Fannie Mae has decided that certain distressed borrowers who agree to give up their homes as an alternative to foreclosure should get a second chance at homeownership sooner.

The policy change, announced Wednesday, is meant to reward borrowers for cooperating with their loan servicers and to support the housing market.

The government-sponsored enterprise told lenders that for borrowers who grant a deed-in-lieu of foreclosure, it will shorten the minimum waiting period to be eligible for a new Fannie mortgage. Currently such consumers must wait at least four years. Beginning with applications submitted July 1, the period will drop to two years, provided the borrower puts at least 20% down on the new home.

Credit experts called the change an acknowledgement that borrowers who work with their lenders are better risks than those who simply mail in the keys.

“It makes sense to be a little bit kinder to borrowers who have made an effort to do something about the loan and did not just walk away and say it was the lender’s fault,” said John Ulzheimer, the president of consumer education at Credit.com Inc., a lead generator. “Someone who fights to complete a short sale is likely to be a continuing strong credit risk going forward if they are not saddled by a disadvantaged mortgage.”

Still, the change is not a giveaway. Fannie also set stricter parameters for borrowers who have tried to rehabilitate themselves. If they can make only a 10% down payment on the new home, the wait period remains four years after granting the deed-in-lieu.

Fannie officials would not discuss the changes beyond the lender bulletin, which said the GSE’s goal was “to support overall market stability and reinforce the importance of borrowers working with their servicers when they have difficulty repaying their debt.”

The announcement comes on the heels of the Obama administration’s Home Affordable Foreclosure Alternatives program, which began April 5. It aims to streamline the complicated processes of short sales and deeds-in-lieu. The program is aimed at homeowners who do not qualify for a loan modification and industry experts expect a dramatic increase in such “preforeclosure actions” this year and next.

In a short sale, the home is sold for less than is owed on the mortgage and the lender accepts a discounted payoff.

Mortgage lenders have expressed concern that a dearth of homebuyers will cripple a housing recovery. At least 6 million homeowners have gone through a foreclosure in the past three years and another 3 million are expected to this year, according to RealtyTrac Inc., an Irvine, Calif., data tracker.

Such borrowers are essentially shut out of the housing market because, with a foreclosure in the last five years showing up on their credit report, they are not eligible for loans that can be sold to Fannie and Freddie Mac.

“People in trouble don’t really understand the credit system,” said Rayman Mathoda, the president and chief executive of AssetPlan USA, a Long Beach, Calif., firm that arranges short sales. “From a credit standpoint, a short sale, a deed-in-lieu and a foreclosure are all the same thing.”

Mathoda has teamed up with other mortgage executives to lobby the Treasury Department and the GSEs to adopt a plan, called Second Chance, that would give a wide range of borrowers who have lost their homes the chance to be rehabilitated after two years if they undergo credit counseling. “A short sale is a proactive resolution to a credit problem, while a foreclosure is reactive,” she said.

Holders of secondary financing can derail process

Are you wondering why it takes so long to get short sales approved? The real reasons may be very different from what you might believe.

It would seem when prices are down and millions of homeowners owe more than their home is worth that it is in everyone’s best interest to approve a short sale. All the more so when Mortgage Bankers Association statistics show that a foreclosure costs the lender 30 percent more than a short sale.

As any agent or consumer who has tried to close a short sale offer will tell you, closing a short sale is usually a very long and complex process.

In July of last year, a Washington Post article stated that Bank of America was going to streamline its short-sale process so that it would only take seven days to obtain a short-sale loan approval.

Judging from the numerous blog posts from both consumers and agents, this has yet to occur in a large portion of the short-sale market. To be fair, any lender could complete the approval process in seven days, but the delays often result from other parties in the transaction.

One of the biggest issues in closing short sales is secondary financing. If the holder of the first mortgage is going to have to take a loss, it usually is reluctant to give any type of payoff to another lender who is in second position.

The holder (or holders) of the secondary financing can refuse to cooperate unless it receives part of the sale proceeds.

A common request that many secondary lenders seem to be making is for 10 percent of their loan amount. If the loan goes to the loss recovery department, the request can be $5,000 plus 10 percent of the loan balance.

