Click Here to View MLS Listing

Click Here to View MLS Listing

Click Here to View MLS Listing

At last count, an estimated 10.7 million residential mortgages — almost a quarter of all home loans in the U.S. — were underwater, meaning that the property was worth less than the amount outstanding on the mortgage. This is a legacy of the housing and credit bubbles: with every underwater mortgage, a potential default and foreclosure.

As the number of such mortgages has grown, more and more borrowers have simply decided to walk away. That seemingly reckless move is now not only tolerated but encouraged — even among those who can afford to make the payments. I’ve recently read articles in the mainstream media suggesting borrowers will come out ahead if they stop making payments on underwater loans. But does this make sense from a purely economic point of view?

Let’s dismiss for the moment any legal or moral reasons to keep making payments on a house whose value has fallen. I admit that I was raised to believe that willingly defaulting on a mortgage woul be unthinkable. Of course, much the same could be said of divorce. Both are now commonplace. But there are some practical consequences to default, including a damaged credit rating and inability to get another mortgage for several years.

From a short-term perspective, the case for default seems obvious. Why keep making payments on an asset that is worth less than the debt it carries? One of the peculiarities of our mortgage finance system, when you stop and think about it, is how much leverage is built into the market for housing. People who wouldn’t dream of borrowing money to buy stocks on margin, considering it too risky, have no trouble piling on leverage when it comes to their home, borrowing 90 percent or even 100 percent of the purchase price. Of course, real estate is expensive — few purchasers have that much cash — and housing prices are less volatile than stocks. Still, real estate is an asset like any other. Values go down as well as up. And leverage always magnifies losses as well as gains.

Let’s consider a hypothetical house that sold for $500,000 at the top of the market in 2006, purchased with a 10 percent down payment and a $450,000 mortgage. Assuming a 25 percent drop in value since then, the house is now worth $375,000. If the owner stops making payments and abandons it, he loses the down payment of $50,000 plus all subsequent payments of interest and principal. That’s a total loss.

Bad as that outcome appears to be, the alternative seems to be to throw good money after bad. Default at least caps the loss at the down payment plus payments already made. If this was a typical 30-year mortgage, 26 years of payments of interest and principal would remain on an asset now worth just 83 percent of the original mortgage. And assuming the borrower has the resources to pay off the mortgage in full and then sell, he would lose $125,000 on the investment, plus interest he’s paid — more than double the cost of simply defaulting and walking away. Moreover, he can probably rent something as nice or better for less than the equivalent monthly payment and live happily ever after. This, in a simplified nutshell, is the case for default.

But I’m not convinced the case is nearly so simple. The analyses I’ve seen in support of walking away assume a static housing market, in which home values are fixed at their current low prices. But historically, housing prices have consistently risen over time, and it’s quite possible that real estate prices hit their ultimate lows around August of last year.

To walk away from an underwater mortgage now is the equivalent of selling at what may turn out to be the bottom, or close to the bottom. Just as with stocks, the Common Sense strategy is to buy lower and sell higher, and even if this doesn’t turn out to be the bottom of the real estate market, we know for a certainty that it’s not the top.

Let’s assume that housing prices continue to recover and revert to a modest average rate of appreciation — say, 5 percent a year. At that rate, our hypothetical home will be worth $1.3 million in 26 years, when the mortgage is paid off. That’s nearly three times the purchase price. Of course, this homeowner might not want to wait that long. Still, at 10 years, the value would be $610,835, which represents a decent gain. After six years, he’d be back at break-even. To me, that doesn’t seem all that long to wait as an alternative to realizing a loss of over $50,000 by abandoning the house now. And remember, I’m using conservative numbers: The National Association of Realtors says the historical annual gain is 6 percent.

There’s also the opportunity cost of defaulting when real estate prices are low and likely to increase. By the time defaulting borrowers restore their credit ratings to the point where they’d be eligible for another mortgage, they will have missed years of housing-price appreciation. And the attractive rents currently available as an alternative to mortgage payments are unlikely to last once markets recover and landlords can raise them.

To be sure, everyone’s circumstances are different, and all housing markets are local. But after the recent plunge in prices, a reversion to historic norms strikes me as a reasonable possibility. Having lived in the same house since I purchased it 10 years ago and putting 20% down, I’ve never experienced an underwater mortgage. But I had friends who bought a home in Baltimore County in 1990, just in time to see its value drop by about a third during the recession of 1991-92.

They lamented this turn of events, saying they felt trapped in a home they couldn’t sell for the amount of their mortgage. But they stayed, made their payments, and nearly 20 years later, their home is worth far more than they bought it for. And with their credit rating intact, they were subsequently able to get a mortgage on a house in the country. The years they were underwater now seem inconsequential.

At the very least, the case for staying with a mortgage seems to me far more compelling than might first be apparent. And fulfilling an obligation also strikes me as the right thing to do. Surely that, too, still has some value.

Nick Gioia | www.ngrealtygroup.com

The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in January, fell 7.6 percent to 90.4 from an upwardly revised 97.8 in December.

Analysts polled by Reuters had forecast pending home sales, which lead existing home sales by one to two months, would rise 1 percent in January.

Compared to January 2009, the index was up 12.3 percent.

Nick Gioia | www.ngrealtygroup.com

Our agents will provide you with detailed public school information to help you make your home buying choices. Of course, the public school rankings are not the only factor families use to determine their Howard County home location. Price, transportation alternatives are surely important. However, the first question we are asked about homes and locations in Howard County real estate will be the public schools.

When you work with an NG Realty Group Buyer's Agent, we will provide you with boundary maps and school accountability information.

Unlike some areas of the country, Maryland school students attend the schools in the county in which they live. The attempt to adhere to the neighborhood school goal means that your children will most likely attend the school in the community in which you buy real estate. So, our buyers are, not surprisingly, interested in the individual schools of the area. Howard County and, indeed, all of Maryland follows a "cluster system". Children attend the neighborhood elementary school which feeds into a particular middle school (along with other elementary schools), which, in turn, feeds into a high school (along with other middle schools). These are known as "school clusters".

