How Many Borrowers Will Choose Bank of America's Rescue Plan Over a Short Sale Attempt?

By
Real Estate Agent with Lyon Real Estate BRE #00697006

rope with inflatable flotation device into sea of dollars

Thanks to California Attorney General Jerry Brown, an agreement has been reached with Countrywide's parent Bank of America to rescue an estimated 125,000 Californians from foreclosure. The terms are narrow, targeting owner occupants who took out from Countrywide Option ARM or subprime mortgages from 2004 through 2007, with a few provisions tossed in to assist homeowners with prime and Alt-A loans.

Starting December 1, apart from freezing foreclosures, Bank of America has agreed to waive prepayment penalties and late fees, plus offer to some ARM holders interest rates as low a 3.5% on a new refinance at 95% of loan-to-value, based on today's market value.

All of this sounds fine and dandy, but it makes me wonder how many borrowers will take advantage of these rescue programs? It seems like in today's fast-fix-society that many home owners would prefer to do a short sale and get rid of the property, freeing themselves from the entire homeownership process.

Many of the homeowners who took out these Option ARM and subprime loans, especially those who opted for the 2/28 programs, were not in a position to own a home in the first place. Given the choice between staying put and continuing to make mortgage payments under a reduced interest rate plan (on a lower loan balance) or selling the home on a short sale, I'm guessing that many would choose the latter. The reason I suspect this might be true is because every time I lay out the available options to homeowners, encouraging them to pursue a different avenue than trying to do a short sale, they choose the short sale route every time.

Which do you think homeowners will choose? And those for those who choose a short sale, do you think Bank of America will work any harder now to get short sales approved?

elizabeth weintraub sacramento real estate agent in land park

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Elizabeth Weintraub is an author, home buying expert for About.com, a Land Park resident, and a veteran real estate agent who specializes in older, classic homes in Land Park, Curtis Park, Midtown and East Sacramento, as well as tract homes in Elk Grove, Natomas, Roseville and Lincoln. Weintraub is also a Sacramento Short Sale agent who lists and successfully sells short sales throughout the four-county Sacramento area with an emphasis on Elk Grove. Call Elizabeth Weintraub at 916.233.6759. Put 40 years of real estate experience to work for you. Broker-Associate at Lyon Real Estate. BRE License # 00697006.

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Photo: Unless otherwise noted in this blog, the photo is copyrighted by Big Stock Photo and used with permission.The views expressed herein are Weintraub's personal views and do not reflect the views of Lyon Real Estate. Disclaimer: If this post contains a listing, information is deemed reliable as of the date it was written. After that date, the listing may be sold, listed by another brokerage, canceled, pending or taken temporarily off the market, and the price could change without notice; it could blow up, explode or vanish. To find out the present status of any listing, please go to elizabethweintraub.com.

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Rainmaker
1,108,777
Myrl Jeffcoat
GreatWest Realty - Sacramento, CA
Greater Sacramento Real Estate Agent

I think the Bank America plan is a good one.  It's another tool in the box, to help troubled homeowners.  Whether folks will choose the plan over a "short-sale" would likely depend on if they really need to sell and move now, versus whether they would like to stay.

This is especially true for those that have had payments reset due to interest rate adjustments.  I understand the Plan, in some instances could also reduce principle, not just interest.  As with everything goning on in recent weeks, there are many moving parts to consider!

I suspect renegotiating an existing B of A mortgage, would be less cumbersome, than trying to sell via "short-sale" - As many of us have found, many short-sales are anything but short in reality.

October 08, 2008 08:12 AM #46
Rainmaker
1,197,745
Elizabeth Weintraub Sacramento Real Estate Agent, Top 1% of Lyon Agents
Lyon Real Estate - Sacramento, CA
Put 40 years of experience to work for you

OK, this is way too many answers for me to handle this morning, so I will comment on a few that pop out at me, which are likely to be the ones near the end because my scrolly finger isn't awake yet.

Hi Carolyn: The only way a second mortgage lender can pursue a deficiency judgment in California is if the loan is hard money. All purchase money loans are exempt from deficiency judgments in California. I was talking to a New York lawyer who simply could not believe his ears when he heard that: Ah, those crazy Californians . . .

