Buyers rule? Not so fast. Certainly that's not quite true if the property falls under the category of distressed property.
Distressed property usually needs far more than paint job, at least, that's true, or has been up to now. Property is considered distressed if it has been foreclosed by the lender or the owner is seriously late in making payments or the property is upside down. Upside down meaning that the value of the property is less than the mortgage amount.
So what am I meaning by Lender's market? To define a "Lenders Market", let's first review the characteristics of a “Seller’s Market” and a "Buyers Market".
In defining a "Sellers Market", we usually find a lower than usual and faster moving inventory with prices generally increasing and the Seller more clearly in control to determine the outcome of any successful effort to purchase. Buyer's tend to pay more (often times more than property might be listed for). Many of the buyers contingencies are either eliminated or greatly reduced. The time for removal of contingencies is shortened. In some cases many of contingencies are negotiated way, such as a buyers typical request for repairs and the length of time the buyer has to obtain services such as appraisal and loan approval.
In a really hot “Seller’s Market”, buyers typically need more down payment and higher earnest money deposits that may be defaulted if the Buyer fails to consummate the transaction in the exact time frame as outlined in the purchase agreement.
In a “Buyer’s Market”, buyers tend to have greater control of the time frames and also many of the terms and conditions in the contract tend to favor their wants. Sort of a flip of what is found in the “Seller’s Markets”. In a “Buyer’s Market”, buyers typically pay less than they might in an active “Seller’s Market” and usually have a larger selection of properties to choose from.
So what then is a “Lender’s Market”? A “Lenders Market” is typically where there is a large number of or a majority of the market is made up of distressed property sales. Distressed properties being those where the owner is either in default of keeping the mortgage current or has already been foreclosed upon. A property is also said to be distressed if the value of the property is less than the mortgage or trust deed amount and the owners are unable to keep the mortgage current and want to sell the property. When a property has been foreclosed by a lender, it is called Real Estate Owned (REO). When a property owner wants to sell a property for less than is owed on the property, it is referred to as a Short Sale.
A lender's market might have a combination of many of these characteristics. Many of the buyers benefits in their offer to purchase are striped away including the pest inspection and clearance, closing costs, home warranties and repair requests with the lender opting to sell the property is present physical condition. Naturally there are exceptions to this depending on the Lender and whether the distressed property is a short sale or REO. By and large, lenders want the highest possible price with the least number of contingencies. Only Buyer’s with pre-approved loans are considered and in the case of REO’s, the lenders will give greater priority to All Cash offers over offers with financing even if the offering amount is slightly less. All Cash offers have fewer contingencies and can usually close faster clearing the asset from the lender’s books faster without any hassles or delays as may be occasioned by other banks that are providing the Buyer’s loan.
When properties are “Sold in present condition”, Buyers must be extra diligent in their property inspection to ascertain to the extent possible, the true nature of the property.
Typically lenders will tighten down time lines and may impose a penalty if there is any delay in the close of escrow for any reason. The essence of the lenders market is "take it or leave it" As the saying goes, "He who has the gold makes the rules". But it is also important to know that many REO’s and short can be good deals but it does require extra diligence and careful consideration when purchasing them.
To further describe the difference in distressed properties, in a Short Sale the owner of the property remains the Seller and in the REO, the lender is the new owner and the differences between a short sale and REO can be striking.
In the short sale, the lenders key role is to approve taking a loss in the amount owed on the trust deed or the mortgage. When the mortgage is late usually for 3 consecutive pay periods, the lender can file a notice of default. In a short sale, if the owner files documents with the lender explaining the financial distress that is causing the late payment and wants to sell the property, the lender may opt to consider a purchase offer on the property that is short of what is owned combined with the costs of sale. It is a judgment call of the lender since they have the right to file a default notice and if the owner can not correct the default amount, the lender can foreclose. The lender has specific times frames it must follow in this regard. The Buyer as well has a specific amount of time to cure the defaulted payments with any penalties.
Lenders have been encouraged by the government to for stall the foreclosure process and help slow down the excessive number of foreclosures that have taken place over the last couple years on the defaulting loans.
Lenders involved in distressed properties are clearly in charge to determine if they will accept even the highest offer on the property. In the case of short sales, they can either accept writing off the short fall of the outstanding trust deed or opt to continue the foreclosure process. Of late, lenders are becoming much more realistic in understanding that short sales are costing them less than they would have to write off as a bad asset in a foreclosure.
REO's close in the shortest possible time period of property sold in California. In short sales, there is most often a serious lag time (often months) before the lender even agrees to the process. Today with the greater influence of government encouraging banks to accept the short sale process sooner rather than later, we will most likely see the short sales process refined and the time frames for approval to be lessened.
Distressed property sales in the area make up close to 50% of the entire real estate market in reported sales. The good news is that equity sales are increasing and perhaps by spring of 2010, the equity sale will once again be a far greater share of the market.
Thursday, July 9, 2009
Monday, July 6, 2009
Update
Hello all,
We hope you have had a great first half of 2009 and are enjoying your summer! It has certainly been an interesting year so far in the real estate world. The entire first quarter was very slow; however, that is traditional for us to be slow January into March…..we usually see an uptick in OUR market around March through May.
The entire second quarter was an entirely different story, both in our local Coachella Valley market, as well as California and nationwide. California saw an increase in sales the last three months AND what’s even more refreshing, is we also saw an increase in sales PRICES. According to the Wall Street Journal, California’s real estate market is the barometer by which we measure the economy as a whole. This is some fabulous news.
So for all of you out there that haven’t purchased yet, our question to you is what are you waiting for? Have you not seen that “right” house yet? Is there something else that is holding you back? We want to hear from you! Your goals are important to us, and OUR JOB for you is to provide you with all the information and facts that we can, and then negotiate the BEST deal for you! We would hate to have you come to us in a year or two and say….”I could’ve” or “I should’ve” or “What if”……….
We DO want to hear from you. Please call or email us with your story. Let us know how we can help. And remember, if you need a referral for another area, let us do the work and find you an agent that can work for YOU!
Check us out on YouTube. Go to www.youtube.com and enter “The Louise Hampton Team” in the search area. You will find several videos Louise and I have done, with messages to buyers AND sellers! (They are short and fun, so please watch!)
You can also follow us on Facebook under “The Louise Hampton Team”
CAN’T WAIT TO HEAR FROM YOU SOON!
We hope you have had a great first half of 2009 and are enjoying your summer! It has certainly been an interesting year so far in the real estate world. The entire first quarter was very slow; however, that is traditional for us to be slow January into March…..we usually see an uptick in OUR market around March through May.