What’s messy here is that the holder of the first mortgage may have a cap on what it will allow to be paid to any secondary lien holders.

The challenge for agents and consumers is how to negotiate through this complicated maze. If there is secondary financing on the property, one strategy is to approach the second mortgage holder first to see what its requirements are in terms of payoff.

You must also know what the first mortgage holder will require. Most lenders have specific guidelines about how big of a reduction they are willing to take, as well as how much can be paid to other lien holders.

Knowing this information ahead of time is critical if you want to avoid wasting your time on a transaction that won’t ever close.

An additional twist in this scenario is that many first and second mortgage holders are now checking the homeowner’s credit. If the homeowner is keeping up other payments and is applying for a short sale, the lender may not agree to the short sale unless the homeowner is willing to sign a promissory note for the shortfall.

Otherwise, the lender may choose to foreclose, which could force the borrower into bankruptcy.

Complicating issues even further, many borrowers who placed less than 20 percent down on their property have private mortgage insurance (PMI).

Here’s an example of PMI: Assume that a borrower is putting 10 percent down and obtaining a 90 percent loan. The lenders normally would require a 20 percent downpayment and would give an 80 percent new loan. PMI insures the 10 percent “difference” between the borrower’s down payment and what would have been an 80 percent loan amount.

What seems to be a common source of frustration for both agents and consumers is that the PMI companies have joined the lender in asking homeowners to sign a promissory note for the shortfall amount.

PMI companies are insurance companies. Like other insurance companies, it’s simply good business for PMI companies to limit their losses and payout. If the consumer will agree to the promissory note, then that reduces the PMI company’s losses, which looks better on its balance sheet.

On the other hand, if the PMI company agrees to the short sale, it has to make an immediate payout on the lender’s claim. By refusing to approve the short sale, the PMI company forces the lender to foreclose on the property.

The foreclosure process can take months to complete, and then even more time before the property sells and closes as a bank-owned property (also known as real estate-owned or REO). The net effect for the PMI company is that it puts off paying its claim for 12-24 months.

Also, if the market improves, the lender’s claim may actually be less one to two years from now than it is today.

Here’s the final zinger, however.

Suppose that a property has declined in value by 20 percent, completely wiping out the holder of a 10 percent second mortgage. The holder of the first mortgage offers the holder of the second a 5 percent payout to close the transaction.

The second trust deed holder says “No,” because if they file a claim for mortgage insurance they get the full 10 percent. Thus, a number of major lenders who have made equity loans may have an additional incentive not to agree to a short sale.

This may explain why so many holders of secondary financing are unwilling to agree to a short sale and prefer a foreclosure instead.

To be fair, there are many reputable lenders and companies that are doing everything they can to help consumers. Sadly, as an agent or a consumer, you have no way of knowing what the various requirements will be with the lenders you are working with on your short sale.

WASHINGTON — The government launched a new effort yesterday to speed up the time-consuming, often-frustrating process of selling your home if you owe more than it’s worth.

The Obama administration will give $3,000 for moving expenses to homeowners who complete such a sale — known as a short sale — or agree to turn over the deed of the property to the lender. The effort is designed for homeowners who are in financial trouble but don’t qualify for the administration’s $75 billion mortgage modification program.

Owners will still lose their homes, but a short sale or deed in lieu of foreclosure doesn’t hurt a borrower’s credit score for as much time as a foreclosure. For lenders, a home usually fetches more money in a short sale than a foreclosure. And the bank avoids expensive legal bills, cleanup fees, and maintenance costs that follow a foreclosure.

“It’s very traumatic and embarrassing and frustrating to go through a foreclosure,’’ said Laurie Maggiano, policy director of the Treasury Department’s homeownership preservation office. With a short sale, she said, “your financial issues are your own problem and not neighborhood conversation.’’

Falling home prices and lost jobs have forced many sellers into this position. For example, in Orange County, Calif., short sales made up about 26 percent of the market in March, compared with 17 percent a year earlier, according to data complied by Altera Real Estate, a local brokerage. In the Minneapolis-St. Paul metro area, about 12 percent of all deals since October were short sales, up from about 8 percent a year earlier, according to the Minneapolis Area Association of Realtors.

