
11.  Arthur Zeman Saint Louis, Missouri
12.  Terri Redmond Hummelstown, Pennsylvania

Read brief bios of the HCFAC members.

The Housing Counseling Federal Advisory Committee will explore new opportunities to expand access to HUD housing counseling programs, develop new innovative strategies to support community-based counseling agencies, and identify methods to leverage our resources to amplify the impact of federally funded housing counseling. This panel will also develop new metrics to evaluate the health and capacity of the housing counseling industry, specifically in the context of disaster recovery and identify ways to improve the use of technology in housing counseling.

By teaching consumers basic principles of housing and money management, HUD’s network of approximately 2,000 HUD-approved housing counseling agencies help families to improve their financial situation, address their current housing needs, and pursue their housing and financial goals over time. Housing counselors increase awareness of both rights and responsibilities of homeownership and rental tenancy, addressing fundamental concepts such as anti-discrimination laws, the types of ownership and tenancy, budgeting, affordability calculations, maintenance and upkeep responsibilities, eviction and homelessness prevention, and where to get help when future housing challenges arise. Housing counselors provide support to households facing unemployment, finding and maintaining housing after returning from military deployment, or moving their families because their current housing situation is unsustainable.

There are many ways to find a HUD-approved housing counseling agency. Visit HUD’s website or call 1-800-569-4287 for our interactive telephone directory. Get the free housing counseling i-phone app from the app store (not yet available for android). Watch HUD’s video on how housing counseling can help families find (and keep) housing.


Pam Marron, Mortgage Professional

Pam Marron Selected for Housing Counseling Federal Advisory Committee

Yesterday I received a letter from HUD Secretary Julian Castro that I have been selected to serve on the U.S. Department of Housing and Urban Development’s Housing Counseling Federal Advisory Committee.

Millions of homeowners across the U.S. have been devastated with lives changed forever due to the housing recession. I want you to know that it is your stories of challenges… how you plodded through even though you lost a great deal and did everything possible to stay afloat… before you finally had to ask for help… that changed my perspective on how I will do business in the mortgage industry forever.


Credit is Central to WHY Help Network Started

History: WHY Help Network Started

The housing recession since 2007 has resulted in real estate and mortgage problems never experienced before in U.S. history. One of those newer problems was a massive number of short sales, where homes are sold for less than the mortgage balance on the loan.

In order to short sale, a common practice of nearly every lender in the U.S. was to require that the distressed homeowner go delinquent on their mortgage before the short sale approval could be given. The short sale process was lengthy and the required delinquency almost always exceeded 4 months. After 120 days of mortgage delinquency, a foreclosure code was placed on the credit of unsuspecting short sellers. The foreclosure code was not apparent to those of us in the mortgage industry until years later when the past short seller, eligible for a new conventional mortgage, received a “Refer with Caution” denial for a new loan. Lender underwriters unaware of the erroneous credit code would tell past short sellers to go back to their short sale lender and get the problem fixed. The short sale lenders would claim they had coded the short sale correctly, and point to credit reporting agencies to make the fix. The credit reporting agencies, now seeing this problem throughout the U.S., started drilling down to where the problem was in the code. This is when it was discovered that there was multiple credit code being used for a short sale, but borrowed from the Metro 2 foreclosure code. Additionally, foreclosure payment history codes of “8”(repossession) and “9”(collection) were adding to the mix. And when fixes were applied, “dates reported” were pulling forward, suggesting the credit problem was more recent than the short sale closing.

Why was this a problem for the mortgage and housing industry? A foreclosure code meant a 7 year wait to get a new mortgage, rather than the 2 year wait after a short sale in effect at the time. At that point, there were over 9 million past short sellers. That equated to over 16% of total U.S. mortgages! The slowdown of the housing comeback was critical, and stalling the reentry of 9 million past homeowners back into the housing market would affect the housing market. It was imperative for this problem to be solved.

The road to a solution started with a loan officer in Florida and a credit reporting agency, Acranet Credit, in California. The loan officer saw the seller credit was being coded as a foreclosure over and over again in the Fannie Mae and Freddie Mac automated systems and went to Acranet credit reporting agency. The Acranet credit manager was a board member of the National Consumer Reporting Association (NCRAinc.org) and brought the problem to the NCRA. The Florida loan officer attended the 2012 NCRA Conference with proof and met a representative with the Consumer Financial Protection Bureau (CFPB) at the conference.