The entire second quarter was an entirely different story, both in our local Coachella Valley market, as well as California and nationwide. California saw an increase in sales the last three months AND what’s even more refreshing, is we also saw an increase in sales PRICES. According to the Wall Street Journal, California’s real estate market is the barometer by which we measure the economy as a whole. This is some fabulous news.
So for all of you out there that haven’t purchased yet, our question to you is what are you waiting for? Have you not seen that “right” house yet? Is there something else that is holding you back? We want to hear from you! Your goals are important to us, and OUR JOB for you is to provide you with all the information and facts that we can, and then negotiate the BEST deal for you! We would hate to have you come to us in a year or two and say….”I could’ve” or “I should’ve” or “What if”……….
We DO want to hear from you. Please call or email us with your story. Let us know how we can help. And remember, if you need a referral for another area, let us do the work and find you an agent that can work for YOU!
Check us out on YouTube. Go to www.youtube.com and enter “The Louise Hampton Team” in the search area. You will find several videos Louise and I have done, with messages to buyers AND sellers! (They are short and fun, so please watch!)
You can also follow us on Facebook under “The Louise Hampton Team”
CAN’T WAIT TO HEAR FROM YOU SOON!
Thursday, June 25, 2009
SHOULD I PAY MY MORTGAGE? SHOULD I STOP PAYING MY MORTGAGE?
This seems to be THE NUMBER ONE question I get. Unfortunately there are several answers and which is correct for you depends on the Circumstances. I will address the common scenarios in this article.
Policy in my office is to never "tell" - as in "instruct" - our borrower client to pay or not to pay their mortgage. Paying or not paying has a lot of collateral effects and the borrower needs to know what they are before making the decision. We don't make the decision for the borrower (our client) because the effects of paying or not paying are not going to affect me - but they will affect the client, so it is the client that must make the final decision.
Let me make one issue clear - when we are hired to help facilitate a short sale or loan modification it is far easier for us to negotiate with the lender if the payments are late, but it is almost never a requirement. The exceptions to which will be discussed later in this article. Additionally, internal rules change at the banks constantly. A new client came in totally frustrated. They called their bank to help with a modification and the bank said they could not address their situation until they were at least 60 days late. So the near perfect (800+) credit score couple stopped paying for 60 days and then called the bank back. Now the bank says that because they are 60 days late they cannot speak to them about a modification! The point is, if you don't have to be late then why voluntarily create a late payment credit history that will adversely affect your credit-dependent life almost immediately and for years to come?
SO LET'S GET INTO IT - Danger - this is a long article and it covers a lot of ground!
Short Sale:
A borrower that is current and contemplating a short sale wonders if they should stop paying their (first) mortgage. They are upside down and until now they have been current. However they are paying the mortgage at a cost of not paying other bills. (Other or different facts may be that they are paying all their bills but taking the money from savings or a pension fund to make those payments, or they are borrowing money from another equity loan).
Generally, it is not a good idea to get into debt to pay your mortgage, unless you have a solid plan to both (i) keep the mortgage current and (ii) repay the additional indebtedness you are creating. It is not like taking from one pocket to put into another - it is more like taking from someone else's pocket to pay your bills. This would include credit card loans as the source of funds. It all has to be paid back, so if you don't have a plan to pay it back, don't borrow it in the first place! You are only digging a bigger hole for yourself and making it harder to get out of the hole.
If you are taking from your pension or savings money, again you better have a rock solid plan to get that money back into those accounts, or there is no sense in giving up that hard earned and usually irreplaceable retirement money, especially considering these are monies that are usually protected from creditors' judgments including those your mortgage lender could obtain (deficiency judgment)..
Of course the "amount" of money you have "in reserve" comes into consideration. If you have 2 million dollars in reserve and you decide to spend 10% of it to keep the loans current until you can short sale the property, that plan has a basis that the 10% is not going to make a difference in the way you run your life over the remaining time you have left as a mere mortal.
Sometimes, but rarely, we run into a lender that says they won't approve a short sale or modification because the borrower is current with his payments. When we have encountered this it is in most cases associated with a government backed loan, (but later on we will show you why this may be motivated by plain greed on the part of a loan servicer). A properly compiled financial snapshot of the borrower should show why they are current and what will happen if the short sale or modification is not approved.
Your decision on how to proceed should be based on what goal you are trying to accomplish and how you plan to get to that goal (see how to determine your goal).
Mortgage Modification:
Apart for some voluntary government programs regarding (Fannie Mae or Freddie Mac) government involved mortgages, I know of no lender that absolutely will not deal with a borrower who is current with their mortgage payments. Lenders deal with all sorts of situations and "absolutely not" is just not in the vocabulary. A typical borrower calling a lender may hear that they must be late, but that is more of a "vetting" statement than an absolute policy.
The exceptions are some government program guides for modification. The first step to seeing if your loan comes within this exception is to see if it is a Fannie Mae or Freddie Mac loan. You can do this online at the Making Home Affordable site. Many servicers and lenders whose loans are not "government backed" are now choosing to follow this government plan (known as the Home Affordable Modification plan or more affectionately called the "Obama Plan" - see below) for the simple reason that they are being compensated by the government for each successful modification they execute within its guidelines, and either the servicer or lender receive a residual bonus for the loan staying current under the modification. In these cases we have seen non-government backed loans insist on the borrower being late to qualify for modification as well. What is confusing on this point is that when the plan was introduced it included modifications (and compensation for such) for current loans as well. However, we are told time and time again from the lenders directly that they must be late to qualify. There is no such rule in the guidelines.
While this is contrary to what has been published by the government about the plan, keep mind that following the plan and any of its various aspects is entirely voluntary and up to the Lender or servicer. They can pick and chose from this plan as they see fit for their own internal reasons. Here is a more interesting twist - a servicer that modifies a delinquent loan is paid more under this incentive plan than if the borrower were to modify while the loan is current! If the borrower is current, the servicer can receive up to $3,500 in incentive fees from the government. If the borrower is delinquent, the servicer can receive up to $4,000 in incentive fees from the government. Thus it seems that it pays ($500 to)the servicer to encourage a borrower to be delinquent!
We often see a client that fits the profile for modification under this government plan. Some of these plans are said to require that to be qualified the borrower must be late 60 days (see Guidelines page 5 at bottom). But in fact, being late is not a requirement, but only one factor of many (see Guidelines page 16 at the top - "However, a NPV (net present value) positive result is not necessary to qualify a loan for a Home Affordable Modification"). If the goal is to qualify under such a plan as put in place by the lender at that time, then to accomplish that qualification the borrower may need to make themselves late, but that cannot be determined in a 2 minute telephone call with a lender representative. I cringe when we go this route because just like these "plans" came into existence, I can see them change the plan thus leaving the now 60 day late borrower with ruined credit scores that occurred needlessly.
