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2013 Real Estate Investment Financial Outlook

 

The year of 2012 will be remembered as an amazing year for real estate investment opportunity as unprecedented homebuyer demand was consistently fueled by historically low mortgage interest rates. Additionally, the close of the year delivered a stabilized housing market with residential values consistently on the rise. Could real estate investment possibly be looking even better in 2013?

Financing Availability

In order to determine 2013's real estate financial outlook its essential to first examine how the mortgage industry developed in 2012. Mortgage indsutry servicer Ellie Mae created the helpful infographic below from its 2012 Origination Insight Report that drew data from more than 20% of all loan origninations in the United States:

 

Interest Rates Soon to Rise

Real estate industry experts resoundingly agree that in the follwing few years home values will rise and mortgage rates must increase. With an amazingly low average interest rate of 3.8% in 2012, the Mortgage Banker's Association predicts that mortgage interest rates will reach as high as 4.4% by the close of the year 2013. As a result, the year 2013 presents the most favorable combination of circumstances in decades with both appreciation in value and monthly cash flow readily available to real estate investors.

New Laws Modify Foreclosure Process to Protect Homeowners

 



As of January 1, 2013 a new set of laws went into effect that places the burden on banks to help consumers through the foreclosure process. The Homeowner Bill of Rights was championed into law by California Attorney General Kamala Harris and was designed to correct perceived abuses by lenders while protecting homeowners from foreclosure abuses.

The Homeowner Bill of Rights applies ONLY to first deeds of trust that are secured by owner-occupied residential property located in the State of California.

 



The Homeowner Bill of Rights now places the following requirements on ALL lenders:

“Dual-Tracking” Ban: Upon receipt of an application for a loan modification, a lender must halt any foreclosure activity until it renders a decision on the application. (Cal. Civ. Code §§ 2923.6 and 2924.18)

“Robo-Signing” Ban: Before filing or recording any foreclosure notice, the lender must review competent and reliable evidence to substantiate the borrower’s default and the right to foreclose. (Cal. Civ. Code § 2924.17)

New "Notice" Requirements - Cal Civ. Code § 2924(a)(5):

• Within 5 days of recording a notice of default, a borrower must be sent a notice regarding foreclosure prevention alternatives (ie.- loan modification or shortsale).
• When a trustee’s sale is postponed for at least 10 days, the borrower must receive written notice of the new sale date within 5 days of the date of the postponement.



 

Lenders that conducted more than 175 foreclosures in California the previous year are also subject to the following new laws:

Single Point Of Contact: For borrowers eligible for a loan modification, short sale or deed-in-lieu-of foreclosure, lenders must designate a “single point of contact” with knowledge of the borrower’s status and foreclosure prevention alternatives that has access to decision makers. This contact person is assigned to the borrower until all foreclosure alternative options have been exhausted or the loan is brought current. (Cal. Civ. Code § 2923.7)

Lender/Servicer Must Halt The Foreclosure Process Once A Modification Is Approved: A notice of default may not be filed after a loan modification is approved. Any foreclosure notices recorded prior to an executed modification agreement must also be rescinded. (Cal. Civ. Code § 2924.11)

Lender/Servicer May Not Charge Any Fees In Connection With A Loan Modification: A lender may not charge any fees in connection with the loan modification process. (Cal. Civ. Code § 2924.11)

Tax Exemption for Short Sales Extended as Mortgage Forgiveness Debt Relief Act Survives Fiscal Cliff

Tax Exemption for Short Sales Extended as Mortgage Forgiveness Debt Relief Act Survives Fiscal Cliff

While teetering dangerously on the brink of fiscal cliff negotiations, the Federal Mortgage Forgiveness Debt Relief Act of 2007 that was set to expire on December 31, 2012 was extended for another year by the United States Congress. As a result, homeowners who experience debt forgiveness through the short sale of their home prior to December 31, 2013 are exempt from paying federal income tax on the forgiven amount. The maximum amount of debt forgiven can not exceed $2 million.



Lawmakers reasoned that short sales have proven to be the most effective means to avert the devastating impact that increased foreclosures have had on the global economy, and that economic recovery currently remains too tenuous to resurrect barriers to foreclosure avoidance. As shown in the RealtyTrac graphic below, short sales have been increasing at a rapid rate while sales of real estate owned by banks (REOs) or foreclosures have substantially decreased. It may not be so surprising that economic recovery has been realized over this same period of time.