The expanded incentives will help accelerate short sales, said Mark Zandi, chief economist at Moody’s Analytics. He expects 350,000 homeowners nationwide to use the program through the end of 2012, more than double his earlier forecast.

For buyers, though, short sales can be a great opportunity.

Marco Cappelli, 49, a winemaker from Northern California, is planning to buy a short sale this month in the Sierra Nevada foothills. He and his wife are paying $214,000 for a property that had been listed at $270,000. They plan to fix it up and rent it out to vacationers.

Along with the financial incentives, the new government program makes another key change. Mortgage companies will have to set their minimum bid before the house is listed for sale. If the offer is above that, the lender must accept it.

That’s a big change from current practice. Lenders generally don’t calculate how much money they are willing to accept on a short sale until they have an offer in hand, causing long delays before the sale is approved

The consensus forecast among private and government economists for the main barometer of the U.S. economy’s health, gross domestic product or GDP, is for a very solid 3 percent during the first quarter.

Alan Levenson, chief economist for T.Rowe Price Associates, said the latest reports are “indicative of a labor market and economy that is in the midst of recovery.” That’s hugely important for real estate because expanding employment created by a rowing national economy are the essential fuels to power housing demand and sales.

Even though harsh weather conditions knocked the wind out of pending home sales and real estate shopping in many areas during January and February, analysts say the spring and summer market should be strong. Lawrence Yun, chief economist for the National Association of Realtors, says the $8,000 and $6,500 federal home purchase tax credits that expire at the end of April for signed contracts — and the end of June for closed deals — should squeeze a lot of sales volume into the spring and early summer months.

Assuming slow but steady improvement in the jobs picture, Yun forecasts a solid second half of the year as well. On the home pricing front, evidence continues to mount that in most parts of the country, home values have either bottomed out or have turned positive. The most recent Case- Shiller index numbers on the top 20 metropolitan markets bear that out — and last week’s Zillow home value report found values essentially flat on a national average basis. They were down by just three tenths of a percent, but up in some major markets of note. For example, Boston’s home values are up nearly two percent year-over-year, according to Zillow, and Los Angeles, San Diego, Denver and Philadelphia have registered gains after long periods of negative numbers.

Two other statistical hints that conditions are improving: The difference between listed prices and selling prices of home nationwide is now smaller than it’s been in a year, according to real estate research site Trulia.com. And Realty Trac fond that foreclosures, which are clearly still a massive drag on the market — dropped by two percent last month — the second straight month of decline. In a tough market, I guess we should appreciate even the smallest of improvements.

Starting in early summer, the Federal Housing Administration is tightening lending standards in an effort to bolster its dwindling reserves. The new lending standards will make it tougher for some prospective buyers to purchase a home by requiring a higher down payment than the typical 3.5 percent for some borrowers, higher insurance premiums and reduced seller concessions.

Securing FHA-insured mortgages are attractive to borrowers because down payments are only 3.5 percent. Most conventional loans now require 20 percent down, keeping many creditworthy borrowers on the sidelines.

New Guidelines The new rules — which are temporary and take effect this summer — come after more than a year of stringent standards from lenders. Among them:

Better Credit Scores — New borrowers will have to have a minimum credit score of 580 to qualify for a 3.5 percent down payment. Previously, there was no minimum score. Those with lower scores will have to make at least a 10 percent down payment. The average credit score of FHA-insured borrowers is 693. Higher Insurance Premiums — Buyers who get an FHA-insured loan will soon have to pay a higher initial insurance premium. The new premium will be 2.25 percent of the value of total loan amount, up from 1.75 percent now. A $100,000 mortgage would require a payment of $2,250, or $500 more. But buyers can roll the added cost into the loan amount.

Reduction in Seller Concessions — Starting this summer, sellers will not be able to offer as much help to buyers to pay their closing costs. The maximum amount of assistance will drop to 3 percent of the value of the property, from the current 6 percent. FHA removes anti-flipping rules Another FHA rule change could help foreclosure-plagued markets like Las Vegas, Phoenix, Miami, Detroit and Los Angeles, making it easier for investors to “flip” houses to buyers who use FHA-insured loans.