In April of 2013, the Florida Loan officer and the executive director of the NCRA went to Washington, D.C. and, thanks to U.S Congressman Gus Bilirakis’s office, met with staff of the Senate Banking and Finance Committee. On this first meeting, multiple problems were presented and it was quickly determined that pinpointing the critical credit code problem was paramount. Offices of representatives for “Hardest Hit” states, where it was thought that the credit code problem would be most apparent, were visited. The offices of the U.S. Treasury, the Consumer Financial Protection Bureau and U.S. Senator Bill Nelson’s (D-FL) office were also visited.

U.S. Senator Nelson’s office took a special interest in this problem along with the CFPB. Senator Nelson is from Florida, a state that was 3rd from the top where housing had been hit hardest. In 2012, Florida’s average of homes sold as short sales was tipping 30%, and 48% of homes owned in the state had negative equity. This problem threatened a real housing recovery for Florida.

On May 7, 2013, U.S. Senator Bill Nelson required that the CFPB and the FTC get a solution to the credit code problem within 90 days. There was much talk about a “specific, universal short sale credit code” just like there was for a foreclosure or repossession, or judgment.

In June 2013, the Florida loan Officer, the NCRA executive director and 30 NCRA board members met in Washington, D.C. again and met with CFPB Director Richard Cordray and 4 CFPB directors.

Later that afternoon, the Florida loan officer and the Acranet credit agency manager met again with the CFPB and were stunned to learn that, though affected consumers were consistently stating they were told by their short sale lender that a delinquency of their mortgage was a requirement to get the short sale approved, in fact the lenders were telling another story…. that underwater homeowners were ceasing to make payments, waiting to be served foreclosure by their short sale lender.

To hear this was shocking. All of the press seemed to be about strategic defaulters, who are able to make mortgage payments but chose not to. Yet, we were finding little evidence of underwater homeowners who wanted to stop paying their mortgage. Instead, homeowners who called for help were bewildered that they had to destroy their credit to exit an underwater home. They wanted to make their payments but were told no help was available until they went delinquent!

While in Washington, D.C., it was also learned that the credit code change all of us were fighting for would not happen. Instead, lenders would be allowed to make a change in the Fannie Mae system when the erroneous foreclosure code showed up on past short seller credit. This would take effect on Nov. 16, 2013.

The Nov. 16, 2013 change did not work…. but 2 fixes found by accident were working! The CFPB Complaint Letter worked the most and seemed to trigger an immediate “change” in the credit that resulted in an “Approve” upon a new credit pull and resubmission to Fannie Mae. The same change occurred if a Lender Letter could be obtained from the lender stating the loan closed as a short sale and not as a foreclosure. The critical key here was that lenders were able to make a change of the code internally.

And, on August 16, 2014, Fannie Mae again made a change to their automated systems Desktop Underwriter/Originator that finally allowed lenders to go into the system and make a change when a foreclosure showed up on credit code for a past short seller.

So WHY Help Network?

Because so many lenders, loan originators, credit reporting agencies and governmental agencies are now aware of the credit code problem of past short sellers, it was decided to switch gears. Instead of using efforts to find more solutions (though this is an ongoing process!), emphasis is now on the network of help available to past short sellers.

The Help Network is a growing resource center that includes lenders, loan officers, realtors, credit reporting agencies, HUD Approved Counseling Agencies and governmental agencies and representative offices that are aware of this problem and can help.

And if you are not sure who can help in your state, email Pam Marron at pmarron@tampabay.rr.com and ask for help with resources.

 

 


Back from the Housing Brink

Back from the Brink logo

 

 

Sponsored by the Gulf Coast Chapter of the Florida Association of Mortgage Professionals, a member of the Pinellas Realtor Affiliate Business Partners Program

 

“Back from the Housing Brink” defines 3 different client types that have developed from the housing crisis and where opportunity exists for loan originators and realtors to assist these clients.

GulfCoast Chapter of the Florida Association of Mortgage Professionals wishes to thank the Pinellas REALTOR Organization for joining with us to support this program!


