In this time of Thanksgiving we wish to offer our thoughts that this holiday season is filled with love and peace, shared with family and friends. If there is anything we can do to help or advise our clients and friends, please feel comfortable to call.

Are you looking to buy a new  Atlanta home? Are you thinking that now’s a great time to find bargains? Before you make an offer, it pays to know a little about the seller’s situation.

If a home is being sold for less than the current homeowner owes on the property and don’t have sufficient funds for the difference, then closing will be considered a short sale. Many more Atlanta homeowners are finding themselves in this situation due to a number of factors, including job losses, aggressive borrowing against their home in the days of easy credit, and declining home values in a slower real estate market.

Don’t confuse a short sale with a foreclosure. A foreclosure is when the seller’s lender has taken title of the home and is selling it directly. Homeowners often try to accomplish a short sale in order to avoid foreclosure. But a short sale holds many potential pitfalls for buyers. Know the risks before you pursue a short-sale purchase.

I always preach to potential Atlanta home buyers, that you are a good candidate for a short sale if:

• You’re patient. Short sales do not function like normal resales in the sense that they can take a lot longer to close. You’re not just entering into an agreement with the seller, but the seller’s lender must also agree to receiving less than they are owed. And if there are two lenders involved, it can take longer.
• Your financing is ready to roll. Lenders always prefer cash offers, but most short sales are still financed. It’s important to show you are well qualified and your financing is pre-approved.
• You’re flexible on timing don’t have any contingencies. If you have a home to sell before you can close on the purchase of the short-sale property-or you need to be in your new home by a certain time-a short sale may not be for you. Lenders prefer offers with no contingencies and flexible closing terms.

If you’re serious about purchasing a short-sale property, it’s important for you to have expert representation. A Certified Distressed Property Expert (CDPE) has been trained on working with distressed sellers, home buyers and most importantly, the banks.

• See Atlanta Short Sale Homes Currently for Sale
• See Atlanta Short Sale Condos Currently for Sale

You may have a close friend or relative in real estate, but if that person doesn’t know anything about short sales, working with him or her may hurt your chances of a successful closing.

A Realtor holding the CDPE designation will be able to show you short-sale homes, help negotiate the purchase when you find the property you want to buy, and smooth communications with the lender.

But if you’re patient, flexible and pre-approved for your financing, you may want to consider purchasing a short sale. Most Atlanta short sales are in very good condition and can be purchased at a discount to the market. Contact us today to learn more about short sales and whether they may be a good fit for you.

If you’ve watched the 60 Minutes video on our website titled, The Mortgage Meltdown you understand what an Option ARM is.  For those that haven’t, its quite simple.  Thousands of mortgage loans were set with initial interest rates as low as 1%, but these rates were set to later reset at higher rates.

Thousands of Option ARM mortgage loans that were supposed to reset at a higher rate this spring won’t be changing, putting off the grim threat of foreclosure or bankruptcy for many Americans by as much as a year. Unfortunately, the reprieve will only be a temporary one.

A year ago, real estate forecasters were warning that spring 2009 would be the start of a whole new wave of foreclosures. Across the country option adjustable-rate mortgages (ARMs), an especially scary loan type often compared to a ticking time bomb, were set to detonate at an accelerating pace.

But something happened that few could have predicted. Interest rates dropped to historically low levels and the wave of resets could now be delayed until well into 2010. As a result, many borrowers — who have the option of making payments so low that they don’t even cover the interest, which is then added to the original loan balance — now have some breathing room.

Third of Loans Deeply Delinquent

Credit Suisse  estimates that the resets will begin to accelerate next spring, rising from about $4 billion resetting in March 2010 to a peak of $14 billion in September 2011. The current level is about $1 billion. About $500 billion of option ARM loans are outstanding, according to the bank. “Things have gotten pushed out,” says Chandrajit Bhattacharya, director in U.S. Mortgage Strategy for Credit Suisse. “Right now it looks like the big increase is probably going to be somewhere toward the middle of next year.”

Option ARMs typically reset after five years, at which point the monthly bill increases 65% or more. About 37.5% of option ARMs originated in 2005 are still outstanding, 63% of the 2006 vintage are outstanding, and 82% of the 2007 loans remain, according to Barclays Capital. And about a third of the outstanding loans in these years are deeply delinquent.

In a given month, between 4% and 5% of borrowers who are current on their option ARMs taken out in 2006 and 2007 default in the following month, says Sandeep Bordia, Barclays’ head of residential credit strategy, who also expects resets to be delayed until next year. “These things have been performing horrendously,” Bordia said. “I don’t know how much of it will last into the recast.”