Effective Feb. 1, the federal government will waive for one year an FHA anti-flipping rule that prohibits insuring a mortgage on a home owned by the seller for less than 90 days.

The new rule lets investors buy today and re-sell as quickly as possible. The move is to allow REO homes purchased by investors to resell as quickly as possible, helping stabilize real estate prices and revitalize neighborhoods after the U.S. housing market collapse.

This new rule will open up a new pool of homes to buyers. Waiving the 90-day flip rule is being heralded by many real estate investors as a boon to their ability to buy, rehab and resell foreclosed homes on a more efficient time line.

Foreclosure search site RealtyTrac and new real estate networking site RealtyJoin announced a joint marketing partnership this week. “RealtyTrac will promote RealtyJoin to its members and site visitors as a social network for people interested in connecting with other real estate investors.

RealtyJoin will promote RealtyTrac as a resource for real estate investors looking for information and analytical tools for foreclosure and bank-owned properties,” said RealtyTrac spokesperson Tammy Chan.

Each site will link back to the partner site, Chan said. There are also plans to incorporate an RSS feed from RealtyTrac at the RealtyJoin site and eventually to host a community forum within RealtyJoin by RealtyTrac, and some of RealtyTrac’s foreclosure and real estate trend information may be incorporated into the RealtyJoin site, Chan added. RealtyJoin launched in late January.

Buyers often shy away from considering short-sale listings, either because they’ve had a bad experience or have heard horror stories about the deals that take forever and never close. Buyers’ agents sometimes steer their clients away from sales that are subject to the lender agreeing to accept less than what they’re owed, because it can mean a lot of work for nothing.

Short sales will probably be a part of the home-sale market for the next couple of years. They provide opportunities for buyers, particularly those attempting to buy a home in a low-inventory market.

Before you enter into a contract to buy a short-sale listing, make sure that you understand the process and set your expectations accordingly. One of the biggest differences between a short sale and a conventional sale is that short sales take longer. Although many lenders are streamlining the short-sale process, it can still take 45 days from contract acceptance to receive lender approval.

Make as clean an offer as possible, but be sure to include contingencies for inspections and appraisal and loan approval. Your contract should also include a short-sale addendum that includes a time frame for lender approval.

Listing agents often want the buyers’ contingencies to begin when the offer is accepted by the seller. However, buyers usually prefer to pay for inspections and the appraisal after lender approval. As in all home-sale transactions, these items are negotiable.

Your short-sale offer will stand a better chance of lender approval if you are preapproved for financing. Include verification of the funds needed for your downpayment and closing costs and a preapproval letter from your lender with your offer. The ratified purchase offer and supporting documentation from the seller and listing agent will be submitted to the lender.

Short-sale approval is often contingent on the buyer and seller making concessions. This means that the lender could ask the buyers to pay a higher price. The seller could be asked to bring money into escrow so that the lender nets more from the sale than the contract provides. If either party is unable or unwilling to do so, the transaction will fail unless the lender reconsiders.

HOUSE HUNTING TIP: Regardless of how committed you are to buying, it’s not wise to bid on every short sale you come across that might work for you. Approximately one-third of the short-sale listings on the market don’t close, either because the lender won’t approve a realistic price, or because there are multiple liens secured against the property. Generally, if there are more than two liens, the likelihood of the short sale going through is slim.

Don’t look at a short-sale listing until your agent has talked with the listing agent to find how much ground work has been done. Does the listing agent have the sellers’ written authorization to negotiate on their behalf with the lender? Has the listing agent been in touch with a representative of the lender’s loss mitigation department? Have the sellers provided all the documents that will need to be submitted to the lender when an offer is accepted, such as a financial statement, hardship letter, bank statements, pay stubs, etc.

Stay away from short-sale listings where the listing agent doesn’t have the seller’s cooperation. For instance, the sellers may not have their paperwork in order to present to the lender. Understandably, it’s difficult for most people to face losing their home and good credit. But, without the sellers’ cooperation, the sale won’t go through.

THE CLOSING: Short sales require a lot of patience, a cooperative effort between the buyers, sellers and agents involved, and frequent communication to keep everyone involved in the process up-to-date.