The above ranking is based on tests taken during the 2007 - 2008 academic year including:

Grade 12 Geometry
Grade 12 Biology
Grade 12 Government
Grade 12 Algebra

TOP RANKED HIGH SCHOOLS IN MARYLAND for the most requested counties.

Walt Whitman - Montgomery County
River Hill - Howard County
Winston Churchill - Montgomery County
Centennial - Howard County
Wootton - Montgomery County
Severna Park - Anne Arundel County
Atholton - Howard County
Glenelg - Howard County

SAT Scores for Howard County MD during the 2007 - 2008 academic year.

 
To learn more about buying or selling homes in Howard County Maryland please visit our Howard County neighborhood Page.

Nick Gioia | www.NGRealtyGroup.com

Howard County MD Real Estate Market Report.

To buy or sell homes in Howard County, MD, contact Nick Gioia with RE/MAX Sails at 410-765-5422.

The original HUD-1 was developed as a by-product of the Real Estate Settlement and Procedures Act of 1974 — or, as it’s usually called, RESPA. Prior to 1974 settlement forms could be different, meaning that it was very difficult to compare costs or to know what was deductible for tax purposes in the year of the transaction.

So what do we get after 36 years? The new HUD-1 is a vast improvement over the old model. It’s three letter-sized pages long rather than two legal pages, but there’s much more information in the new HUD-1. Buried in the form is an accounting of costs costs and perhaps even some write-offs. Buyers will find the full and complete cost of buying real estate while sellers will see how much cash (if any) they’re getting from the transaction.

Page One

The first page of the form is a summary of the transaction. In effect, it translates the sales contract between buyers and sellers into hard numbers.

At the top of the form we first have administrative data such as:

• The type of loan (conventional, VA, FHA, etc.).
• The place and date of settlement (the date can be very important for tax purposes).
• The mortgage insurance case number (important if you’re ever facing foreclosure).
• The street address of the property. This is a concern because for great clarity  and assurance the form would be better if it also included the legal address of the property.
• The name of the settlement (or closing) agent. The party that conducts the settlement is typically regarded as an agent of the settlement process. In other words, they do not represent you.

Page One, Buyer’s Side

The HUD-1 shows transaction costs for both buyers and sellers — you get to see what the other person’s information. More important you get to see your own.

On the right side of the first page we have buyer costs grouped by sections.

Section 100 — This is where buyers see the cost of the property and the cost of settlement (the figure found on line 1400). Combine the two and you get the gross amount — but not the final amount — due from the purchaser.

Notice that there can be some adjustments in this section. For instance, it may be that the seller has paid local property taxes in advance — those payments would be a credit to the seller and a cost at closing to the buyer.

Section 200 — As a buyer you may have certain credits to offset your gross costs. Credits include such things as your deposit, your new loan (for closing purposes the mortgage is a credit to the borrower because it represents money brought into closing) and any additional financing.

In the 200 section you can also see adjustments which are a credit to the buyer. For instance, maybe the seller still owes some property taxes.

Section 300 — This is a re-cap of all costs and credits. If you take the gross amount due from borrower (line 120) and subtract the buyer’s credits and cash you then get the total cash due to — or from — the borrower.

Most buyers, of course, will need to bring “cash” to settlement. By “cash” what most settlement agents really want is a certified check or a cashier’s check. Also, it may be possible to wire funds to the closing agent. Always ask the settlement provider well in advance of closing how payment can be made.

Gifts: To assure lenders that you are not somehow getting a secret loan from someone, it’s best to have closing funds in your name and on deposit for at least 90 days. If you are getting a gift to close, ask your lender how the gift is to be documented and precisely follow the lender’s instructions.

Page One, Seller’s Side

Settlement is a moment of truth for owners, the time when you find out exactly how much or how little you’re getting from your sale.

Section 400 — The sale price of the house, plus the cash paid for any personal items, are shown here as credits to the owner.

Also in this section are adjustments — credits for property taxes and other costs paid in advance.

Section 500 — If any mortgage debt remains unpaid it shows up here as a cost to the seller. Also, the costs of closing (line 1400) are here as a deduction as well as any adjustments for such costs as unpaid property taxes.

Section 600 — If we take the gross amount due to seller (line 420) and subtract the seller’s closing costs (line 520) we can then see how much cash the owner will get from closing (or, how much cash is needed to close if the seller is upside-down).

Practices around the country regarding cash to owners at closing vary. In some areas there are “wet” settlements where the owner gets a check at closing, in other areas there are “dry” closings where it takes a few days to get a check because it takes time for the lender to fund the transaction and paperwork to be recorded. In some jurisdictions there are rules requiring the disbursement of cash with a few days. For specifics, speak with your settlement agent.

Page Two

On the second page of the new HUD-1 we have a series of sections which show costs that may be paid by either buyers or sellers — or split between them. In other words, these are costs which can be negotiated when a sale offer is made. For instance, in a slow market a seller might agree to pay all transfer taxes. In a hot market, the buyer might pay.

Section 700 — If one or more real estate brokers are involved in the transaction, this section will show the compensation to each broker and the cost, if any, to buyers and sellers.

Section 800 — Getting a mortgage is hardly free. When the buyer applied for financing the lender provided a Good Faith Estimate of Closing Costs (GFE) on the new form developed by HUD. This section shows such costs as points, origination charges, appraisal fee, credit report and tax service. Borrowers should check the numbers at closing with the estimates provided in the GFE. The costs shown on lines 801 (origination charge), 802 (points), and 803 (adjusted origination fee) must be the same as the GFE.

Please see our guide to the new Good Faith Estimate form to see how it’s coordinated with the equally-new HUD-1.