Moving Out of Option ARMs

But real estate analysts were predicting that many option ARMs would reset sooner as loan balances hit specified principal caps, typically 110% to 125% of the original principal. The decline in interest rates means that it would take much longer to hit the principal cap and many borrowers will instead face a reset only at the five-year mark.

The Mortgage Bankers Assn. is also estimating that the lower interest rates will delay the resets. But the group also expects that lenders will help borrowers move out of the option ARM products before they reset. Many of the investors who can’t easily qualify for modifications and the borrowers beyond help have already lost their homes, says Michael Fratantoni, vice-president of single family research and policy development for the Mortgage Bankers Assn.

And the homeowners who are holding option ARMs when the wave of resets hits won’t face as big a shock because interest rates have fallen, adds Fratantoni. “Interest rates have come down to the point where the resets that are going to occur are going to be a bit of a non-event,” he says. “Very few borrowers will experience the recast.” But Nicholas Chavarela, managing attorney for Orange (Calif.)-based America’s Law Group, which represents borrowers negotiating modifications, says banks remain reluctant to reduce principal for underwater borrowers.

Cutting Debt-to-Income Ratios

The Obama Administration’s loan modification plan, which only applies to owner-occupied homes, is a step in the right direction, Chavarela said. But lenders won’t do what’s needed unless they’re forced to, he said.

Under the plan, taxpayers and participating lenders would share the cost of cutting borrowers’ debt-to-income ratio to 31%. Loans terms could be extended to 40 years and interest rates dropped to as low as 2%. But option ARM borrowers would likely have to pay more each month, even with a modification, because they’d suddenly be required to pay both interest and principal. “The Obama plan needs to be built upon,” Chavarela said.

But even if they can refinance many borrowers can’t afford the higher payments. Philip Tirone, president of the Mortgage Equity Group in Los Angeles, said he reached out to borrowers with option ARMs, offering to help them refinance into a fixed-rate mortgage with a low interest rate. “For them, it’s all about the payments,” Tirone said.

Time to Work with Lenders

Keith Gumbinger, vice-president of HSH.com, a publisher of loan information in Pompton Plains, N.J., said the lower interest rates have helped to diminish the option ARM problem. But it remains unclear how many option ARMs are left to reset and how many borrowers will be able to get out of the loans before it’s too late. Moreover, by the time they do reset it is unclear whether the economy will be better off. If home values and unemployment continue to weaken, it will become even harder to refinance. But the delay in resets gives some motivated borrowers time to work with lenders and negotiate a solution.

“I don’t think this is going to be the tsunami that was forecasted a few years ago,” Gumbinger said. “But it’s probably bigger than a ripple in a pond.”

The home mortgage crisis is spreading across Georgia like wildfire as the state’s economic woes get worse.

One in eight Georgia mortgage holders were either behind on their payments or in foreclosure in the fourth quarter of 2008, according to a survey released Thursday by the Mortgage Bankers Association. The 223,000 Georgia homeowners delinquent or in foreclosure marked a 16 percent increase from the third quarter.

Georgia reported one of the biggest increases in loans at least 90 days late as the state’s jobless rate has surged.

The increase in foreclosures is taking a toll on entire neighborhoods, causing home values to plunge and creating a pool of vacant homes that breed crime, said John O’Callaghan, president of the Atlanta Neighborhood Development Partnership, an affordable housing advocacy group.

The hardest-hit parts of metro Atlanta include the city of Atlanta, south Fulton County, south and central DeKalb County and Clayton County, he said.

“Clearly, [foreclosures] are a tragedy for the individual homeowner who can’t live in their house, but it’s also a tragedy for the entire community,” O’Callaghan said.

Nationwide, the states that have seen the sharpest drop in home prices continue to report the highest delinquency rates, including California, Florida, Nevada and Arizona.

But the biggest increases in loans at least 90 days late occurred in Georgia and four other states, “signs of the spreading impact of the recession,” said Jay Brinkmann, chief economist at the Mortgage Bankers Association.

Not surprisingly, homeowners having the most trouble in Georgia are those with less-than-stellar credit who took out subprime mortgages. More than 35 percent of these homeowners were either delinquent or in foreclosure in the fourth quarter, the survey found, slightly below the national average.

Delinquency rates for prime mortgages are rising nationwide as higher-income workers lose jobs and income, said Brinkmann.

Metro Atlanta’s unemployment rate climbed to 8.7 percent in January, up 3.5 points from the same month of 2008, according to the state Labor Department.