Hi Lenn: In some neighborhoods of Sacramento, values have been cut in half, so those home owners probably could qualify if they wanted to. But many of those home owners, I suspect, merely want out.

Hi Bryant: But if the LTV was lower than 95%, then B of A might want to share future equity, just like the FHA 90% refi program mandates.

Hey Your Mortgage Guy: Wake up. It's 2008, and as of August, Fannie Mae guidelines say two years on a short sale.

Hi Myrl: I spoke to a woman yesterday from Natomas who wants to save her home. Her problem is her loan is not an Option ARM nor subprime; however, some prime and Alt-A loans qualify as well, but I don't know under what circumstances. B of A was a little unclear on that.

As for whether the modification is "less cumbersome" than a short sale, I suspect short sales are easier for the home owner. Because the seller's agent deals with the bank on a short sale. Under a modification, the home owner sits on hold for hours, and most likely is unfamiliar with the lingo and process. It's almost as though there should be a middle-person to help home owners instead of throwing them to the wolves sending them to the lender who put them into this situation in the first place.

elizabeth weintraub sacramento real estate agent in land park

October 08, 2008 08:55 AM #47
Anonymous
Anonymous
Wil Ochoa

Now why couldn't BOA do this much earlier in the game? Too late for the hailmary boys. This is only because of the law suit. Great job Attorney Gen! Make them pay... Make them all pay!! Just calculate the interest and the cash flow some of these giants made in the past few years. If there is one lending institution that was hit by surprise please stand up.... Oh I see you rode the boom wave and did not expect this? Please...! This is exactly why our industry could never be left alone when it comes to financial meltdowns. There are soo many factors that are invloved in painting a picture for those who do not see it. Just think for a moment.....What would happen if the 3.5% refi BOA program got out of hand? YES! It will happen all over again! Values would begin to rise, to the point that the cycle would repeat it's self over and over again.  Until someone decides to regulate the secondary market giants eating up these shady, questionable, last minute problem sovler lending solutions thought of in less than a few days, we will see some stabilization. Look....the FEDS are getting (correction: got) involved! Is this not a democracy? May be socialism? It sounds like big brother is "Bailing us out" of this one..... But I am sure down the road we will see the price that had to be paid. When you give the GOV control of your equity? what would you call that? A partnership? Well what happens if they end up with more than half the equity?...... Yes, communism! The GOV will CONTROL your home's equity  and when you can sell it.... Okay enough about this... I need to go show at least 10 homes today, of which 4 are bankowned and 6 are lottery sales. (i meant short sales, my bad....)

Quote of the day:

"Give thanks for the things you have...And also give thanks for the things you don't have...that you did not want" - Wil Ochoa

October 08, 2008 09:28 AM #48
Rainmaker
1,108,777
Myrl Jeffcoat
GreatWest Realty - Sacramento, CA
Greater Sacramento Real Estate Agent

Elizabeth - I think your idea of a middle person to negotiate a lot of the process, is a good one.  As long as it doesn't generate any more scams than has already plagued troubled homeowners.  I have heard positive things about the non profit organization, Springboard or call 1-888 995-HOPE. They do not charge a cent, they are funded by mortgage companies, private donation. They will take your financial and email your mortgage company requesting consideration.  Perhaps something like that for the Bank of America homeowners would be helpful.

October 08, 2008 11:07 AM #49
Rainmaker
137,001
Vicki Lloyd
The Real Estate Professionals - Lake Forest, CA
(949)457-0281, Lake Forest and South Orange County, CA

I think that if homeowners are given a choice, between this BofA/CountryWide program or doing a short sale, they will go with the one that gives them a place to live at the lowest monthly cost.  They still have to live somewhere!  

The values have fallen enough in many places that payment on a 95% loan of actual market value at 3.5% will be less than market rent! 

We'll just have to watch to see what really happens.

October 08, 2008 12:46 PM #50
Rainer
73,749
Dan Magstadt
CrossCountry Mortgage - Lake City, FL

Great Info! It's nice to see professionals like yourself stay on top of what's going on in the market!