First it was the residential real estate collapse. Now comes the commercial real estate collapse! Commercial has lagged behind residential by 12 to 18 months, but is now here. Commercial foreclosures are all over now.

This will be much bigger than the residential situation we have seen over the past three years. Commercial properties are financed differently than residential. They typically have mortgages on them that balloon (need to be paid off) in 3,7, or 10 years. When these loans come due, they are typically refinanced. In today\’s depreciating market, a lot of these commercial properties will not qualify for refinancing. The economy has prompted businesses to downsize or close putting more pressure on commercial property owners. Often rent reductions are given to attempt to keep tenants. Even with reductions, many businesses are closing their doors. Third thing is there are no government programs to help businesses keep their properties. (unless it is a bank or car manufacture!)

If the owners cannot refinance or pay off the mortgage, the owners may try to hang on, but foreclosure is often the outcome.

These properties can then be sold at great prices and are often snapped up by investors. They often lease them out at a positive cash flow.

Commercial property owners may be held responsible for the difference amount forgiven for the short sale, and the amount forgiven may be required to act as income on their tax return. Commercial property owners should contact their tax and legal teams before continuing to see how this may impact their overall tax and financial situation.

This is the clear solution as the U.S. market goes through a major restructuring. The opportunities for profit for investors and removing liabilities for owners will be huge.

 WASHINGTON – In an effort to stabilize home values and improve conditions in communities where foreclosure activity is high, HUD Secretary Shaun Donovan today announced a temporary policy that will expand access to FHA mortgage insurance and allow for the quick resale of foreclosed properties. The announcement is part of the Obama administration commitment to addressing foreclosure. Just yesterday, Secretary Donovan announced $2 billion in Neighborhood Stabilization Program grants to local communities and nonprofit housing developers to combat the effects of vacant and abandoned homes.

“As a result of the tightened credit market, FHA-insured mortgage financing is often the only means of financing available to potential homebuyers,” said Donovan. “FHA has an unprecedented opportunity to fulfill its mission by helping many homebuyers find affordable housing while contributing to neighborhood stabilization.”

With certain exceptions, FHA currently prohibits insuring a mortgage on a home owned by the seller for less than 90 days. This temporary waiver will give FHA borrowers access to a broader array of recently foreclosed properties.

“This change in policy is temporary and will have very strict conditions and guidelines to assure that predatory practices are not allowed,” Donovan said.

In today’s market, FHA research finds that acquiring, rehabilitating and the reselling these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of sellers to allow contracts from potential FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant over a 90-day period of time.

The policy change will permit buyers to use FHA-insured financing to purchase HUD-owned properties, bank-owned properties, or properties resold through private sales. This will allow homes to resell as quickly as possible, helping to stabilize real estate prices and to revitalize neighborhoods and communities.

“FHA borrowers, because of the restrictions we are now lifting, have often been shut out from buying affordable properties,” said FHA Commissioner David H. Stevens. “This action will enable our borrowers, especially first-time buyers, to take advantage of this opportunity.”

The waiver will take effect on February 1, 2010 and is effective for one year, unless otherwise extended or withdrawn by the FHA Commissioner. To protect FHA borrowers against predatory practices of “flipping” where properties are quickly resold at inflated prices to unsuspecting borrowers, this waiver is limited to those sales meeting the following general conditions:

• All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
• In cases in which the sales price of the property is 20 percent or more above the seller’s acquisition cost, the waiver will only apply if the lender meets specific conditions.
• The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.

Specific conditions and other details of this new temporary policy are in the text of the waiver, available on HUD’s website.

In responding to the monthly REALTOR® Confidence Index Survey, REALTORS® frequently provide written comments on their understanding of the state of the housing market in addition to answering specific questions. This information is generally of a qualitative nature. This month we received over 1,000 comments, which are summarized below along with a sample of the specific comments received.

The most notable comments were on short sales and foreclosures. Short Sales are a matter of extreme frustration to the respondents: the sales appear to involve inordinate delays, and sales frequently fail to close-with the property subsequently going to foreclosure and selling for less than the short sale offer. The foreclosure market is active, frequently with multiple bids although at significantly lower prices than bids for comparable non-distressed properties. Credit, condos, and appraisals continue to have a number of issues, and there is increasing concern over FHA tightening of lending policies in the condo markets.