Pro member

nonPro member

 

Special Guest Daren Blomquist, Vice President of RealtyTrac

RT.Daren lg
Status of Distressed Homeowners and Boomerang Buyers
  • Defined, statistics, where these homeowners are at and where they are moving to in the U.S. and specifically Florida.
Assist 7.1 million Distressed Homeowners (still in underwater homes) to stay put
  • PURE HARP refinancing, shorter term
  • Hardest Hit Funds available for principal reduction through Florida
Assist 7.3 million Boomerang Buyers (had past short sale or foreclosure) eligible to re-enter housing market over next 8 years
  • wait timeframes for all mortgage types
  • Shorter wait time frame underwriting criteria for FHA “Back to Work” and conventional mortgage “Extenuating Circumstances”
Assist real estate agents to sell damaged housing by providing repair list with costs and renovation loan financing at listing upfront
  • Retrieve “feasibility report” commonly done by FHA Inspectors and useful to attract buyers and for mortgage financing. Report cost: $200-$250.
  • Provide financing option upfront for either FHA 203K (owner occupied loan) or conventional Homestyle renovation loan (owner occupied, 2nd home, investor)

Challenge to mortgage and real estate industries:
Need for refinance option of non-Fannie Mae, non-Freddie Mac 1st mortgage and 2nd mortgages and HELOCS for 7.1 million homeowners still underwater! Only option currently is modification that requires delinquency.

Realtor/Loan Originator resources:
  • Specialized lists from RealtyTrac
  • Free promotion of industry professionals who would like to assist these clients at HELP Network on *HousingCrisisStories.com

*HousingCrisisStories.com is set up to provide buyer and loan originator assistance to prepare cases for underwriting FHA “Back To Work” and where “Extenuating Circumstances” may exist for a conventional mortgage. Lenders who provide FHA Back to Work, allow Extenuating Circumstances and provide pure HARP 2 will be promoted.

Homebuyers/Homeowners resources:
  • Downpayment assistance: Hillsborough, Pinellas, Pasco, Hernando, Citrus counties, state of Florida
  • “Fix It” programs for those with no equity: Pasco County
  • Student Loan consolidation/refinance program

 


How to Make a Niche Market out of 7.3 Million Boomerang Buyers

NMP Instant Webinar

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Click here to view the webinar NOW.

In January 2015, RealtyTrac reported that there are approximately 7.3 million Boomerang Buyers that will have the ability to re-enter the housing market over the next 8 years. Boomerang Buyers are those who had a short sale or foreclosure in the past and are eligible to obtain a new mortgage again. A new website, HousingCrisisStories.com, was created to assist Boomerang Buyers back into the housing market, with direction for loan originators that can provide them with a new mortgage. The site also provides assistance for more than 7 million distressed homeowners who are still in underwater (negative equity) homes.

In this instant webinar:

▪ RealtyTrac Vice President Daren Blomquist will explain where the Boomerang Buyers are located, and how they can be found.

▪ Terry Clemans, Executive Director of the National Consumer Reporting Association, will tell you about the QMCR (Qualified Mortgage Credit Report), a novel credit idea that can help with persistent credit errors that hamper these folks and many others from getting a new mortgage.

▪ There’s even a HELP Network, where lenders, loan originators, credit reporting agencies, HUD approved counselors, PMI companies and government agencies that can assist Boomerang Buyers and Distressed Homeowners will be promoted for free.

▪ Jim McMahan NMLS#218164, a loan originator from Georgia, will explain the benefits of assisting these borrowers.

▪ Pam Marron NMLS#246438, a loan originator from Florida, will explain how the website helps these borrowers and loan originators, and invites those who want to assist these clients to be part of a national HELP Network.

Click here to view this FREE Webinar!

 


Past Short Sales Are Like a Bad Divorce

Helping Borrowers with Extenuating Circumstances Through the Mortgage Process

By Pam Marron April 1, 2015

Explaining a past short sale is a harder task than most think, and it re-opens a period of time that many who have had the experience don’t want to go through again. Loan originators should not be surprised when past short sellers show anger, reluctance and may even opt out of re-purchasing a home upon learning what they must do.

Part of the problem is that guidelines, especially those surrounding explanation of extenuating circumstance, are vague. And detail needed is not always easily accessible. Quietly, more than one lender has told me that documentation received is not enough to prove extenuating circumstances, which results in a new mortgage denial for those who may be eligible to re-enter the housing market. Though lenders offer the FHA “Back to Work” program, a low percentage of these loans have been approved.