Generally about a quarter of our modification clients never go late and still get a modification offer from the lender. However, keep in mind that nearly all lenders put up as their first line of defense the policy that going late is a necessity to qualify. We can only speculate this is done to deter the enormous inflow of loan modification requests from borrowers that would come in if this was NOT said to be a requirement. It also helps address those in the most dire amount of need first.
The Pro's and the Con's:
The general rule of thumb we use is if you can pay your mortgage and maintain your life's necessities, you may consider keeping the loan current, taking the points in this article into account. However, if you need to choose between buying food or medications and paying the mortgage, the decision that should be made is clear: your life necessities take precedent.
Here are the pro's to consider when in the short sale or modification process. Keeping the loan CURRENT has the following benefits:
a) Your credit score is not dinged until the short sale transaction occurs (and not at all in most loan modifications) and your overall credit score reduction will be minimized, and b) You will remain in good standing with your lender without worry of penalties, fines, or a foreclosure.
The "con's" of keeping the loan current are that:
(a) You will be out of pocket for the monthly mortgage payment (monies which you may or may not need to survive), and
(b) Your lender may question the sincerity of your claimed hardship, and you may be spending funds that would otherwise be potentially (but rarely) forgiven by the lender. In addition, occasionally the lenders in a short sale may require a lump sum payment above the sale amount from the borrower to forgive the debt. Coming up with that money is sometimes the difference between a deal or no-deal. If you can put your mortgage payments aside and stockpile them, it will help you cover that potential lump sum.
A similar pro/con approach applies to GOING DELINQUENT with your mortgage. In favor of going late is being able to keep the unspent mortgage payments in your pocket (or applied towards other necessities as the case may be) in which event your hardship may appear more sincere to the lender. On the other hand, there are very real consequences to going late with your mortgage payment:
a) You WILL incur late fees and other penalties on the late interest. Usually this is not a large issue as it is part of the forgiven debt in a short sale and usually forgiven in a modification, but it is something to consider,
b) Your credit score downgrade will be harder as you will compound the short sale hit with a 30 day late, 60 day late, etc, (and if this is a modification you will make a non-negative credit score event turn into a negative credit score event), and
c) You will eventually cross a threshold (typical industry standard of 90 days late) where the lender will initiate a foreclosure action in State court.
Going Late on Your Second Mortgage:
Often a borrower comes to us and says that they are late on the first mortgage but current on the second mortgage. The second mortgage is almost always totally upside down with no equity left in the property to secure that financial obligation. The borrower says they paid the second mortgage because they had the money for the smaller payment (second) mortgage but not the larger amount first mortgage. Our answer - if you don't pay the first mortgage they are going to foreclose it and then paying the second mortgage is not going to save your house.
Lately we have seen second mortgage lenders with 90 day late mortgages skipping the foreclosure process (since if they cause a sale of the house it is sold subject to the first mortgage, and thus any buyer still has to pay the first mortgage, which usually makes no economic sense). Instead the second mortgage lender sues the borrower on the promissory note only and gets a money judgment that they can keep for a long time (20 years in Florida).
So if a client says they are paying the second mortgage but not the first mortgage, we usually suggest they look at the common sense approach and what are they likely to gain or lose by doing so.
Effect of Non-Payment / Late Payment on Credit Score:
This is a big question and nowhere is the answer clear cut. Definitely if you get a report on your credit that you were "late" (in mortgages that means 30 days or more late) then your credit has been "dinged" and your credit score is adversely affected.
Credit scores are used for many purposes, including the amount of credit you can get on a credit card, the interest rate you get on credit cards, car loans and mortgages, your ability and price of life and disability insurance and even car or house liability insurance, your ability to get a certain type of job, or to establish business relationships, and your ability to rent a place to live, to name a few. So credit scores are important. If you want to better understand credit scoring you can see the Federal Reserve Board's Report to Congress from April 2008.
How much your credit score is affected by a 30, 60 or 90 day late report depends on a lot of other factors about your financial well being, your past credit history and myriad other issues. Generally though we have our clients reporting drops of as little as 50 points for a no late payment short sale or up to 150 points for a short sale with multiple late payment reports. We have seen an 800 go to 720 and we have seen a 740 go to 500. It all depends on too many uncontrollable credit issues to be able to give a formula that works for everyone. For a discussion on credit scores this our past article.
Confused?
Rightfully so. The fact of the matter is that we are in uncharted waters and there is no industry standard for Short Sales or Loan Modifications, which makes pinning down exactly what the Lenders may do near impossible. Pile on the fact that there are a large number of lenders out there and each have their own internal policies which change as readily as the tides. The best anyone can hope to do is make an educated decision, set a plan, and be ready for anything.
SOURCE: Richard P. Zaretsky
Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make. This article is for information purposes and is not specific advice to any one reader.
Policy in my office is to never "tell" - as in "instruct" - our borrower client to pay or not to pay their mortgage. Paying or not paying has a lot of collateral effects and the borrower needs to know what they are before making the decision. We don't make the decision for the borrower (our client) because the effects of paying or not paying are not going to affect me - but they will affect the client, so it is the client that must make the final decision.
Let me make one issue clear - when we are hired to help facilitate a short sale or loan modification it is far easier for us to negotiate with the lender if the payments are late, but it is almost never a requirement. The exceptions to which will be discussed later in this article. Additionally, internal rules change at the banks constantly. A new client came in totally frustrated. They called their bank to help with a modification and the bank said they could not address their situation until they were at least 60 days late. So the near perfect (800+) credit score couple stopped paying for 60 days and then called the bank back. Now the bank says that because they are 60 days late they cannot speak to them about a modification! The point is, if you don't have to be late then why voluntarily create a late payment credit history that will adversely affect your credit-dependent life almost immediately and for years to come?
SO LET'S GET INTO IT - Danger - this is a long article and it covers a lot of ground!
Short Sale:
A borrower that is current and contemplating a short sale wonders if they should stop paying their (first) mortgage. They are upside down and until now they have been current. However they are paying the mortgage at a cost of not paying other bills. (Other or different facts may be that they are paying all their bills but taking the money from savings or a pension fund to make those payments, or they are borrowing money from another equity loan).
Generally, it is not a good idea to get into debt to pay your mortgage, unless you have a solid plan to both (i) keep the mortgage current and (ii) repay the additional indebtedness you are creating. It is not like taking from one pocket to put into another - it is more like taking from someone else's pocket to pay your bills. This would include credit card loans as the source of funds. It all has to be paid back, so if you don't have a plan to pay it back, don't borrow it in the first place! You are only digging a bigger hole for yourself and making it harder to get out of the hole.