Section 900 — Closing is scheduled at a time which is mutually-agreeable to the buyer and seller. That time, however, will mean that for such items as interest, mortgage insurance premiums and homeowner’s insurance there will likely be a need to make some payments for daily costs in advance until the next billing period.

Section 1000 — If you purchase a home with less that 20 percent down the lender will likely require that you pay additional amounts each month for property taxes and insurance. This money is held in an escrow or trust account and then paid out as the bills come due.

If you will have an escrow account then the lender will typically collect money in advance from borrowers to assure that the escrow account is properly funded.

Section 1100 — As part of the buying process, sellers typically promise to deliver good, marketable and insurable title — and buyers should want nothing less. This section shows the costs for title insurance — both lender’s and owner’s coverage.

Lender’s cover — which is required by lenders if you finance the purchase — protects you up to the remaining loan balance in the event of a title claim. In other words, it protects the lender.

Owner’s coverage protects you if there is a title claim up to the purchase price of the property — in other words the loan amount plus your equity. Be aware that some title insurance policies have an inflation rider so that the value of the coverage can actually increase over time. For specifics, speak with your title agent.

Also, take a look at line 1107. This shows the commission paid to the settlement agent for providing title insurance.

Section 1200 — This is where you can see how much state and local governments are getting from the transaction. Governments are elated when homes are sold because such transactions are a major source of revenue. Government taxes can includes such things as deeds, releases, transfer taxes, state taxes, stamps, etc. Call it what you will, a tax is a tax.

Section 1300 — This is where you can find additional settlement costs.

Section 1400 — The total costs to close — this number also appears on lines 103 and 502 on the first page.

Page Three

The third page of the new HUD-1 is partially a confirmation that the costs outlined in the Good Faith Estimate are what you’re actually paying — or pretty close.

Some quoted costs on the GFE cannot be changed, some can be changed as much as 10 percent and some can simply change with the winds.

Also shown on page three is a recap of your loan including the mortgage amount, interest rate, loan term, ARM-related terms (if any), prepayment penalties (if any), balloon payments built into the loan (if any) and related matters.

IMPORTANT: Always keep your closing papers in a safe place for tax reasons and to assure that your loan terms are actually the same as disclosed on the HUD-1. For questions regarding closing issues, speak with your real estate broker, mortgage lender and closing agent. Be aware that some costs found on a HUD-1 may be tax deductible — for specifics speak with a tax professional.

Nick Gioia | www.ngrealtygroup.com

Jamie Smith-Hopkins of the Real Estate Wonk wrote a very interesting story about the pros and cons of Zillow's Home Value Estimation Software that I thought was worth sharing.

You've probably checked out Zillow.com's "Zestimates" at some point -- those free estimates of a home's value -- so you might have given some thought to how accurate they are. That's the subject of much debate, actually.

The latest volley comes from professors Daniel R. Hollas, Ronald C. Rutherford and Thomas A. Thomson, arguing in The Appraisal Journal that they're really Overzestimates:

The results indicate that Zillow overestimates value for approximately 80% of the houses in the sample by at least 1%. ... The average overestimation is 11.66% or $13,576, with a median of $9,717 or 7.92%. Zillow’s magnitude of overestimation is marginally higher than the value overestimation by recent home buyers reported in the literature.

 
The authors -- from the University of Texas at San Antonio -- pitted Zestimates vs. 2006 sale prices of about 2,000 houses in Arlington, Texas. "Zillow indicates that this market is one where its data has its highest accuracy rating," they wrote, adding later: "The likelihood is that in [a] more ... volatile market with a lower accuracy rating Zillow would misprice at a higher rate and larger amount."

Zillow roared back with a response:

"In addition to being limited to only one city in the U.S., the study does not compare sales and Zestimate values during the same time period; it looks at sales in 2006 compared to Zestimate values in January and February 2007 – apples and oranges as it’s two separate periods of time," Zillow spokeswoman Jill Simmons wrote in an email to me. "It’s unfortunate that this study has been structured in such a misleading, and limited fashion."

Here's how the authors describe their methodology:

The sale price data, housing characteristics, and location data are obtained from the MLS for the city of Arlington, Texas (Tarrant County), for sales during the last six months of 2006. The sale price data was acquired in January 2007. Next, data from Zillow.com was obtained for each of the MLS sales to acquire Zestimates during the last week of January 2007 and the first two weeks of February 2007.

And here's how Zillow describes (for a non-mathematician audience) how it arrives at its figures:

When our statisticians developed the model to determine home values, they explored how homes in certain areas were similar (i.e., number of bedrooms and baths, and a myriad of other details) and then looked at the relationships between actual sale prices and those home details. These relationships form a pattern, and they used that pattern to develop a model to estimate a market value for a home.

How does the Zestimate of your home -- or homes near you -- match up with your sense of value?

We are of the opinoin that real estate is local and the best way to accurately value homes in the Baltimore Metropolitan Region is to use a free local house value service like www.BaltimoreHouseValues.com

Nick Gioia | www.NGRealtyGroup.com

Home prices unexpectedly slipped in December but the annual rate of decline slowed, reinforcing the housing market's rocky road to recovery, Standard & Poor's/Case-Shiller indexes showed on Tuesday.

The S&P composite index of home prices in 20 metropolitan areas declined 0.2 percent in December, matching the dip in November, for a 3.1 percent annual drop.

A Reuters survey had forecast that prices would be unchanged for the month and down 3.2 percent annually.

The S&P/Case-Shiller U.S. national home price index, which covers all nine census divisions, fell 2.5 percent in the fourth quarter from the same time a year earlier. This measure, like the 20-city and 10-city indexes, have seen smaller annual declines all through 2009.

On a seasonally adjusted basis the 20-city index, which includes Baltimore City, rose 0.3 percent in December, S&P said, matching the November increase.

Nick Gioia | www.ngrealtygroup.com 

During his term, Gov. Martin O’Malley has made foreclosure prevention one of the key focuses of his administration, pushing through legislation that lengthened what was previously one of the quickest foreclosure processes in the nation and creating resources to help troubled homeowners find assistance. Now he’s back with legislation to require mediation between lenders or mortgage servicers and borrowers.