Up until recently, homeowners who are upside down on their mortgage had little recourse other than foreclosure. That’s not a good option because a foreclosure remains on your credit record for at least 10 years.

To avoid going into foreclosure, many experts are now advocating a short sale.  In a short sale, the lender allows the property to be sold for less than the total amount due on the loan.   Basically, the bank eats the loss (although they could still demand the homeowner to make some kind of payment or share part of the loss).

When the housing market was booming and real estate values were appreciating year after year, short selling was virtually unheard of.  With the current economic struggles and mortgage crunch, more and more home owners are looking to this practice as a way to avoid a costly foreclosure.

The benefits of short selling over foreclosure are obvious.  A foreclosure puts a long-lasting black mark on your credit history, the process can be long and costly, and will prohibit the homeowner from purchasing another home for at least 7 years.  Short selling can be much faster and less expensive, and it doesn’t look as bad on your credit report as a foreclosure.

Convincing a lender to short sell a property, however, can be very difficult.  For this reason it is best to work with a licensed Realtor that has the designation of a Certified Distressed Property Expert (CDPE).

If you find yourself in distress it is best to curb and scale back your own spending.  Expensive and unnecessary purchases on a credit card will make the bank less inclined to do you any favors.  Also, be prepared that if your bank absorbs the loss, the IRS might treat that as a taxable income and you’ll be responsible for paying taxes on that.

Of course, the better and always best option, is to find some way to stay in the house.  Contact the lender and see if they are willing to restructure the loan, or forgo a couple of monthly payments to help you get back on your feet.  Lenders loan money, they don’t want to become property owners/managers (especially in a declining market) so they are willing to make accommodations to avoid taing the property back.

Atlanta is among the nation’s hardest-hit markets for foreclosures according to a Harvard University scholar.  The large numbers of subprime loans, extensive mortgage fraud, and large quantities of housing stock are the identified causes of this current increase.

Mark Duda, the Harvard researcher who is analyzing national foreclosure trends for a study sponsored by the Fannie Mae Foundation, said Thursday that the high foreclosure rates produced by failing subprime loans are costing communities millions of dollars in hidden losses.

“When there’s a foreclosure, it causes other problems,” Duda said.

Properties surrounded by foreclosures will often see their property values decrease as a result.  This is largely in part due to the increase in crime in these concentrated areas where foreclosed and vacant structures seem to promote criminal activity.

In Georgia, failing subprime loans also boost the per capita rate of Chapter 13 bankruptcy filings to three times the national rate. The state’s short window between the declaration of foreclosure and seizure of the property sends many homeowners to bankruptcy court to stop the sale while they attempt to restructure their debt, Duda said.

Maps compiled by Duda as part of his study, which will be released nationally early next year, show growing concentrations of foreclosure spreading “like a virus” through metro Atlanta between 2001 and 2007, he said.

Using data provided by the Atlanta Foreclosure Report, Duda’s maps show high percentages of foreclosure, especially in the southern portions of DeKalb and Fulton counties and the city of Atlanta.

Duda said repairing problems with subprime lending will be challenging.

“There are lot of structural problems with subprime lending itself that are going to make it difficult to solve,” Duda said.

The Harvard researcher will join U.S. Treasurer Anna Escobedo Cabral in a forum sponsored by the Consumer Credit Counseling Service of Greater Atlanta and NeighborWorks America at the Commerce Club, 34 Broad St., NW, in downtown Atlanta at 8 a.m. Friday. The pair will discuss foreclosure and efforts to stem its growth in Atlanta and nationwide.

Foreclosure rates in metro Atlanta range from 9.9 percent in Clayton County to 3.7 percent in Cobb County, according to HUD.

By the Numbers

NSP Allocation; Local foreclosure rate; Local abandonment risk; Statewide foreclosure rate

Georgia total; $77,085,125; 5.2%; Medium; 5.2%

Atlanta; $12,316,082; 5.6%; High; 5.2%

Augusta; $2,473,064; 6.8%; High; 5.2%

Clayton County; $9,732,126; 9.9%; High; 5.2%

Cobb County; $6,889,134; 3.7%; Medium; 5.2%

Columbus-Muscogee; $3,117,039; 6.3%; High; 5.2%

DeKalb County; $18,545,013; 6.4%; High; 5.2%

Fulton County; $10,333,410; 5.4%; High; 5.2%

Gwinnett County; $10,507,827; 4.6%; Low; 5.2%

Savannah; $2,038,631; 6.0%; High; 5.2%