DOES FANNIE MAE AND FREDDIE MAC GUIDELINES HELP THE HOUSING MARKET?

By: Maria Hass

I recently put in an offer for a client on a Fannie Mae-owned home. I was told that, per Fannie and Freddie Mac guidelines, my investor would have to wait for the home to be listed 15 days on the market before investor offers could be reviewed.
No other offers came in during the waiting period. So, our offer was submitted to the lender. Fannie countered the offer by asking my client to choose between 3.5 percent closing cost assistance or 3.5 percent less in purchase price, but not both.
Fannie and Freddie representatives making the decision have not seen the house. Without that first hand knowledge, they don’t know that my client’s offer is a great offer and that asking for a full-price offer on the house may potentially raise appraisal issues down the road as the market declines.
Fannie and Freddie guidelines allow the list price to be dropped every 30 days. We are nearing that 30th day now. My client could either accept the counter, or wait until the price drops another $5,000 or $10,000. If my client decides to wait, the home will sell for less than my client’s first offer and contribute to housing values’ overall continued decline. If my client accepts the counter of Fannie Mae, we risk facing an appraisal issue. Bottom line, nothing is for certain until we get there.
In summary, Fannie and Freddie guidelines contribute to the decline in the housing market. While it prioritizes owner occupied buyers over investors, they should also consider that investors are the ones in the position to buy in a down economy. Having the investors wait many days before their offer is reviewed is allowing the home to decrease in value in a declining real estate market like Arizona.

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Average Sales Price Per Sq Ft Arizona Cities

Average Monthly Sales Price Per Square Foot
October 18, 2010
Anthem – $94.33
Apache Junction – $70.12
Avondale – $57.12
Buckeye – $56.59
Casa Grande – $48.45
Cave Creek – $131.90
Chandler – $97.45
El Mirage – $45.44
Fountain Hills – $141.15
Gilbert – $91.05
Glendale – $70.60
Gold Canyon – $97.60
Goodyear – $71.54
Laveen – $56.28
Litchfield – $84.30
Maricopa – $48.51
Mesa – $79.73
Paradise Valley – $246.77
Peoria – $77.53
Phoenix – $80.43
Queen Creek – $56.74
Scottsdale – $159.83
Sun City – $68.60
Sun City West – $96.72
Sun Lakes – $110.17
Surprise – $66.78
Tempe – $100.02
Tolleson – $49.91

Source: Cromford Report

Real Estate Analysis and Forecast
By: Maria Hass
Full-Time Realtor

For the monthly period ending October 17, we are currently recording a sales $/SF across all areas and types of $83.17 averaged for all areas and types – down 1.5% from $84.39 on September 17. We hit a low point of $81.96 on October 11 and bounced back up a little in the following week. Our forecast range was $80.56 to $83.84 and prices have stayed within that range since September 20.
Today the pending listings for all areas & types show an average list $/SF of $86.66. This statistic has shown a general upward trend since mid September and suggests that we will see some improvement in pricing over the next month. Our mid-point forecast for the average monthly sales $/SF on November 16 is currently $84.04, which is 1.1% above today’s actual reading of $83.17, and we have a 91% confidence that it will fall within ± 2% of this mid point, i.e. in the range $82.36 to $85.72. The actual price change we see will depend very much on the mix between lender owned, short-sales, pre-foreclosures and normal sales which has seen some large fluctuations in recent months. In particular, short sales have lost market share to REOs. At the same time REOs and normal sales have seen their average sales price fall while short sales have edged upwards.
Today’s market offers opportunities for investors who are looking to buy and hold. Significant sales of homes are coming from foreign investors or out of state and local investors who find the value in today’s distressed real estate market. Many short sale or lender owned properties could easily turn into a positive cashflow for investors buying a home to rent. Rental market remained strong and in some areas have appreciated as many people leave their homes due to foreclosure or short sale. If you have cash or significant reserves, investing in real estate offers great opportunity than the unpredictable stock market.
*Information taken from Cromford Report

Who Benefits From a Foreclosure Freeze?

By Maria Hass

On Saturday, Oct. 9, The Arizona Republic reported that Bank of America is postponing its processing of foreclosures until further investigation of their foreclosure process is obtained.

My earlier understanding was that this foreclosure freeze applied only to states that use a judicial process to foreclose on a home. However, recent reports mentioned that Bank of America is halting foreclosure processing in all 50 states. As a result, the recovery of the housing market will be delayed, as there is a huge inventory of pending foreclosures.

It seems that Bank of America’s decision to freeze foreclosures will protect their interests more than anything else. BofA would not like to see a huge legal case ahead of them if it’s found the bank did not comply with required and proper foreclosure procedures.

BofA’s move does not help homeowners who have already left their homes and signed a long-term lease. It slows down the housing recovery by stockpiling foreclosed homes and dumping them either slowly or at once.

The only way we could see this housing market turn around is if Bank of America and other banks consider a mortgage amnesty by reducing homeowners’ principal mortgage amounts. If this happens, people will not be upside-down on their homes and they will be able to afford their payments. Short sales and foreclosures will slow to a near halt and a healthy housing market reflecting strong price appreciation will result.

For the full Arizona Republic article, please go to: http://www.azcentral.com/arizonarepublic/news/articles/2010/10/09/20101009bank-of-america-stops-foreclosure-sales.html.

TAX CONSEQUENCES OF A SHORT SALE AND FORECLOSURE

By: Maria Hass

I recently attended a class regarding the tax consequences of short sales and foreclosures and found out there isn’t really any difference between between the two procedures in this regard.

Any homeowner whose debt is forgiven due to a loan modification, short sale or foreclosure will receive a Form 1099C from the IRS once the debt is cancelled. This document provides information on how much debt was forgiven.

The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure or short sale, qualifies for the relief.

Below are some questions to ask yourself to find out if your debt qualifies under the Mortgage Debt Relief Act. This information is good to know prior to short selling or foreclosing on your home.
1. Is the home a primary residence? If yes, you could qualify for the Mortgage Debt Relief Act.

2. Did you take cash out by borrowing against your home equity? If yes, what was the money used for? If money was taken out of the home and used for expenses not related to the improvement of the home, such as to buy a boat, pay off credit cards, or for the down payment for an investment home, etc., you will not qualify under the debt relief act.

3. Is the home a rental home? If yes, due to declining values, the loss on the rental home and the income (difference between what is owed and what is sold for) is “washed” as long as there was no cash-out.

If your home does not qualify for a tax exemption because you took cash out, you could either claim “insolvency” or file for bankruptcy. Insolvency means that your liabilities exceed your assets and bankruptcy is an easy proof to show that you are insolvent.

For more information on the Mortgage Debt Relief Act, go to http://www.irs.gov/individuals/article/0,,id=179414,00.html.

The information above is not intended to provide tax advice. For answers to your specific situation, you are advised to consult a tax adviser.