It has the general support of both consumer advocates and the state’s banking industry, and it deserves to be enacted by the General Assembly. In many cases, it would do a lot of good. But lawmakers and homeowners should understand that it will not solve the foreclosure crisis and that given the way things have deteriorated, it’s possible that nothing the government can do will solve it completely.

Although Governor O’Malley’s legislation is being called a mandatory mediation bill, mediation is not the most important element of it. The key is that it will force lenders or loan servicers to make an affidavit before they file for foreclosure indicating that they have tried all other options first. Various federal and state programs can help homeowners to modify their loans, and other outcomes besides foreclosure can help bring both sides to a softer landing. But many homeowners don’t know about them, and lenders or mortgage servicers don’t necessarily offer the information. Mediation would come into play if the two sides dispute the conclusion about whether the homeowner is eligible for any of the assistance programs, but as it is, too many troubled borrowers don’t even get to that point.

In the romanticized notion of mortgages, such rules wouldn’t be necessary. The story we often hear is that foreclosures are no better for the lender than they are for the borrower and that both sides have an incentive to work things out through loan modifications, extensions or other means. It conjures the "It’s a Wonderful Life" idea of a homeowner heading down to the building and loan to talk over his problems with kindly George Bailey, who is just as invested in the community as he is. That’s still true for some borrowers, but the profusion of mortgage-backed securities and other Wall Street innovations that packaged and bundled loans and sold them to investors means that the borrower in many cases has no real relationship with the company that services his loan, and that company, in turn, has no more than a contractual relationship with the entity that actually owns the debt. Talking to the miserly Mr. Potter would be better than many homeowners can manage these days; at least he had a financial stake in the situation and the power to negotiate.

The representatives of the banking industry who participated in the task force that helped design this legislation have expressed concerns about some details, primarily about the timing of the process. They argue that they should be able to file for foreclosure in court before seeking alternatives with the borrower. In some cases, they say, borrowers don’t take foreclosure notices seriously until they get notice of a court filing, and just because a lender files court papers doesn’t mean the foreclosure actually has to be completed.

They do have reason to worry about lengthy delays in the process; as long as a loan is delinquent, they are forced to hold larger reserves and thus have less money to loan in the community. And the longer a homeowner is delinquent in his or her loan, the more difficult it is to catch back up.

But the legislation does allow lenders to certify that a borrower has not responded to efforts to determine eligibility for assistance. That should be sufficient protection for lenders, so long as a reasonable timetable is built into the process. Borrowers are at enough of a disadvantage that they deserve to be granted a pause to seek alternatives.

The experience of Nevada, where a similar law has been in effect since last summer, shows the promise and limitations of such an effort. According to the Legal Aid Bureau of Southern Nevada, which works with troubled borrowers, about a third of homeowners in foreclosure have requested mediation since the program began last summer. Of those who have completed the process, about a third avoided foreclosure, and about 25 percent weren’t eligible for any of the assistance programs and lost their homes. In the remaining cases, mediators found problems with the way the foreclosure was handled, and the homeowners "won" the mediation. That means they’ve stayed in their homes but are in a state of limbo. The banks may decide to try to refinance, or they may foreclose again. The program is too young to know how many people will be able to stay in their homes in the end.

Part of the limitation of foreclosure-prevention programs like the one in Nevada is that the reasons for the crisis have shifted. The first wave of foreclosures was largely the result of buyers being given exotic mortgages — interest-only loans, loans given out without verification of income or assets, loans in which interest rates ballooned after an initial period. As a result of efforts by the federal and state governments (not to mention a sustained period of low-interest rates), many of the people with those mortgages who qualified to refinance have already done so. Many others have already defaulted on their loans.

What’s happening now is a second wave of foreclosures among people who have lost their jobs or seen their incomes drop, a problem compounded by falling home values. People in the real estate industry are worried that people with "underwater" mortgages — homeowners who owe more than their houses are worth — will start walking away from their homes in large numbers, further deepening the cycle of falling property values and foreclosures. That hasn’t happened much in Maryland yet, but according to First American CoreLogic, a firm that tracks real estate statistics, as many as a fifth of mortgages in the state are now underwater.

The Obama administration has created the Home Assistance Refinance Program, or HARP, to help with those issues. Unlike other programs, people with mortgages up to 125 percent of their home’s values can qualify to refinance, provided it is possible through measures like reduced interest rates and lengthened loan terms to bring monthly payments below a certain threshold relative to the borrower’s income. It only helps borrowers who aren’t more than 30 days behind in their loans, though, so if it is to prevent foreclosures, time is of the essence.

For that reason, the governor’s legislation, which requires lenders to provide information about foreclosure prevention programs to borrowers as soon as they fall behind on payments, coupled with his previous efforts to encourage homeowners to call for help at the first sign of trouble, can make a difference. And the experience in Nevada suggests that simply forcing lenders and borrowers to sit down together, while not a panacea, can help many. Governor O’Malley’s legislation won’t stop the foreclosure crisis in Maryland, but it can help thousands of people stay in their homes.

Nick Gioia | www.NGRealtyGroup.com

RXR Realty said Wednesday it has refinanced $176 million in debt it borrowed to build the Ritz-Carlton Residences on Key Highway in Baltimore City.

New York-based RXR plans to use the funds to finish construction on the Inner Harbor waterfront condominiums and continue marketing the project to prospective buyers.

So far, just 23 of the project’s 190 condos have been sold, including three combined units to popular spy novelist Tom Clancy for $12.6 million.

“We have responded to the reality of the marketplace and successfully recapitalized the project, showing our confidence in its future along with our partners, investors, and the Baltimore City,” RXR CEO Scott Rechler said in a statement.

