Sarahiously Speaking

Ahhhh… the new million dollar question.  So, we’ve all heard that HAMP (Home Affordable Modification Program) is supposed to save defaulting home owners from the disaster that is short sales and foreclosure.  But, you may have noticed that not many consumers who are in distress are actually being approved to modify their loans.  Well, there are several reasons for this.  Let’s examine a few. 

It’s important to remember that banks are NOT in the business to lose money and give away houses.  Banks are in the business  to MAKE money.  How do banks make money?  Banks make money on the interest they charge on their loan products.  The lose money by paying interest to consumers who have deposited money at that bank.  The interest earned on the loan products exceeds the interest paid out to depositors.  The profit the bank makes is the difference between the two.  This difference can make or break a bank.  The more money the bank has going out to consumers, the more money the bank needs coming in from interest payments.  In this market, banks are not getting the interest payments because consumers are not paying their mortgages.  However, banks are still required to pay depositors.  Banks also make money off the fees charged to consumers to make loans, but the big money is still in collecting interest on the actual loan product.  The bank will collapse if their accounting books get too far off balance.  We have become all too familiar with banks collapsing. 

In steps the loan modification alternative.  It is advantageous for banks to grant loan modifications to certain consumers.  Many large banks agreed to pursue loan modifications as a part of the Bail Out Bill passed in 2008.  If the banks are in the business to make money and defaulting borrowers are preventing that from happening, the bank may agree to allow the defaulting borrower to have a trial loan modification period.  This period is usually about 3 months.  If the borrower can make the modified mortgage payments in-full and on time, the bank may make this a permanent loan modification.  Banks are going to look at various factors in determining who gets the permanent modification.  

The #1 factor is risk to the bank.  If you have a history of not making your mortgage payments, is it a good risk to modify your loan terms and give you another chance?  In many cases, the answer is no.  So, banks have found a way around the HAMP requirement.  Banks are using the trial period as a way to get money from defaulting borrowers that they otherwise would not be getting.  Receiving three months of a reduced mortgage payment is better than receiving nothing at all.  After the trial period is over, banks can determine if foreclosure is a better option than a permanate loan modification.  Since risk is the #1 factor in determining permanate loan modification qualification, banks are offering non-defaulting borrowers the opportunity to modify their existing loan.  How does this benefit the bank?  Well, in a time when refinancing a home is so difficult, loan modifications can achieve a similar goal.  The borrower who now has the lower mortgage payment is also very happy with their lender and are likely to express this to their friends, family, and co-workers.  Banks can use all the postive press they can get!  And, banks are fulfilling their duty to pursue loan modifications as outlined by the Bail Out Bill. 

Who can get a loan modification?  Simple, people who are current on their mortages and are good risks for the bank.  What does loan modification mean for the person who is in default?  It gives you time to pursue a short sale.  The short sale is still your best option to get out of an excessive mortgage payment.  It may not be your ideal option, but it is still the most viable option.

Just what I needed, less hours in my day.  But alas, the time has come for us to spring forward an hour this Sunday,     March 14 at 2am.   (Yes, this means I will be grumpy Monday – Thursday while my body adjusts to the time change).

This is also a good time  to change your smoke detector batteries and replace your heating and air conditioner filters.

Fredericksburg City:

• 161 days on market – this is 5 days less more in February 2009
• Sellers received, on average, 89.36% of their list price when the home sold
• There is 15.4 months of inventory on the market
• 11 homes sold in February 2010 – this is 1 less than in February 2009
• The most popular price range was $150,000-$199,999 and $250,000-$299,999.   
• The median sold price was $213,900, compared to $208,950 in February 2009
• Financing Terms:  Conventional – 3, FHA – 3, VA – 1, Cash – 4

Orange County

• 203 days on market – this is 8 days more than in February 2009
• Sellers received, on average, 78.80% of their list price when the home sold
• There is 24.3 months of inventory on the market
• 15 homes sold in February 2010 – this is 8 less than February 2009
• The most popular price ranges were $120,000-$139,999 and $300,000-$399,999.
• The median sold price was $180,000, compared to $177,500 in February 2009 
• Financing Terms:  Conventional – 2, FHA – 3, VA – 1, Assumption – 1, Cash – 5, Other – 3