Appraisals
The Appraisal process continues to be a major problem. Respondents noted that the use of appraisers unfamiliar with a market area coupled with a perceived focus by appraisers on finding lower valued comps presented problems.
• Two of the biggest obstacles that we will face this year are restrictive lending and appraisals coming in low.
• Appraisal challenges continue to plague the housing recovery. Out of area appraisers lack the local knowledge to accurately value a property.
• Appraisal problems because of listings for short sales unapproved at low prices. It alters true buyers’ perception on value as well.
• Appraisals are a nightmare. Appraisers are undervaluing homes, which is hurting the bottom line on housing sales.
Foreclosures
Foreclosures frequently elicit multiple bids. The foreclosures market is very active. Many foreclosures result in cash purchases by investors rather than mortgage financed purchases by first-time buyers.
• Many transactions are either bank owner or short sale transactions.
• Appears more foreclosures may be on the way due to banks inability to work with current mortgagees.
• Appears to be lots of multi-bidding on foreclosed homes priced $60K to $100K.
• Bank foreclosures lest than $250,000 are typically selling in multiple offers for up to 5 percent over list price.
• Appraisers are artificially keeping the market down.
• Bank owned homes selling rapidly, often with multiple bids as buyers are not wanting to wait out the long short sale process.
• Bank owned properties tend to pick cash buyer offers over financed offers even though they are typically lower.
• Investors are buying pup all the affordable homes before they hit the market, leaving us with very little inventory and 15 to 60 offers on a property.

Short Sales
Short Sales continue to pose a problem to Realtors®. Typically short sales are very slow to close, frequently are not accepted by the bank, and by the time they are accepted buyers have lost patience with the process and found a different property. In addition, once a short sale is accepted, financing is sometimes impossible.
• The financial institutions are taking too much time to make a selling decision, causing many buyers to withdraw offers.
• A lot of agents will not show short sales because of the length of time to get an acceptance for a sale.
• A short sale is never short and usually is not a sale.
• A lot of the homes for sale currently are short sales and foreclosures. Many of my buyers are investors.

Credit
Credit continues to be tight. Respondents noted problems with getting paperwork processed in a timely manner as well as unrealistic and/or unreasonable demands for review and verification of credit details. In addition, respondents noted problems with lender requirements for unrealistic credit scores and excessive down payments.
• Buyers are surprise at how the process has changed. Many are dismayed at the lending process and the amount of “Additional Information Requests” that are required. Some are shocked at how little they are approved to borrow.
• Buyers unable to qualify, even with 20 percent or 25 percent down and good credit.
• Credit is tightening until the money cries out. Very worried about this.
• Credit is still tight. The jumbo market in particular.
• Mortgages are difficult to get, but interest rates are great.
• Mortgages are taking from 15 to 120 days longer than lenders tell buyers.
• Mortgages are taking more than 6 weeks sometimes up to 3 months to get a commitment letter. There is always one more document to obtain and sometimes they don’t even know that they have documents on file that they are requesting.
• It does not matter how much paperwork you give them. As soon as they get it they want more.
• The market at the lower end is increasingly active. The upper end of the market is slow, probably due to financing and move up problems.
• $1 million homes starting to go under contract at deep discounts. Traffic picked up significantly in November but mostly low end homes.6
• I am in the Jumbo market, and there is almost no activity. Buyers do not qualify for jumbo loans.
• The upper bracket is a very tough market and sellers for some reason do not want to accept the reality that their home is closer in worth to 2003. They still want to list high!!!

Condos
There are significant problems in selling condos. The collection of ongoing condo fees, excessive concentrations of renters, and loan availability are mentioned as impediments to transactions.
• Condo loans are almost impossible, causing buyers to give up while waiting forever for approval or meeting unreasonable requirements.
• Condo market would be much stronger if FHA loans were allowed on all complexes and information on condo law approval being marketed to general public and target of first time buyers and college grads.
• Condo mortgages are extremely hard to come by.
• Condominiums in certain areas are having difficulty selling due to requirement and risk reduction in the banking industry.
• Condos have been difficult to sell if they are not FHA approved.
• Condos in general are tough to sell because of the high rate of delinquency in the payment of association fees and because of mortgage credit requirements.
• Condos under $300 K are in high demand due to the first time buyer tax credit.
• High HOA fees are killing the condo market.
• I sell condominiums and it is VERY difficult to get financing.
• I am SO concerned about the new ruling for condominiums: there can only be 30 percent FHA loans in a complex. The government will be causing more foreclosures.
• Some of the property management companies are having problems because owners are not paying common charges because of the weak economy.