The developers celebrated the project’s grand opening in May 2008, but sales for the high-end units, with an original asking price in excess of $1 million, were dampened by a downturn in the residential condo market. In Harbor East, another team of developers suspended construction in January 2009 on the residential part of their Four Seasons Hotel and Residences project in Harbor East.

RXR has been struggling to refinance its debt for months, and a lack of capital has prompted a wave of lawsuits by contractors on the multi-million-dollar project. Among them was a suit brought by general contractor Bovis Lend Lease, which sued RXR in November 2009 seeking nearly $11 million in fees for its work on the Ritz.

“Bovis Lend Lease and RXR have experienced a close working relationship on this project from the beginning,” Bovis Chief Commercial Officer Mark Melson said in a statement. “Through it all, we never lost sight of our goal to create the most outstanding residential community in the city.”

The contractor’s suit, in the Circuit Court for Baltimore City, is pending the outcome of arbitration, according to court records.

RXR agreed to put more of its own money into the project as part of the refinancing deal, but the developer did not disclose details of the package.

Nick Gioia | www.NGRealtyGroup.com

The HAFA program is available for loans that otherwise meet the criteria for the Home Affordable Modification Program but can’t be restructured successfully. The guidelines issued recently as HAMP Supplemental Directive 09-09 only apply to loans not owned or securitized by Fannie Mae and Freddie Mac, which have their own short sale and deed-in-lieu incentive programs.

The new program won’t take effect until April 5, 2010, and servicers are expected to develop their own written policies to implement it. All HAFA loans must first be considered for HAMP modification, and data collected in that process can be used for assessing a possible short sale or deed-in-lieu transaction.

If the servicer hasn’t already done so, the borrower must be advised in writing about the availability of a short sale or deed-in-lieu and have 14 days to mull it over. Servicers are expected to perform a financial analysis to determine whether a short sale or DIL is in the best interest of the investor or mortgage insurer, but the HAMP net present value model does not project such cash flows.

The servicer has to get an independent property valuation that cannot be charged to the borrower, and a title check must also be completed. If neither a short sale nor DIL is available, written notice must be made to the borrower.

Before approving a short sale, the servicer has to determine the minimum net proceeds that will be accepted by the investor. Customary transactions costs must be taken into account. The program requires servicers to use a standard short sale agreement that outlines the responsibilities of the servicer and the borrower that includes a fixed termination date not less than 120 days after the agreement takes effect.

A DIL transaction must include the full release of the debt and waiver of all claims against the borrower. The borrower has to agree to vacate the property by a certain date, leaving it in clean condition with a marketable title.

Servicers may agree to a DIL even if the borrower hasn’t already made a good-faith effort to market the property, if that’s acceptable to the investor.

No Foreclosure

Servicers may initiate or continue with a foreclosure proceeding during the short sale or DIL process, but the foreclosure can’t be completed while assessing a borrower’s eligibility, waiting for the return of an executed agreement, during the term of a short sale agreement or pending transfer of the property during a DIL.

The borrower’s mortgage payment cannot exceed 31 percent of gross monthly income while a short sale or DIL is pending, and servicers may waive payment altogether. The borrower is responsible for clearing up any other liens on the property, although the servicer may negotiate on the borrower’s behalf. Second lien holders can get up to $3,000 from the proceeds of the sale to release the loan.

Following successful completion of a short sale or DIL, the borrower can get up to $1,500 to cover relocation expenses. Servicers are paid $1,000 to cover administrative and processing costs for these transactions. Investors will be paid a maximum of $1,000 for allowing up to $3,000 in short-sale proceeds to be paid to second-lien holders.

The program features a complete set of required standard documents and reporting requirements. As with HAMP itself, Fannie Mae is serving as the administrator for the short sale/DIL program and Freddie is the compliance agent.

Nick Gioia | www.NGRealtyGroup.com

According to a quarterly report from Freddie Mac on refinancing activity, fixed-rate loans are overwhelmingly preferred by borrowers, with 95 percent of all such deals being for a fixed-rate product.

“The lowest fixed-interest rates in more than a generation, coupled with the comfort that a constant monthly principal and interest payment provides the homeowner, are important drivers in fixed-rate product choice,” saId Frank Nothaft, chief economist for Freddie Mac, in a statement.

A 30-year fixed-rate mortgage was the most popular refinance choice in the fourth quarter. However, 15-year fixed-rate mortgages also attracted more borrowers seeking shorter terms to pay down their mortgage balance faster.

The average rate on a 30-year fixed-rate mortgage dropped to 4.97 percent in the week ending Feb. 11, down from 5.01 percent a week earlier.

A year ago, 30-year mortgages averaged 5.16 percent, Freddie Mac notes.

Low rates are attracting more homeowners than buyers. Since the start of the year, two out of three mortgage applications have been to refinance an existing mortgage, according to the Mortgage Bankers Association.

Low rates also are helping to boost sales. The National Association of Realtors says sales of existing homes in the United States rose 14 percent in the fourth quarter.

Homes sales across Greater Baltimore continued to improve in January, rising 9 percent, according to Rockville-based Metropolitan Regional Information Systems Inc.

The median sale price, however, declined 2.2 percent compared with the same month last year, according to the market research firm.

The average home sold for $225,000 in January, compared with $230,000 during the period last year.

In January, 1,103 homes were sold in Greater Baltimore — Baltimore City, Anne Arundel County, Baltimore County, Carroll County, Harford County and Howard County. That’s up from 1,015 during January 2009.

Nick Gioia | www.NGRealtyGroup.com

When we talk about home ownership we usually mean giving a bank a mortgage. We borrow money, our home becomes a lien and if we don't pay they take it away.  We don't have any equity in the home until it is worth more than what we owe on it.

This is just an opinion but I don't like 30 year mortgages.  Twenty year 20 year mortgages make more sense, and shorter term is even better.  They are less expensive and it doesn't take as long to accumulate some equity and over the life of the loan more money is put toward principal and less is paid in interest.  The idea here is that more money is being put toward actually owning the home.