Spotsylvania County

• 66 days on market – this is 52 less than February 2009
• Sellers received, on average, 93.07% of their list price when the home sold
• There is 8.2 months inventory on the market
• 103 homes sold in February 2010 – this is 2 less than in February 2009 
• The most popular price range was $160,000-$179,999
• The median sold price was $175,000, compared to $184,500 in February 2009 
• Financing Terms:  Conventional – 26, FHA – 38, VA – 19, Cash – 15, Assumption – 5

Stafford County

• 62 days on market – this is 58 less than February 2009
• Sellers received, on average, 91.19% of their list price when the home sold
• There is 8.1 months inventory on the market
• 95 homes sold in February 2010 - this is 31 less than in February 2009 
• The most popular price range was $300,000-$399,999
• The median sold price was $235,000, compared to $220,000 in February 2009 
• Financing Terms:  Conventional – 23, FHA – 15, VA – 34, Cash – 18, Assumption – 4, Other – 1

Prince William County

• 44 days on market – this is 49 less than February 2009 
• Sellers received, on average, 96.70% of their list price when the home sold
• There is 6.49 months inventory on the market
• 423 homes sold in February 2010 - this is 292 less than in February 2009
• The most popular price range was $300,000-$399,999
• The median sold price was $215,000, compared to $169,500 in February 2009
• Financing Terms:  Conventional – 126, FHA – 150, VA – 63, Assumption – 7, Cash – 76, Other – 1

All data provided by MRIS.

As localities start discussing and issuing new tax rates in conjunction with new tax assessments, I thought it would be a good idea to explain the difference between assessed value and market value. 

Assessed value is defined as the dollar value of an asset assigned by a public tax assessor for the purposes of taxation.  For our purposes, and the purposes of this blog, we will only be addressing home assessments.  According to The Code of Virginia (Title 58.1-3201) the assessed value of each home should be 100% of the estimated market value.  The locality in which the home is located hires an appraisal firm to come in and place actual values on parcels of land and their improvements.  It would take forever to assess each individual home, so the appraiser selects of homes in different areas and applies the findings to a mass of similar homes.  This system can account for assessed values that are not 100% of market value.  If the appraiser is not aware of certain nuances that effect price in the subject area the value placed on your home may not be very accurate.  If the appraiser happens to select the smallest home in your area or neighborhood as their representative sample, then the assessed value could come in low.  If they choose the largest home, the value could come in high.  Tax records also has a baring on the accuracy of tax assessments.  If you have finished your basement, but never got a permit, or the locality has never reflected the improvement in their records, then the assessed value will be off.  Appraisals, nor assessments, are an exact science.  Human error and subjectivity are major factors in determining your home’s assessed value.  If you happen to have just purchased your home and you notice that your assessment is lower than your purchase price, I wouldn’t complain.  It doesn’t mean you are losing value.  It just means that your taxes will be lower than if they had actually assessed at 100% of market value.  However, if you just purchased your home and your assessment is high, you may want to appeal your assessment.  A valid appraisal and additional comparables will be needed as evidence in your assessment hearing. 

What is market value?  Market value is defined as the price at which buyers and sellers trade an item in an open market place.  In real estate it is the contract price for a particular piece of property.  However, because most buyers need a loan from a bank to make a home purchase, the banks want to make sure the purchase is a sound investment.  Therefore, the bank will require an appraisal to ensure that the purchase price is justifiable.  The appraiser will use data from other homes in the area that have sold to calculate what the home is worth.  The fact that the home is on the open market and that a buyer desires the home help determine what a home is worth.  Without these factors, market value cannot be established.  I can list my personal home today for $500,000.  That doesn’t mean it is worth $500,000.  It is worth nothing until a buyer writes an offer for what they are willing to pay for me to sell them my home.  In our current market, buyers want lower market values.  The lower the market value, the more affordable the homes.  Sellers and economists, on the other hand, are anxiously awaiting market values to climb.  We are in year 3 of a down market.  (Some would argue that this is actually year 4). 

The value to take away from this post is that most home owners want to see low assessed values and high market values.  Looking at the most recent sales in your neighborhood or community can help you determine the accuracy of your assessment.