If you are taking from your pension or savings money, again you better have a rock solid plan to get that money back into those accounts, or there is no sense in giving up that hard earned and usually irreplaceable retirement money, especially considering these are monies that are usually protected from creditors' judgments including those your mortgage lender could obtain (deficiency judgment)..
Of course the "amount" of money you have "in reserve" comes into consideration. If you have 2 million dollars in reserve and you decide to spend 10% of it to keep the loans current until you can short sale the property, that plan has a basis that the 10% is not going to make a difference in the way you run your life over the remaining time you have left as a mere mortal.
Sometimes, but rarely, we run into a lender that says they won't approve a short sale or modification because the borrower is current with his payments. When we have encountered this it is in most cases associated with a government backed loan, (but later on we will show you why this may be motivated by plain greed on the part of a loan servicer). A properly compiled financial snapshot of the borrower should show why they are current and what will happen if the short sale or modification is not approved.
Your decision on how to proceed should be based on what goal you are trying to accomplish and how you plan to get to that goal (see how to determine your goal).
Mortgage Modification:
Apart for some voluntary government programs regarding (Fannie Mae or Freddie Mac) government involved mortgages, I know of no lender that absolutely will not deal with a borrower who is current with their mortgage payments. Lenders deal with all sorts of situations and "absolutely not" is just not in the vocabulary. A typical borrower calling a lender may hear that they must be late, but that is more of a "vetting" statement than an absolute policy.
The exceptions are some government program guides for modification. The first step to seeing if your loan comes within this exception is to see if it is a Fannie Mae or Freddie Mac loan. You can do this online at the Making Home Affordable site. Many servicers and lenders whose loans are not "government backed" are now choosing to follow this government plan (known as the Home Affordable Modification plan or more affectionately called the "Obama Plan" - see below) for the simple reason that they are being compensated by the government for each successful modification they execute within its guidelines, and either the servicer or lender receive a residual bonus for the loan staying current under the modification. In these cases we have seen non-government backed loans insist on the borrower being late to qualify for modification as well. What is confusing on this point is that when the plan was introduced it included modifications (and compensation for such) for current loans as well. However, we are told time and time again from the lenders directly that they must be late to qualify. There is no such rule in the guidelines.
While this is contrary to what has been published by the government about the plan, keep mind that following the plan and any of its various aspects is entirely voluntary and up to the Lender or servicer. They can pick and chose from this plan as they see fit for their own internal reasons. Here is a more interesting twist - a servicer that modifies a delinquent loan is paid more under this incentive plan than if the borrower were to modify while the loan is current! If the borrower is current, the servicer can receive up to $3,500 in incentive fees from the government. If the borrower is delinquent, the servicer can receive up to $4,000 in incentive fees from the government. Thus it seems that it pays ($500 to)the servicer to encourage a borrower to be delinquent!
We often see a client that fits the profile for modification under this government plan. Some of these plans are said to require that to be qualified the borrower must be late 60 days (see Guidelines page 5 at bottom). But in fact, being late is not a requirement, but only one factor of many (see Guidelines page 16 at the top - "However, a NPV (net present value) positive result is not necessary to qualify a loan for a Home Affordable Modification"). If the goal is to qualify under such a plan as put in place by the lender at that time, then to accomplish that qualification the borrower may need to make themselves late, but that cannot be determined in a 2 minute telephone call with a lender representative. I cringe when we go this route because just like these "plans" came into existence, I can see them change the plan thus leaving the now 60 day late borrower with ruined credit scores that occurred needlessly.
Generally about a quarter of our modification clients never go late and still get a modification offer from the lender. However, keep in mind that nearly all lenders put up as their first line of defense the policy that going late is a necessity to qualify. We can only speculate this is done to deter the enormous inflow of loan modification requests from borrowers that would come in if this was NOT said to be a requirement. It also helps address those in the most dire amount of need first.
The Pro's and the Con's:
The general rule of thumb we use is if you can pay your mortgage and maintain your life's necessities, you may consider keeping the loan current, taking the points in this article into account. However, if you need to choose between buying food or medications and paying the mortgage, the decision that should be made is clear: your life necessities take precedent.
Here are the pro's to consider when in the short sale or modification process. Keeping the loan CURRENT has the following benefits:
a) Your credit score is not dinged until the short sale transaction occurs (and not at all in most loan modifications) and your overall credit score reduction will be minimized, and b) You will remain in good standing with your lender without worry of penalties, fines, or a foreclosure.
The "con's" of keeping the loan current are that:
(a) You will be out of pocket for the monthly mortgage payment (monies which you may or may not need to survive), and
(b) Your lender may question the sincerity of your claimed hardship, and you may be spending funds that would otherwise be potentially (but rarely) forgiven by the lender. In addition, occasionally the lenders in a short sale may require a lump sum payment above the sale amount from the borrower to forgive the debt. Coming up with that money is sometimes the difference between a deal or no-deal. If you can put your mortgage payments aside and stockpile them, it will help you cover that potential lump sum.
A similar pro/con approach applies to GOING DELINQUENT with your mortgage. In favor of going late is being able to keep the unspent mortgage payments in your pocket (or applied towards other necessities as the case may be) in which event your hardship may appear more sincere to the lender. On the other hand, there are very real consequences to going late with your mortgage payment:
a) You WILL incur late fees and other penalties on the late interest. Usually this is not a large issue as it is part of the forgiven debt in a short sale and usually forgiven in a modification, but it is something to consider,
b) Your credit score downgrade will be harder as you will compound the short sale hit with a 30 day late, 60 day late, etc, (and if this is a modification you will make a non-negative credit score event turn into a negative credit score event), and
c) You will eventually cross a threshold (typical industry standard of 90 days late) where the lender will initiate a foreclosure action in State court.
Going Late on Your Second Mortgage:
Often a borrower comes to us and says that they are late on the first mortgage but current on the second mortgage. The second mortgage is almost always totally upside down with no equity left in the property to secure that financial obligation. The borrower says they paid the second mortgage because they had the money for the smaller payment (second) mortgage but not the larger amount first mortgage. Our answer - if you don't pay the first mortgage they are going to foreclose it and then paying the second mortgage is not going to save your house.
Lately we have seen second mortgage lenders with 90 day late mortgages skipping the foreclosure process (since if they cause a sale of the house it is sold subject to the first mortgage, and thus any buyer still has to pay the first mortgage, which usually makes no economic sense). Instead the second mortgage lender sues the borrower on the promissory note only and gets a money judgment that they can keep for a long time (20 years in Florida).