Most people don't think in terms of  paying off a home mortgage but it can be done. Using a $100,000 home mortgage as an example, take a look at a 30 year loan Vs. a 20 year loan:

$100,000 Home Loan

Payment $536 on a 30 year fixed at 5% = $193,256

With first payment the borrower is mostly paying interest and after 120 payments,  the borrower is still paying more interest each month than principal.   This is just an example.  The actual payment would probably include 1/12 of the annual home owners insurance and 1/12 of the property taxes. After it is all paid off the borrower will have paid $193,256

Payment $659.96 on a 20 year fixed at 5% = $158,390

In this example it is a 20 year loan at the same interest rate with the same amount borrowed.  Yes the payments are higher, but  there is a savings of $34,896 and after the very first payment the borrow has twice as much equity as he would have with the 30 year loan.

I know that people don't think this way when they buy a house and if they did I suspect that the thirty year mortgage would not be as popular as it is. The payments are lower with the thirty year and for most that means they can afford a more expensive house. A more expensive house is wonderful but owning one free and clear has some advantages too.

William Sohan, Academy Mortgage Corporation | 410-963-2308

In 1929, Ednor Gardens was advertised as "the favorite residential suburb for those who appreciate comfort, beauty and modern conveniences." Ednor Gardens and Lakeside continues to offer its residents these qualities. A quiet green enclave with easy access to downtown, homes in their neighborhood are among the best values in Baltimore City.

Ednor Gardens-Lakeside is a neighborhood of great architectural diversity. The homes in this community range from large single family homes to semi-detached and townhouses in a number of different styles. The architectural styles range from individual homes built in the Georgian style, Spanish influence and Brick Saltboxes, to several styles of semi-detached homes and a number of row homes built in English Tudor, French Norman and more traditional styles.

For the first time in fifty years, Ednor Gardens Lakeside and surrounding neighborhoods are sleepy and quiet - no longer echoing with the cheers of sports fans from the now razed Memorial Stadium. With Memorial Stadium gone, the tightly woven streets, white sun porches and dainty yards of Ednor Gardens and Lakeside are now the center of attention in this northeastern neighborhood. Some of the best deals on Baltimore City homes can be found along these streets that formerly provided a charming backdrop for fans streaming to O’s and Colts games.

A majority of our homes are owner-occupied, evidence of our belief in the value, stability and affordability of the area. The community is a healthy mix of both family and single owners with a variety of lifestyles. To learn more about Ednor Gardens Lakeside please visit our neighborhood page.

Nick Gioia | www.NGRealtyGroup.com

It may not be the most widespread measure of housing prices, but if you want to follow a powerful driver, look at rents.

Specifically, it's the rents Americans pay on condos, apartments or houses that are about the same size, and share the same neighborhood as your ranch or colonial, that in the end determine what your house is worth.

"If you look at the trend in rents to see where housing prices are headed, you're looking at the right measure," says Yale economist Robert Shiller.

Deutsche Bank demonstrated, in a 63 page report released on Thursday, how steady or even falling rents have pulled down housing prices, to the point where in many markets it costs about the same amount to own as to lease. That's a golden mean that America hasn't seen in almost a decade. The DB research also offers convincing evidence that the wrenching adjustment in housing prices is finished for much of the nation, with a bit more pain to come in selected areas.

Housing Outlook for 2010

Before I get to the numbers, let's examine why rents exercise a kind of gravitational pull over home prices.

In normal times, people won't pay much less to lease a house than to own it. After all, if you're paying rent instead of a mortgage and taxes, you still get to enjoy the same rec room and chef's kitchen. So the surest sign of a frenzy appears when owning becomes far more expensive than renting. That's precisely what happened during the last bubble.

And the surest sign that prices have fully adjusted arrives when the ratio of what people pay in rent versus what owners spend on the same property returns to its historic average.

That brings us to the Deutsche Bank studies. Its REIT research team first established a benchmark for a "normal" ratio of rents to ownership costs -- what it calls ATMP, or after-tax mortgage payment -- for 53 U.S. cities.

On average, DB found that families across America were spending about 87% as much to rent as to own in 1999. Hence, they were traditionally willing to pay a premium as homeowners, though not a big one.

But by mid-2006, with the craze in full swing, the figure fell below 60%. At that point, Americans were spending an incredible 66% more to own than to rent. It was far worse in the bubble markets: In Las Vegas, Phoenix and Miami, homeowners were paying twice as much as renters, and in San Francisco and Orange Country, owners' monthly payments were triple those of their neighbors with leases instead of mortgages.

So how did that happen? During the bubble, rents -- the real engine that drives values -- were inching along at more or less their usual pace. From 1999 to 2007, apartment rents increased only 32%. But home prices jumped more than three times as fast, around 105%.

DB reckoned that housing prices are more or less reasonable when the ratio returns to its 1999 level. Why 1999? Because the ratio was relatively stable throughout the 1990s, and it was the year the steep rise in prices began in earnest.. At the end of the third quarter of 2009, the overall number stood at 83%, meaning renting was just a tad more attractive than owning.

But the picture varies widely from city to city. In 15 of those 53 metro areas, including St Louis, Indianapolis, and remarkably, Phoenix and San Diego, it's now higher than in 1999, meaning that homeowners' costs actually dropped versus what renters pay, courtesy of the steep decline in prices. In California's San Bernadino and Riverside Counties, it now costs 10% less to own than to rent; in 2006, owners paid more than twice as much as renters.

In another 14 cities, a list encompassing Boston, San Jose, and Chicago, the cost of owning exceeds that of renting by 6% or less. In the remaining 24 markets, housing is still moderately to extremely overpriced. The biggest problem areas are Baltimore, Long Island, and Seattle, where the ratio is still between 24% and 32% above the 1999 benchmark.

What does that mean for future prices?

Given that analysis, it's likely that prices will fall another 5% or so nationwide. The drop could even be slightly greater. One reason: Rents, the force that govern housing prices, are still falling.