Best,

Dan

October 08, 2008 01:03 PM #51
Rainmaker
312,843
Michael Russell
Keller Williams Realty Partners, Inc. - Overland Park, KS
Overland Park Kansas Real Estate

most people don't want to lose their home, hopefully this will help the right people. plus take some inventory of the market.

October 08, 2008 01:09 PM #53
Ambassador
883,319
Lane Bailey
Century 21 Results Realty - Suwanee, GA
Realtor & Car Guy

I think that there are too many people that have decided what they want to do, and they aren't looking for advice, but rather they are looking for someone to agree with the path they want.  If you don't, they will find someone that will...

October 08, 2008 02:01 PM #54
Rainmaker
331,781
Lynn Pineda
Keller Williams Partners Realty - Coral Springs, FL
Coral Springs REALTOR- Promises Delivered

Elizabeth, I don't recall on this plan with BOA - are they going to be participating in the future appreciation of the homeowner values do you know, as is the case with the new Hope for Homeowners Plan? I think that would play a big part in whether or not homeowners will embrace it over a short sale.

I'm with you in that I feel the Short Sale will be the preferred way.

I strongly believe that if Lenders would approve more Short Sales it would go a long way in stabilizing the housing market now. We all know that today's Buyers must have solid credit and a nice chunk towards for a downpayment. I would think that Lenders would be all open arms for switching out the two homeowners. I feel the adjustment to the current homeowner's mortgage may just be delaying a future repayment problem on the part of the homeowner. So many homeowners should never have been approved for the subprime loans that they were put into and would be better off if they started over again fixing their credit and acquiring the 20% deposit needed to buy a home. Forget about having to keep up with the Jones'. I'm fearful that this might just be a bandaid approach.

October 08, 2008 05:05 PM #55
Ambassador
1,856,211
Nestor & Katerina Gasset
International Properties and Investments LLC - Wellington, FL
Realtors, Wellington Florida Homes For Sale

Elizabeth, I don't see this helping as many people as they claim it will. There are some serious issues that may result. First of all, people still have to qualify but under much stricter guidelines. Someone who makes 35 K a year and buys a house for 1 million, even with a 50% decline in the market, they still won't qualify to buy a house for 500K.

The down side is that this is NOT fair to those who go out and work 3 jobs to make their payments. There is something wrong with the picture of your neighborhood when some folks get a write down that don't deserve it and the rest get no benefit. Sounds a lot like rewarding the underserving and punishing the deserving.

I think they will still process short sales because some people just should not have bought a house. I am also sure there are provisions that just like in the rescue plan that the secondary lien holders and HELOCs would have to release their liens. Here in Florida tons of people used their homes as ATM machines and therefore will have to pay back those HELOCS for Hummers and Flat Screens.

Most of the people that we do short sales for could not afford their payments even if they were reduced to 3.5% and at a lessor value and they would not qualify.; so we do short sales. Katerina

October 09, 2008 12:01 AM #56
Rainmaker
1,197,745
Elizabeth Weintraub Sacramento Real Estate Agent, Top 1% of Lyon Agents
Lyon Real Estate - Sacramento, CA
Put 40 years of experience to work for you

Hello Lynn: It is my understanding that the Countrywide refi program does not involve shared appreciation.

Hello Katerina: It's not fair to those who work 3 jobs to make their payments but didn't happen to take out an exotic or adjustable loan. I have been told that the program will allow for some prime loans, but the conditions for that are unclear.

elizabeth weintraub sacramento real estate agent in land park

October 09, 2008 10:08 AM #57
Rainmaker
201,319
Mike Jackson
Bradley Real Estate - San Rafael, CA
Realtor - Certified Distressed Property Expert

I think they will lean more towards the rescue plan to stay in the house and hopefully get the princiapl reduced.

October 09, 2008 04:21 PM #58
Rainer
40,775
Carolyn Gjerde-Tu-Davis
Lyon Real Estate - Davis, CA
Ca Real Estate

Elizabeth, sorry for not getting back here sooner.  It is my understanding from short sale negotiators that BofA is pursuing deficiecy judgements on recourse loans (non purchase money loans).  This would apply on even to a foreclosure.  Each homeowner's situation is different and seems like the only advice we can give homeowners is to have them talk to attorneys and accountants to see what is best for them.