So if a client says they are paying the second mortgage but not the first mortgage, we usually suggest they look at the common sense approach and what are they likely to gain or lose by doing so.
Effect of Non-Payment / Late Payment on Credit Score:
This is a big question and nowhere is the answer clear cut. Definitely if you get a report on your credit that you were "late" (in mortgages that means 30 days or more late) then your credit has been "dinged" and your credit score is adversely affected.
Credit scores are used for many purposes, including the amount of credit you can get on a credit card, the interest rate you get on credit cards, car loans and mortgages, your ability and price of life and disability insurance and even car or house liability insurance, your ability to get a certain type of job, or to establish business relationships, and your ability to rent a place to live, to name a few. So credit scores are important. If you want to better understand credit scoring you can see the Federal Reserve Board's Report to Congress from April 2008.
How much your credit score is affected by a 30, 60 or 90 day late report depends on a lot of other factors about your financial well being, your past credit history and myriad other issues. Generally though we have our clients reporting drops of as little as 50 points for a no late payment short sale or up to 150 points for a short sale with multiple late payment reports. We have seen an 800 go to 720 and we have seen a 740 go to 500. It all depends on too many uncontrollable credit issues to be able to give a formula that works for everyone. For a discussion on credit scores this our past article.
Confused?
Rightfully so. The fact of the matter is that we are in uncharted waters and there is no industry standard for Short Sales or Loan Modifications, which makes pinning down exactly what the Lenders may do near impossible. Pile on the fact that there are a large number of lenders out there and each have their own internal policies which change as readily as the tides. The best anyone can hope to do is make an educated decision, set a plan, and be ready for anything.
SOURCE: Richard P. Zaretsky
Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make. This article is for information purposes and is not specific advice to any one reader.
Friday, June 12, 2009
Monday, June 8, 2009
Wednesday, June 3, 2009
New home development springs to life!
Escena model homes reopen, crews working to make golf course playable.
The stalled Escena development in Palm Springs is springing back to life.
Palm trees and desert-tolerant plants are being planted along the outer perimeter of the eventual 1,450-home community project that includes the fallow golf course on 460 acres along Vista Chino Road and Gene Autry Trail.
Landscaping teams are working their way around the corners.
The guard-house entrance is being spruced up.
And Greg McGuff, division president of Lennar Corp., said the Escena model homes have reopened to spur the sale of a standing-stock of 38 homes.
It comes at a time the California Desert Association of Realtors reported a 47 percent increase in Multiple Service Listed sales in April compared to the year before. It noted an 11.7 percent gain over the previous month, and a decline in inventory for the third month in a row.
Lennar is not only working on perimeter landscaping.
McGuff said the company is working to make the Jack Nicklaus-designed golf course that closed in November 2007 playable again. “By September, we expect to have the clubhouse completed,” he said.
For months, the sprawling master- planned community that includes models built by Standard Pacific Homes has seemed frozen in time.
The biggest step to spur the Escena restart came in March and April.
New Valley PS, a subsidiary of New Valley LLC, a limited liability company engaged in the real estate business, acquired all the land but that on which the homes of Lennar and Standard Pacific already sit.
New Valley Palm Springs LLC became the new owners of roughly 450 acres in the community when it bought a loan out of foreclosure.
The loan was acquired at its $20million face value, plus accrued interest and other costs, for about $1.5million, according to the parent company New Valley LLC of New York.
It was the collateral property for the debt accrued by Lennar Homes of California Inc. and Empire Land LLC, which were equal partners of Escena. Standard Pacific bought home sites from the Escena venture, and were not involved in the foreclosure action, McGuff said.
“That's history, and I'd rather not relive it,” McGuff said. “I'd rather talk about the future.
L.J. Edgcomb, a builder in Southern California for 20 years who is working as an agent of New Valley Palm Springs LLC, said the new buyer has laid claim to 252 detached home sites, the golf course and land that has been entitled for 615 attached products: townhouses, condos and possibly a hotel.
Asked if New Valley is mulling construction starts at this time, Edgcomb said it's too early to tell.
“We're focusing on the community improvements now,” he said.
“We have owned the property now for just over one month, so as any new owner would do, we are just now still sorting out the details.”
The real estate market is changing so rapidly that it would be premature to say what's in the cards right now, he said.
At the same time, he added: “This is positive. Any movement forward is positive.”
The stalled Escena development in Palm Springs is springing back to life.
Palm trees and desert-tolerant plants are being planted along the outer perimeter of the eventual 1,450-home community project that includes the fallow golf course on 460 acres along Vista Chino Road and Gene Autry Trail.
Landscaping teams are working their way around the corners.
The guard-house entrance is being spruced up.
And Greg McGuff, division president of Lennar Corp., said the Escena model homes have reopened to spur the sale of a standing-stock of 38 homes.
It comes at a time the California Desert Association of Realtors reported a 47 percent increase in Multiple Service Listed sales in April compared to the year before. It noted an 11.7 percent gain over the previous month, and a decline in inventory for the third month in a row.
Lennar is not only working on perimeter landscaping.
McGuff said the company is working to make the Jack Nicklaus-designed golf course that closed in November 2007 playable again. “By September, we expect to have the clubhouse completed,” he said.
For months, the sprawling master- planned community that includes models built by Standard Pacific Homes has seemed frozen in time.
The biggest step to spur the Escena restart came in March and April.
New Valley PS, a subsidiary of New Valley LLC, a limited liability company engaged in the real estate business, acquired all the land but that on which the homes of Lennar and Standard Pacific already sit.
New Valley Palm Springs LLC became the new owners of roughly 450 acres in the community when it bought a loan out of foreclosure.
The loan was acquired at its $20million face value, plus accrued interest and other costs, for about $1.5million, according to the parent company New Valley LLC of New York.
It was the collateral property for the debt accrued by Lennar Homes of California Inc. and Empire Land LLC, which were equal partners of Escena. Standard Pacific bought home sites from the Escena venture, and were not involved in the foreclosure action, McGuff said.
“That's history, and I'd rather not relive it,” McGuff said. “I'd rather talk about the future.
L.J. Edgcomb, a builder in Southern California for 20 years who is working as an agent of New Valley Palm Springs LLC, said the new buyer has laid claim to 252 detached home sites, the golf course and land that has been entitled for 615 attached products: townhouses, condos and possibly a hotel.
Asked if New Valley is mulling construction starts at this time, Edgcomb said it's too early to tell.
“We're focusing on the community improvements now,” he said.
“We have owned the property now for just over one month, so as any new owner would do, we are just now still sorting out the details.”
The real estate market is changing so rapidly that it would be premature to say what's in the cards right now, he said.
At the same time, he added: “This is positive. Any movement forward is positive.”