In 2009, apartment rents dropped 2.3%, and the fall continues. And enormous adjustments are needed in still-exorbitant markets such as New York and Baltimore. Thankfully, the improving economy and decline in the rate of job losses means that rents should soon stabilize and could even start increasing by the end of 2010.

But fortunately, for most of the U.S., the sudden, terrifying fall in prices worked its own black magic. The numbers are back in alignment, or close to it. It had to happen. That's what rents, housing's great master, were telling us all along.

Nick Gioia | www.ngrealtygroup.com

Nationally, foreclosures fell 10 percent in January from December but were 15 percent higher than a year ago, RealtyTrac reported.

Foreclosures in neighboring Washington, D.C., rose by 12 percent from December, but were 7 percent lower than one year ago. Similarly, Virginia foreclosures rose 14 percent in January compared with the month before, but were 2 percent lower than in January 2009.

Maryland continues to have a highest mortgage default rate of the three jurisdictions with 5,229 homes in foreclosure, or one in every 446 households. The greater majority of these foreclosures came from Baltimore City and Howard County.

D.C. has the fewest number of foreclosures among the three jurisdictions with just 192, or one in every 1,486 households. Virginia has surpassed Maryland for the total number of foreclosures with 5,236, or one in every 631 households.

Nationwide, there were 315,716 foreclosures in January, one in every 409 households.

Nick Gioia | www.NGRealtyGroup.com

1.  The very first step is to decide if you can sell the home for enough money to pay off the mortgages. If so, list it at that price, even if it is debatable. Some lenders ask for a history of the marketing of the property. If you can show that you tried to sell it for enough to pay off the loans, that will help your presentation for a short sale. In other words, your first step is to try to avoid the short sale all together.

If it is clear that the market will not support a regular sale, explain the entire process to the seller to be sure they are willing to go through everything it takes to get it sold. There is nothing worst than doing all the work of a short sale, then failing to close. Even before you list the house have the sellers get everything they will have to submit to the bank.  Many times it is the same information they gathered to get a loan. 

2. The sellers have to qualify for the short sale. Before you list the home, be sure they have the financial hardship that will enable to lender to cooperate with the short sale. If the sellers have plenty of income, and plenty of assets, the bank will not be cooperative, asking the sellers to bring money to closing to pay off the rest of the debt, or to sign a note to make payments after the sale closes. If the sellers have no way to pay the balance of what is owed to the bank, you will have an easier time convincing the bank to accept the short payment.

Even before you put the house on the market, ask the seller to find all the financial information that you will need to supply to the bank. Every bank ask for different items, but typically they want a hardship letter, a financial form showing their assets and liabilities, two month of bank statements, their last two pay stubs as well as copies of the mortgage statements. If the sellers are self employed, you may need two years of tax returns.

3.  Get a letter of authorization that allows the bank to talk to you in the same manner that they would talk to the seller.  Send it to the bank when you list the house, as most lenders take days and sometimes weeks, to review these documents.  Some banks have odd requirements for what those letters have to say, and the only way to find out about those requirements is to send in the letter and have them respond to it.

4. Find who you will be dealing with at the bank.  Some are Loss Mitigation departments, others have different names.  Most of them will not talk to you until you have an offer.  If they will, find out what they want, how they want it done, and how you can make their job easier.   Try every way you can to avoid dealing with the collections department, they get bonuses for getting the loan reinstated but get penalized if the property does not get back into performing status, so they usually are not helpful for short sales.

5. Research the title to the property to find out all the liens, judgments, unpaid taxes and assessments.  Get the amount necessary to pay off each of the liens, e.g. order the payoff statements from the mortgages and contact the attorneys for the other lien holders.  Many Realtors will not do short sales if there is more than one mortgage.  My record is three mortgages, one judgment and unpaid property taxes, the second place finisher was one mortgage, four judgments and unpaid property taxes.   If the situation is too complex, either walk away, or call me.

6.  When you put the property in the MLS, you have to price it in accord with the time you have .  If the seller is facing foreclosure, you do not have time to test the waters, just price it aggressively.  Even if you are not pressured, you still want to be competitive.  Look at the recent sales in the last three months, so you are aware of what it takes to be sold.  Also look at the homes for sale to be sure you stand out from your competition.  You need a reason for a buyer’s agent to put up with all the trouble that comes with a short sale, so you need at least an appealing price.

7.  Get a buyer, and you hope for a fair market value.  But, take the best you can get.  The review time by the lender is long, so get it started with any reasonable offer.  If you get a better offer during the review period, you can submit it.  The contract provisions have to include a Short Sale Addendum that provides that the sale is contingent on the approval of the lender.  If you do not have that provision in your contract, your sellers are signing a contract that obligates them to pay the “short” amount at closing. 

One of the ironies of a short sale is that lenders take long to review them, but when they approve them, they want them to close quickly.  So, try to get a contract that has a quick closing, but have the time for the closing start when the bank approves the sale. 

8. Develop a HUD-1 closing statement.  If you are in an area that does not use a HUD-1, get some software and develop one.  You are dealing with a bank that is reviewing massive numbers of short sales, so you have to put the information in a format that is easy for them to review.  Put the HUD-1 in with the rest of the short sale package. 

9. Send the short sale package to the bank.  How you send it is extremely important, and we will discuss it elsewhere in more detail.  Watch out for a bank that requires you to fax it to a number that is constantly busy.  If they do, fax it in the middle of the night, or send it to one of the supervisors in the loss mitigation department.  Send a separate copy by registered mail, requiring a signature to prove that it was received.  This prevents the loss mitigation department from claiming that they never received your short sale package.