 

October 09, 2008 06:49 PM #59
Rainmaker
1,197,745
Elizabeth Weintraub Sacramento Real Estate Agent, Top 1% of Lyon Agents
Lyon Real Estate - Sacramento, CA
Put 40 years of experience to work for you

Hi Carolyn: People forget about those deficiency judgments and you're correct, foreclosures are not exempt. I had a seller in West Sac who refused to cooperate with a short sale, so the lender foreclosed. The lender was so ticked at this guy for not cooperating on the short sale that it went after him. This guy refinanced above value, pulled out all this cash, bought a $300K RV and then had the gall to say he wanted $1,000 from the buyer or me, under the table, no less.

elizabeth weintraub sacramento real estate agent in land park

October 09, 2008 07:15 PM #60
Rainmaker
1,108,777
Myrl Jeffcoat
GreatWest Realty - Sacramento, CA
Greater Sacramento Real Estate Agent

I think a lot of folks are going to think they are home free by walking away and allowing their home to be foreclosed on, only to have an unexpected deficiency judgment to later rear it's ugly head.

October 09, 2008 09:07 PM #61
Rainmaker
1,197,745
Elizabeth Weintraub Sacramento Real Estate Agent, Top 1% of Lyon Agents
Lyon Real Estate - Sacramento, CA
Put 40 years of experience to work for you

You know, Myrl, I really gotta wanna use my tired and sore scrolly finger to scroll alllll the waaaaay downnnn to the end of this to say hi to you.

However, homeowners who never refinanced nor took out a hard money loan have nothing to fear in CA regarding a deficiency judgment. It's the rest of them . . .

elizabeth weintraub sacramento real estate agent in land parkelizabeth weintraub sacramento real estate agent in land park

October 09, 2008 10:45 PM #62
Rainmaker
489,778
Sergio Rebollo Jr.
Real Estate TeamMates - Miami, FL

Great post Elizabeth and equally as great discussion!!!  Lets see what happens.  So many rescue plans are being tossed around and discussed but I see far more people in distress than what many of these plans can do to help.  In Miami, many got in over their heads on heir personal residence and can't afford it anyways and many got in on he flipping craze and got stuck with several units, especially condos, that didn't sell.  I still see Short Sales playing a role for a while.  Lets see if the banks continue to be receptive to them.

October 14, 2008 01:06 AM #63
Rainmaker
1,197,745
Elizabeth Weintraub Sacramento Real Estate Agent, Top 1% of Lyon Agents
Lyon Real Estate - Sacramento, CA
Put 40 years of experience to work for you

Hi Sergio: I see short sales as the second best game in town, right next to REOs. All the rest of that hoopla about saving homeowners' homes is beginning to sound like politicial positioning to get us to hold on another four weeks until the election. Take the FHA refinance program, Hope for Homeowners. Not one lender will fund it. It's a joke. And not a very funny joke at that.

elizabeth weintraub sacramento real estate agent in land park

October 14, 2008 11:34 AM #64
Rainer
33,314
Robin Siddle
Tucson Expert Agents LLC - Tucson, AZ
Robin M. Siddle, Broker

Elizabeth,

I think that there are indeed many homeowners who will want to take the quickest route out, especially since they are pinched financially on so many sides right now.  However, there are certainly still some with integrity out there and this is great for those who are willing to honor the prior commitment that they made.  Instead of being in a position to be forced to lose their home, this plan makes keeping the home and paying the mortgage possible because the mortgage is now affordable.

October 27, 2008 02:13 PM #65
Rainmaker
1,197,745
Elizabeth Weintraub Sacramento Real Estate Agent, Top 1% of Lyon Agents
Lyon Real Estate - Sacramento, CA
Put 40 years of experience to work for you

Hi Robin: That assumes though, that the homeowner wants to try to save the home. Many just want to walk away when their home is worth half of what they paid for it.

Hi Non Member: Sorry, I had to delete your post because it contained self promotion.

elizabeth weintraub sacramento real estate agent in land park

October 27, 2008 06:53 PM #67
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Rainmaker
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Elizabeth Weintraub Sacramento Real Estate Agent, Top 1% of Lyon Agents

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