Tuesday, June 2, 2009
HOMEBUYER TAX CREDIT
DONOVAN ANNOUNCES RECOVERY ACT'S HOMEBUYER TAX CREDIT CAN IMMEDIATELY HELP THOUSANDS OF FIRST-TIME HOMEBUYERS TO BUY A HOME.
FHA plan will stimulate new home sales and help stabilize housing market.
WASHINGTON - Speaking to the National Association of Home Builders Spring Board of Directors Meeting, U.S. Housing and Urban Development Secretary Shaun Donovan today announced that the Federal Housing Administration (FHA) will allow homebuyers to apply the Obama Administration's new $8,000 first-time homebuyer tax credit toward the purchase costs of a FHA-insured home. Donovan said that today's action will help stabilize the nation's housing market by stimulating home sales across the country.
The American Recovery and Reinvestment Act of 2009 offers homebuyers a tax credit of up to $8,000 for purchasing their first home. Families can only access this credit after filing their tax returns with the IRS. Today's announcement details FHA's rules allowing state Housing Finance Agencies and certain non-profits to "monetize" up to the full amount of the tax credit (depending on the amount of the mortgage) so that borrowers can immediately apply the funds toward their down payments. Home buyers using FHA-approved lenders can apply the tax credit to their down payment in excess of 3.5 percent of appraised value or their closing costs, which can help achieve a lower interest rate. To read the FHA's new mortgagee letter, visit HUD's website.
"We believe this is a real win for everyone," said Donovan. "Today, the Obama Administration is taking another important step toward accelerating the recovery of the nation's housing market. Families will now be able to apply their anticipated tax credit toward their home purchase right away. At the same time we are putting safeguards in place to ensure that consumers will be protected from unscrupulous lenders. What we're doing today will not only help these families to purchase their first home but will present an enormous benefit for communities struggling to deal with an oversupply of housing."
Currently, borrowers applying for an FHA-insured mortgage are required to make a minimum 3.5 percent downpayment on the purchase of their home. Current law does not permit approved lenders to monetize the tax credit to meet the required 3.5 percent minimum down payment, but, under the terms of today's announcement, lenders can now monetize the tax credit for use as additional down payment, or for other closing costs, which can help achieve a lower interest rate. Buyers financing through state Housing Finance Agencies and certain non-profits will be able to use the tax credit for their downpayments via secondary financing provided by the HFA or non-profit. In addition to the borrower's own cash investment, FHA allows parents, employers and other governmental entities to contribute towards the downpayment. Today's action permits the first-time homebuyer's anticipated tax credit under the Recovery Act to be applied toward the family's home purchase right away. Unlike seller-funded down-payment assistance, which was a vehicle for abuse, this program will allow homebuyers to shop for the best home price and services using their anticipated tax credit.
According to estimates by the National Association of Home Builders, the Administration's homebuyer tax credit will stimulate 160,000 home sales across the nation - 101,000 of which will be first-time buyers who will receive the credit. Another 59,000 existing homeowners will be able to buy another home because a first-time buyer purchased their home. Given FHA's current market share, it's estimated that thousands of families will be able to purchase a home by allowing the anticipated tax credit to be applied toward their purchase together with an FHA-insured mortgage.
Homebuyers should beware of mortgage scams and carefully compare benefits and costs when seeking out tax credit monetization services. Programs will vary from organization to organization and borrowers should consider whether the services make sense for them, as well as what company offers the most suitable and affordable option.
For every FHA borrower who is assisted through the tax credit program, FHA will collect the name and employer identification number of the organization providing the service as well as associated fees and charges. FHA will use this information to track the business closely and will refer any questionable practices to the appropriate regulatory agencies, as necessary.
FHA plan will stimulate new home sales and help stabilize housing market.
WASHINGTON - Speaking to the National Association of Home Builders Spring Board of Directors Meeting, U.S. Housing and Urban Development Secretary Shaun Donovan today announced that the Federal Housing Administration (FHA) will allow homebuyers to apply the Obama Administration's new $8,000 first-time homebuyer tax credit toward the purchase costs of a FHA-insured home. Donovan said that today's action will help stabilize the nation's housing market by stimulating home sales across the country.
The American Recovery and Reinvestment Act of 2009 offers homebuyers a tax credit of up to $8,000 for purchasing their first home. Families can only access this credit after filing their tax returns with the IRS. Today's announcement details FHA's rules allowing state Housing Finance Agencies and certain non-profits to "monetize" up to the full amount of the tax credit (depending on the amount of the mortgage) so that borrowers can immediately apply the funds toward their down payments. Home buyers using FHA-approved lenders can apply the tax credit to their down payment in excess of 3.5 percent of appraised value or their closing costs, which can help achieve a lower interest rate. To read the FHA's new mortgagee letter, visit HUD's website.
"We believe this is a real win for everyone," said Donovan. "Today, the Obama Administration is taking another important step toward accelerating the recovery of the nation's housing market. Families will now be able to apply their anticipated tax credit toward their home purchase right away. At the same time we are putting safeguards in place to ensure that consumers will be protected from unscrupulous lenders. What we're doing today will not only help these families to purchase their first home but will present an enormous benefit for communities struggling to deal with an oversupply of housing."
Currently, borrowers applying for an FHA-insured mortgage are required to make a minimum 3.5 percent downpayment on the purchase of their home. Current law does not permit approved lenders to monetize the tax credit to meet the required 3.5 percent minimum down payment, but, under the terms of today's announcement, lenders can now monetize the tax credit for use as additional down payment, or for other closing costs, which can help achieve a lower interest rate. Buyers financing through state Housing Finance Agencies and certain non-profits will be able to use the tax credit for their downpayments via secondary financing provided by the HFA or non-profit. In addition to the borrower's own cash investment, FHA allows parents, employers and other governmental entities to contribute towards the downpayment. Today's action permits the first-time homebuyer's anticipated tax credit under the Recovery Act to be applied toward the family's home purchase right away. Unlike seller-funded down-payment assistance, which was a vehicle for abuse, this program will allow homebuyers to shop for the best home price and services using their anticipated tax credit.
According to estimates by the National Association of Home Builders, the Administration's homebuyer tax credit will stimulate 160,000 home sales across the nation - 101,000 of which will be first-time buyers who will receive the credit. Another 59,000 existing homeowners will be able to buy another home because a first-time buyer purchased their home. Given FHA's current market share, it's estimated that thousands of families will be able to purchase a home by allowing the anticipated tax credit to be applied toward their purchase together with an FHA-insured mortgage.
Homebuyers should beware of mortgage scams and carefully compare benefits and costs when seeking out tax credit monetization services. Programs will vary from organization to organization and borrowers should consider whether the services make sense for them, as well as what company offers the most suitable and affordable option.