10.  Some of the traditional documents for a short sale package are the following:
a. Fax transmittal

b. Letter of Authorization (to talk with you)

c. Cover letter discussing the offer

d. The complete contract of sale

e. HUD 1 with an estimate of the payment to the bank

f. Listing agreement

g.  History of the Listing: Dates of the listing and price reductions

h. Form showing the seller’s financial condition, such as a financial statement or worksheet

i. Hardship letter describing the reason for the financial problems

j. Last two pay stubs. if employee, profit and loss if self employed

k. Last two bank statements for every bank account, include all pages

l. Last two years tax returns, particularly if self employed, including all schedules

m. The pre-approval letter for the buyer’s loan or verification of funds on deposit for a cash buyer

n. recent mortgage statement to help identify the loan.
This is where you have to know what the bank wants.  For example, Bank of America normally wants only the hardship letter, letter of authorization to talk to the Realtor, the HUD-1 and short financial statement.  Give them what they want, and no more. Some lenders will ask for statements of all accounts, such as IRAs, stock brokerage and similar accounts. If they ask, provide them. If they do not ask, do not volunteer them.

11.  If there are judgement liens, send the purchase contract as well as the HUD 1 to the lien holders along with a letter describing your offer to pay their debt for less than the amount owed.

12. Call to see if the package has been received and put into the system. You will need the loan number,  name of the seller/borrower,  the address of the property,  and sometimes the last four digits of the seller/borrower’s social security number to get past the initial person that you talk to.  You have to be sure your package gets into the system.  My record is sending the package four times before it was finally registered properly. 

13.  Call regularly to see when the package is assigned to a loss mitigation negotiator.  The lender will tell you it makes no difference if you call.  In fact, your package will languish unless you see that it is moved along, and each time you call, someone will look over what you sent to tell you if they need something more.

14.  Hopefully, the lender will order a Broker’s Price Opinion (BPO) before the case is assigned to a negotiator.  Some will only order the BPO when the negotiator takes the case.   The BPO is what the negotiator will use to determine if the price offered is close to the market value, so the lower the BPO price, the more likely your offer will be accepted.   Be sure to point out the issues with the property and problems with the market to try to get the BPO price to be reasonable.  The best practice is to have pictures of the problems and two bids for repairing them.

15.  Occasionally, you get to talk to the negotiator.   Other times, they only send emails.  Other times, they will have no contact with you at all, so be sure that your letter explaining the transaction is clear and complete.

16. Sometimes you can learn the BPO price.  Most of the time, you cannot.  If you can communicate with the loss mitigation negotiator, show the merits of the offer and how it gets the bank a better result than all their other choices.  The negotiator has a huge effect on your offer, so try to get their support, and definitely do not alienate them.

17.  Find out who is taking the loss.  If you are dealing with a bank, is it their loan, or are they representing an investor.   Is there a guarantor or mortgage insurance, so the bank will get paid but the guarantor will take the loss.   You need to know who is making the decision, so you can appeal to them.

18.  Keep calling to see how it is progressing.  Many banks will not notify you of their decision.  The only way you will find out is when you call the loss mitigation department.
 
19.  Get the response to your proposal.  First mortgage holders will generally take 80 to 100% of the value established by the BPO.  The second mortgage will generally take 5-20% of the outstanding balance of the loan.  The third mortgage holders will generally accept 5 to 10% of the balance owed.  Depending on the priority of a lien, they will typically take 5-10%  of the debt.

20.  If they do not accept your offer, see if they will give you a counter offer.  Some lenders are extremely difficult when they just turn down your proposal and give you nothing to aim at.  If you get a specific counter offer, see if your buyer will accept it.  If so, send the revised contract to the loss mitigation negotiator.  If not, see if the buyer will give you a counter offer to present.  The revised offers will need a revised HUD-1. 

21.  During the negotiations, you may need to escalate to the supervisors and their supervisors.  Remember, if you do that, you will alienate the loss mitigation negotiator, so figure you have lost their support by going over their heads.   If you cannot get the bank approval and their is a guarantor (or mortgage insurance) move your negotiations to the guarantor.  If you have problems with the bank, find the investor who actually owns the loan, and negotiate with the investor.

22.  As a part of the negotiations, you will also negotiate how the lender will report the short sale to the credit reporting agencies.  This is covered in more detail on this site.   You will also be negotiating whether your short payment will be in full satisfaction of the debt, or if the lender will be able to pursue the seller after the sale closes.  Occasionally, the lender will want the seller to execute an unsecured note promising to pay some of the balance due.

23.  Watch out for commissionectomy!  Many banks will try to take your money, even after you have done all this work to get them paid. Look at all these steps that you are doing to make the sale work, but many banks only look at their loss.  To counteract this tactic, refer to the Servicing Guide of Fannie Mae saying it is against their policy to reduce the commission on a pre-foreclosure.

24.  If the offer is approved, you must get the approval in writing with all its terms, then give it to the attorney or escrow that is closing the sale.   The lender will require that they approve the final HUD-1 before the closing of the sale, and specify how the funds will be sent.  If the settlement will not only release the lien but also eliminate the balance of the debt, be sure to get that in writing.

25.  If you do not get an approval, but learn what the lender(s) will accept, adjust your asking price to make it more likely that you will get offers that match the lender(s) requirements.

26.  Once the bank has approved the sale, all the items that are normally done when a seller signs the contract are accomplished.  Most of the time, the bank will insist that the buyer take the property “as is” because they do not want to have any more money taken out of their proceeds.  You may have a problem closing if the buyer objects to the condition of the property and the seller has no money to do the repairs.

27.  Have the attorney or the escrow officer close the sale and pay off the mortgages and liens.  The seller will probably receive a 1099 from the transaction reporting to the Internal Revenue Service how much of the loan was not paid off.  There may be tax consequences from having a portion of the debt forgiven, which is covered in detail in the post Income Tax and Short Sales.  There may also be tax consequences from the sale itself, unless the gain is not taxed due to Section 121 of the Internal Revenue code (sindle tax return can make $250,000 and joint tax return can make $500,000 profit and pay no tax)

28. Celebrate your success.

Nick Gioia | www.ngrealtyGroup.com