FHA Policies on Condos
A number of respondents expressed concerns over FHA policies concerning condos.
• A special problem for Condos and Townhomes is that many are not preapproved by Freddie Mac or FHA and it is nearly impossible to get a loan for these properties.
• Almost impossible to finance condominiums.
• Currently uncertainty over condo sales due to FHA approval issues concerning condo complexes.
• Can’t sell condos. Most buildings don’t qualify with new FHA standards.
• FHA guidelines are becoming very strict. Very hard to obtain financing for some buyers.
• FHA is requiring documentation for loans that I have never encountered before.
• FHA is tough. We had a client close a credit card during the mortgage process. Closing the card also closed their credit history. FHA denied the loan because FICO score dropped.
• FHA mortgage credit difficult to get approved Takes 45 to 60 days to close. Documentation requirements excessive.
• Condos located in large high-rise buildings often do not qualify for FHA loans because of higher renter/owner ratios.
• The restrictions that lenders are putting on condos are hurting the market. I live in a condo and we don’t qualify for FHA and some units have been on the market for over 2 years.

Changing Buyer Preferences
• Preference for smaller because of higher utilities, maintenance and competition with investors.
• There is no urgency for our buyers to move; therefore, buyers wait for “the bottom”.
• A larger number of Seniors are staying in their homes rather than moving to a Senior community, in hopes that the prices will go back up some at least before they Have to sell.
• This perspective may never see the light of day, but there’s more bad news to come. The effect of the looming commercial default has the potential for increasing real estate losses.
• Buyers are looking for smaller homes now because of the energy bills.
• Buyers are purchasing for the first time but are still looking for prices that are not there. They are up against investors that will pay cash versus asking the seller to pay closing costs.
• Buyers have higher expectations for quality and condition than previous years. Prefer close to town and accessibility to services with low tolerance to taxes.
• Buyers still unrealistic-they get a great bargain and still try to bleed the seller/bank. They think since it’s a buyers’ market THEY can impose their demands.
• Due to media-induced expectations, today’s buyers have very high expectations and want updated properties for greatly reduced prices. Repair negotiations are a huge challenge today as a result of buyer feelings of entitlement and work orders from FHA.
• Formal living rooms and dining rooms are going out of style because it is unused living space.

Tax Credit
The tax credit was frequently mentioned as helping the lower end of the market-that part of the market that is most active.
• First time buyers are causing houses between $80K and $125K to sell quickly. Keeps prices up in that price range.
• First time buyers taking advantage of tax credit the predominant buyer. Most do not want to get involved in short sales because they may miss the deadline, further affecting short sale values. Financing requirements are sometimes ridiculous.
• First time home buyers due to incentive program is what is driving the market.

Additional Market Commentary
• All the buyers my husband and I have taken out in the last six months are facing multiple offer situations. There have been in the $100-$150 K range.
• All my potential buyers want a STEAL.
• All the activity is in single-family residences at the low-end. This is a SELLERS market. The rest of the Market is DEAD.
• Buyers are asking for “deals”-they’re mostly looking to try to “steal” something.
• Many of our sellers still think it is 200 5 and the decline in prices doesn’t apply to them. Good, strong, even cash offers come and they turn them down.
• Buyers expect an absolute bargain and that sellers will take whatever is offered.
• Sellers are pricing at very close to exactly what they are willing to take, and buyers are still expecting to get houses at 60 cents on the dollar.
• On the majority of homes I’ve been out to do a listing presentation within the past six months the prospective sellers are not pleased with the amount I tell them they can expect to receive as offers. Homes are worth barely what they paid for them in the past 3 – 4 years.

-By Jed Smith, Managing Director, Quantitative Research