For every FHA borrower who is assisted through the tax credit program, FHA will collect the name and employer identification number of the organization providing the service as well as associated fees and charges. FHA will use this information to track the business closely and will refer any questionable practices to the appropriate regulatory agencies, as necessary.
Wednesday, May 20, 2009
Buyer Tax Credit Loan "Guidance" Coming Soon
Detailed guidance on the federal government's plan to provide short-term loans to borrowers using the First-Time Homebuyer Tax Credit is expected to be out shortly, but a spokesperson from the U.S. Department of Housing and Urban Development, which is writing the guidance, couldn't give a firm release date. HUD policy staff are "still working out the details on it," HUD spokesperson Lamar Wooley told REALTOR® Magazine today. "So we expect it to be published shortly."
The short-term loan program, which would effectively monetize the first-time homebuyer tax credit by permitting eligible lenders to make bridge loans collateralized by the borrower's expected tax credit, was announced by HUD Secretary Shaun Donovan at the Real Estate Summit NAR hosted on the opening day of its 2009 Midyear Legislative Meetings in Washington last week. At the summit, Donovan said the loans would enable FHA consumers to access the tax credit funds when they close on their home loans so that the cash could be used as a downpayment.
"FHA will permit trusted FHA-approved lenders and HUD-approved nonprofits, as well as state and local governmental entities to 'monetize' the tax credit through short-term bridge loans," Donovan said. "We think the policy is a real win for everyone, ensuring that borrowers can tap into the numerous organizations that are already part of the FHA network to receive this additional benefit. FHA will be publishing the details shortly."
It's unclear at this point what shape the guidance will take and whether authorization for the loans will be available across the board or only in states in which the state housing finance agency already has a tax credit bridge-loan program in place. There are 10 states today that have such a loan program, according to the National Council of State Housing Agencies: Colorado, Delaware, Idaho, Kentucky, Missouri, New Jersey, New Mexico, Ohio, Pennsylvania, and Tennessee. (Of course, California isn't there yet.)
When it's released, the guidance is expected to be issued as a HUD Mortgagee Letter and will likely discuss which federal, state, and local governmental agencies and nonprofit organizations will be permitted to make the loans, and whether lenders such as FHA-approved mortgagees will be permitted to make the loans. The guidance could also cover how loan amounts will be limited, what happens if repayment problems occur, and what repayment terms would look like.
The short-term loan program, which would effectively monetize the first-time homebuyer tax credit by permitting eligible lenders to make bridge loans collateralized by the borrower's expected tax credit, was announced by HUD Secretary Shaun Donovan at the Real Estate Summit NAR hosted on the opening day of its 2009 Midyear Legislative Meetings in Washington last week. At the summit, Donovan said the loans would enable FHA consumers to access the tax credit funds when they close on their home loans so that the cash could be used as a downpayment.
"FHA will permit trusted FHA-approved lenders and HUD-approved nonprofits, as well as state and local governmental entities to 'monetize' the tax credit through short-term bridge loans," Donovan said. "We think the policy is a real win for everyone, ensuring that borrowers can tap into the numerous organizations that are already part of the FHA network to receive this additional benefit. FHA will be publishing the details shortly."
It's unclear at this point what shape the guidance will take and whether authorization for the loans will be available across the board or only in states in which the state housing finance agency already has a tax credit bridge-loan program in place. There are 10 states today that have such a loan program, according to the National Council of State Housing Agencies: Colorado, Delaware, Idaho, Kentucky, Missouri, New Jersey, New Mexico, Ohio, Pennsylvania, and Tennessee. (Of course, California isn't there yet.)
When it's released, the guidance is expected to be issued as a HUD Mortgagee Letter and will likely discuss which federal, state, and local governmental agencies and nonprofit organizations will be permitted to make the loans, and whether lenders such as FHA-approved mortgagees will be permitted to make the loans. The guidance could also cover how loan amounts will be limited, what happens if repayment problems occur, and what repayment terms would look like.
Thursday, May 14, 2009
Tax credit can be used as down payment on FHA Loans !!
The government today gave the green light to the financing of bridge loans of up to $8,000 to first time home buyers who qualify for tax credits under the Obama Administration’s economic stimulus plan. The new mortgagee letter stipulates that government agencies, non-profits and FHA-approved lenders can give advances on the tax credits. Housing secretary Shaun Donovan told a national Realtor group Tuesday that, “We want to enable FHA consumers to access the tax credit funds when they close on their home loans so that cash can be used as a down payment.
WASHINGTON, May 12, 2009
Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, said that the Federal Housing Administration is going to permit its lenders to allow homeowners to use the $8,000 tax credit as a down payment. Secretary Donovan said that important changes, which the National Association of Realtors® has been calling for, will help consumers purchase a home. “We all want to enable FHA consumers to access the home buyer tax credit funds when they close on their home loans so that the cash can be used as a down payment,” Donovan said. According to Donovan, the FHA’s approved lenders will be permitted to “monetize” the tax credit through short-term bridge loans. This will allow eligible home buyers to access the funds immediately at the closing table.
Donovan said the Obama administration plans to further stabilize the housing market. “I do think we have some early signs hat the market overall is stabilizing,” said Donovan. “Since January we’ve seen both home sales moving up and down around a relatively stable number and we are seeing the first signs that the rapid decline in home prices is starting to abate.”
WASHINGTON, May 12, 2009
Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, said that the Federal Housing Administration is going to permit its lenders to allow homeowners to use the $8,000 tax credit as a down payment. Secretary Donovan said that important changes, which the National Association of Realtors® has been calling for, will help consumers purchase a home. “We all want to enable FHA consumers to access the home buyer tax credit funds when they close on their home loans so that the cash can be used as a down payment,” Donovan said. According to Donovan, the FHA’s approved lenders will be permitted to “monetize” the tax credit through short-term bridge loans. This will allow eligible home buyers to access the funds immediately at the closing table.
Donovan said the Obama administration plans to further stabilize the housing market. “I do think we have some early signs hat the market overall is stabilizing,” said Donovan. “Since January we’ve seen both home sales moving up and down around a relatively stable number and we are seeing the first signs that the rapid decline in home prices is starting to abate.”
Tuesday, May 12, 2009
Big U.S. banks selling stock to repay government
NEW YORK (Reuters) - Four big U.S. banks on Monday said they would sell $6.55 billion of common stock and repay funds from the government's bank bailout program, after federal stress tests showed they can weather a deep recession without new capital.