Extracting and clearly defining the detail of extenuating circumstances to show how past sellers ended up with a short sale or foreclosure falls upon loan originators. So, what is the extra work and detail needed for these loans?

At HousingCrisisStories.com,  there are 3 worksheets for the borrower and loan originator to prepare a case for an underwriter.

  1. Borrower Makes Case:  extensive list of questions for the borrower to detail. Items needed are included on this list.
  2. LO: Economic Event Worksheet:  loan originator uses “Borrower Makes Case” and provided documentation to complete.
  3. LO: Reduced Income and Increased Debt Table: made to show percentage of reduced income for FHA Back to Work and increased expenses needed for Fannie Mae, Freddie Mac and USDA(medical). Also, lower table shows how “Un-anticipated Additional Debt” can be substantial, showing the REAL hardship.

Loan Originators

  1. Be attentive to your borrowers’ entire story. Question needed details.
  2. Be prepared to document income 1 year prior to the event and over multiple years. Many affected saw trouble coming and tried to prepare. However, the process of going through a short sale or foreclosure with a lender is often drawn out and some take years. During this time, assets are depleted, income fluctuates and credit becomes worse.
  3. Do not be surprised when the borrower is reluctant to detail this timeframe. Many try to forget, and having to dig up paperwork or discuss the event again can be highly emotional.
  4. Loan originators must go the extra mile to prove all remedies tried. WHY? Even when jobs were lost or incomes reduced, when rental income did not cover the mortgage payment on an underwater property, when divorce or a death occurred, a great majority of these homeowners whittled away at savings and retirement funds trying to stay afloat. For many, there is often a final problem  after the economic event where there was no choice left but to sell the home.
  5. It is very common to see an alarmingly high BACK debt to income (DTI) ratio (Reduced Income and Increased Debt Table) even when the mortgage payment is made. This worksheet is intended to show that reduction in income is not always the primary reason to sell.
  6. On short sales, retrieve the HUD-1, the final lender short sale approval letter on 1st and 2nd mortgages and proof of the wire sent from the closing of the property. Why? It is common for the date of payoff on a credit report to be a different date than the actual closing date.
  7. Borrowers that had a deficiency payment may have a “Satisfaction of Mortgage” that shows a release of lien/mortgage but “does not constitute a satisfaction of debt”, so check documents received.  Retrieve the letter to the borrower stating when the deficiency is satisfied the 1099 that often states “forgiveness of debt”. (Documents noted above can be retrieved from the title company noted on the HUD-1 or listing agent.)
  8. Preferably, run file through Fannie Mae’s automated system upfront, which specifies which account and what date causes a Refer. If the short sale shows up as a foreclosure or findings note an incorrect  disbursement, contact your [1]credit reporting agency to correct the date and repository comment.
  9. For an FHA mortgage, make sure the homeowner goes to a HUD Approved counselor at least 30 days before a contract is written or an application taken.

Bonus: the gratitude of these clients will remind you of why you are in the mortgage business.

Pam Marron (NMLS#246438) is senior loan originator with Innovative Mortgage Services Inc. (NMLS#250769) in Tampa Bay, Florida. She may be reached by phone at (727) 375-8986 or e-mail  pmarron@tampabay.rr.com. Websites: HousingCrisisStories.com, CloseWithPam.com, 8Problems.com.

[1] National Consumer Reporting Association (NCRAinc.org) is aware of the erroneous foreclosure code on short sale credit and error in dates. Go to http://www.ncrainc.org/mortgage-credit-reporting-referral-network-by-state.html to find credit reporting agencies in your state.

 


Thank You, Ken Harney of the Washington Post

For Short Sellers, Some Good News
Kenneth R. Harney, Washington Post – Sept. 6, 2013

Policy changes by two of the biggest players in the mortgage market could open doors to home purchases this fall by thousands of people who were hard hit by the housing bust and who thought they’d have to wait for years before owning again. Read More

 

Short Sales may be Treated like Foreclosure by Credit-Reporting Agencies
Kenneth R. Harney, Washington Post – May. 17, 2013

Are large numbers of homeowners who have negotiated short sales with lenders at risk because of a startling omission in the American credit system? Do their credit reports and scores indicate that they were foreclosed upon, rather than having negotiated a mutually agreeable resolution with their lender? Read More