U.S. Bancorp plans to sell $2.5 billion of stock, and sold $1 billion of five-year notes. Capital One Financial Corp sold $1.55 billion of stock, BB&T Corp said it will sell $1.5 billion, and Bank of New York Mellon Corp said it will sell $1 billion.
BB&T also cut its quarterly dividend 68 percent to 15 cents per share to save $725 million a year, after 37 straight years of higher payouts. Chief Executive Kelly King in an interview said the decision marks "the worst day in my 37-year career."
Separately, KeyCorp said it would sell $750 million of stock to help plug what regulators called a $1.8 billion capital shortfall. KeyCorp said it may take other actions, including converting other securities to common stock.
The offerings were announced three days after Wells Fargo & Co and Morgan Stanley sold a combined $12.6 billion of stock. Morgan Stanley also sold $4 billion of debt.
These banks were among 19 lenders to undergo government tests of their ability to weather a deep economic downturn. Regulators last week ordered 10 lenders, including Wells Fargo and Morgan Stanley, to raise a combined $74.6 billion.
Banks are raising capital after improved investor sentiment caused shares in the sector to more than double from their lows in early March, despite worsening credit conditions in housing, commercial loans and credit cards.
"They're trying to get while the getting is good," said Walter Todd, who helps invest $650 million at Greenwood Capital Associates LLC in Greenwood, South Carolina. "Fundamentals of banks appear not as bad they were, but they are still not good given the underlying conditions in the economy."
U.S. Bancorp is based in Minneapolis; Capital One in McLean, Virginia; BB&T in Winston-Salem, North Carolina; Bank of New York Mellon in New York, and KeyCorp in Cleveland.
In Monday trading, shares of U.S. Bancorp fell 9.9 percent to $18.50; Capital One fell 13.5 percent to $27.10; BB&T fell 7.6 percent to $24.34; Bank of New York Mellon fell 8.1 percent to $29.55, and KeyCorp fell 9.9 percent to $6.28.
Bank of New York Mellon announced its offering after markets closed. The 24-member KBW Bank Index, which includes all five banks, fell 7.1 percent. Capital One's close was below the $27.75 per share price of its stock offering.
BB&T CEO CRITICIZES TARP
U.S. Bancorp took $6.6 billion from the government's Troubled Asset Relief Program, while Capital One took $3.55 billion, BB&T $3.1 billion and KeyCorp $2.5 billion.
Hundreds of lenders took money from TARP, which was designed to spur lending and improve the economy.
Yet many now view TARP as an albatross that imposes too many restrictions, including on executive pay, and suggests that recipients are desperate for capital.
"Rational, objective lending is one of the most important purposes of the banking system, and when you inject Congress and the administration into it, it effectively politicizes the process, which is not healthy," BB&T's King said.
King also said the stress tests unnecessarily created "huge levels of anxiety and concern" among investors. "Regulators have always had the ability to assess the capital of institutions, and require more if they chose," he said.
At least one dozen lenders have repaid or gotten permission to repay TARP, and Goldman Sachs Group Inc and JPMorgan Chase & Co have said they want to do so as well.
Goldman Sachs & Co and Morgan Stanley are arranging the offerings for U.S. Bancorp and Bank of New York Mellon. Barclays Capital arranged the Capital One offering. Goldman Sachs, JPMorgan and Morgan Stanley are arranging the BB&T offering. Morgan Stanley is arranging the KeyCorp offering.
U.S. Bancorp plans to sell $2.5 billion of stock, and sold $1 billion of five-year notes. Capital One Financial Corp sold $1.55 billion of stock, BB&T Corp said it will sell $1.5 billion, and Bank of New York Mellon Corp said it will sell $1 billion.
BB&T also cut its quarterly dividend 68 percent to 15 cents per share to save $725 million a year, after 37 straight years of higher payouts. Chief Executive Kelly King in an interview said the decision marks "the worst day in my 37-year career."
Separately, KeyCorp said it would sell $750 million of stock to help plug what regulators called a $1.8 billion capital shortfall. KeyCorp said it may take other actions, including converting other securities to common stock.
The offerings were announced three days after Wells Fargo & Co and Morgan Stanley sold a combined $12.6 billion of stock. Morgan Stanley also sold $4 billion of debt.
These banks were among 19 lenders to undergo government tests of their ability to weather a deep economic downturn. Regulators last week ordered 10 lenders, including Wells Fargo and Morgan Stanley, to raise a combined $74.6 billion.
Banks are raising capital after improved investor sentiment caused shares in the sector to more than double from their lows in early March, despite worsening credit conditions in housing, commercial loans and credit cards.
"They're trying to get while the getting is good," said Walter Todd, who helps invest $650 million at Greenwood Capital Associates LLC in Greenwood, South Carolina. "Fundamentals of banks appear not as bad they were, but they are still not good given the underlying conditions in the economy."
U.S. Bancorp is based in Minneapolis; Capital One in McLean, Virginia; BB&T in Winston-Salem, North Carolina; Bank of New York Mellon in New York, and KeyCorp in Cleveland.
In Monday trading, shares of U.S. Bancorp fell 9.9 percent to $18.50; Capital One fell 13.5 percent to $27.10; BB&T fell 7.6 percent to $24.34; Bank of New York Mellon fell 8.1 percent to $29.55, and KeyCorp fell 9.9 percent to $6.28.
Bank of New York Mellon announced its offering after markets closed. The 24-member KBW Bank Index, which includes all five banks, fell 7.1 percent. Capital One's close was below the $27.75 per share price of its stock offering.
BB&T CEO CRITICIZES TARP
U.S. Bancorp took $6.6 billion from the government's Troubled Asset Relief Program, while Capital One took $3.55 billion, BB&T $3.1 billion and KeyCorp $2.5 billion.
Hundreds of lenders took money from TARP, which was designed to spur lending and improve the economy.
Yet many now view TARP as an albatross that imposes too many restrictions, including on executive pay, and suggests that recipients are desperate for capital.
"Rational, objective lending is one of the most important purposes of the banking system, and when you inject Congress and the administration into it, it effectively politicizes the process, which is not healthy," BB&T's King said.
King also said the stress tests unnecessarily created "huge levels of anxiety and concern" among investors. "Regulators have always had the ability to assess the capital of institutions, and require more if they chose," he said.
At least one dozen lenders have repaid or gotten permission to repay TARP, and Goldman Sachs Group Inc and JPMorgan Chase & Co have said they want to do so as well.
Goldman Sachs & Co and Morgan Stanley are arranging the offerings for U.S. Bancorp and Bank of New York Mellon. Barclays Capital arranged the Capital One offering. Goldman Sachs, JPMorgan and Morgan Stanley are arranging the BB&T offering. Morgan Stanley is arranging the KeyCorp offering.
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