June, 2010

Keeping Score
The Obama Administration has started posting a monthly scorecard to demonstrate how well the government is doing when it comes to keeping struggling homeowners in their homes.

According to the Department of Housing and Urban Development and the Treasury Department, home prices have, in fact, leveled off over the past year. Mortgages are becoming more affordable, thanks to lower interest rates, and more than 2 and a half million families have used the federal tax credit to purchase homes.

HUD Secretary Shaun Donovan says, “We already know that due to the Obama Administration’s efforts, the housing market is significantly better than anyone predicted a year ago”.

But not everything is going the White House’s way – The Wall Street Journal is reporting that, while 340-thousand households have received government help reducing their mortgage payments, 430-thousand others have dropped out of the Home Affordable Modification Program.

Even with the slight month-to-month drop from April, the strong May results were expected, and economists with the National Association of Realtors say you can expect to see another strong month in June, as the contracts signed before the tax credit deadline go to closing.

And we could even see the July sales numbers positively impacted by the tax credit. Now that would literally take an act of Congress, but it looks like we may very well get one. The Senate has voted to extend the deadline for qualified buyers to close on their homes from the end of June to the end of September, and we expect the House to follow suit any minute now. Approximately 180-thousand home buyers are depending on that extension, which is needed because mortgage companies have been swamped by all of the new business that the credit program generated.

THE NATIONAL ASSOCIATION OF REALTORS® has been pushing for the tax credit extension, and also for the renewal of the National Flood Insurance Program, which has been interrupted, and is creating delays in sales in flood-prone states including Florida and Louisiana.

Even as its impact wanes in the coming months, we are already seeing how the tax credit has stabilized prices across the country. The national median price for an existing home last month was 179-thousand, 6-hundred dollars… up 2.7 percent from May of last year. And we have seen distressed home sales completely flatten out, making up 31 percent of all transactions in May, down from 33 percent last year. THE NATIONAL ASSOCIATION OF REALTORS® President Vicki Cox Golder says it’s a hopeful sign that the market can stand on its own now without further government stimulus.

The latest Pending Home sales report for May comes out this coming Thursday and we’ll have the details of that report for you at this time next week!

Strategy One – Talk To Your Lender.

Sometimes it’s tough to admit you’re in financial trouble, but the worst thing you can do is stay quiet while you miss payment after payment. If you think you might not be able to make a payment, even one payment, then call your bank or mortgage company and talk to them. Tell them why and they might be able to help.

Be realistic about your financial situation. Tell the bank or mortgage company the truth about how much money you have coming in or if you have none at all.

If you have sufficient income, the bank may be willing to modify your loan. Loan modification is exactly what it sounds like, they might be willing to change the terms, so that you can pay.

In some cases, they might be able to lower your interest rate. In others, they might convert your loan so that you only pay interest, and no principal. Sometimes they can adjust the length of your mortgage, for example, making a 30 year loan into a 40 year loan.

Every one of those steps will have the same result: your monthly payment will go down. That monthly payment won’t go away and neither will your mortgage, but it might be easier to pay, and that’s great news. Remember, it all starts by picking up the phone and calling your bank or mortgage company.

Unfortunately, in some cases a loan modification won’t work at all, because maybe you don’t qualify, or maybe the bank just won’t do it.

Strategy Two – Get Outside Help.

You might qualify for the government’s ‘Making Home Affordable’ program which is designed to help troubled homeowners stay in their homes. You can find out if you qualify at www.makinghomeaffordable.gov.

You can also talk to a government foreclosure counselor at the Department of Housing and Urban Development. Get online and look up HUD foreclosure counselor or go to HUD.gov

Strategy Three – Forbearance.

Forbearance is a program in which your lender will allow you to skip a few payments while you get back on track.

The lender has to approve it, but if they do, they may let you go up to three months without making any payment. That might be just the lifeline you need to get back on track, while the lender still gets those payments by tacking them on to the end of the loan.

It’s not a sure thing. But if you’ve been a good customer, and you explain your situation to the bank, they might go along with it.

The advantage of forbearance is that you get to stay in your house and your credit stays intact. You’re not defaulting on your loan you are just changing its terms.

Strategy Four – Try To Sell

Talk to a Realtor, tell them exactly what your situation is and what you hope to achieve. Even in this tough real estate market, you might be able to sell your home for more than you think.

If you have equity, you will do so much better by selling the house, pocketing the money and purchasing something that you can afford. Sell without missing a payment and you’ll have a new, affordable home, and your credit will be unaffected. That’s a win-win all the way around.

But what if you’re underwater? Of you owe more than you can sell it for?

Strategy Five – Short Sale

In a short sale, the bank agrees to take less than you owe when the home is sold. The bank takes the hit not you. So basically, you sell the house for less than you owe, and you move out.

It does allow you to move on, however, before you go that route you need to be crystal clear about what it means.

Short sales are not a sure thing. Some banks do not allow them, while some will allow them only under the most dire circumstances. Even those lenders that do allow short sales usually take months to make a decision.

If you’re thinking about a short sale find out first if your bank or mortgage company will give you the ‘OK.’

Even if the bank approves the short sale, the lender still may take legal action against you for the amount they lost. Don’t assume you can just walk away, in most states, called recourse states, the lender can go after you for the loss.

And finally, in a short sale, your credit score will take a hit, usually hundreds of points. That’s difficult, but it’s the kind of hit that you can recover from eventually, especially if when it’s over, your finances are easier to handle.

Strategy Six – Deed in Lieu of Foreclosure.

In a ‘Deed in Lieu,’ as it is called, you just sign the deed over to the bank. There are no court orders, no foreclosure proceeding, you just give the house back.

Again, the lender has to allow it, but if they do, there’s an upside for both the lender and you.

For the bank, a Deed in Lieu avoids the enormous time and money involved in a foreclosure.

And for you, a Deed in Lieu usually settles the debt. You leave the house without the threat of the bank suing for a deficiency judgement. The lender will usually waive the deficiency in a Deed in Lieu arrangement. However, the lender will waive it only for your first mortgage. If you hold a second mortgage you could still be sued for that amount of money.

Remember, just like a short sale, there is no guarantee your bank or mortgage company will allow a Deed in Lieu.

So there you have it, six strategies to help you avoid foreclosure. They might work, they might not. But we sure hope they do, because all of us here at Real Estate Today want the best, for you, your family and your home.

That’s not to say your life will be much easier in the short term. Securing a place to rent can be difficult with a damaged credit record, and many former homeowners have other financial burdens aside from their mortgages. But still, just the chance to move past a severely underwater situation can by itself be a liberating experience.

For others, feelings of shame, regret or embarrassment far outweigh any sense of relief. As we’ve said, no one becomes a homeowner with the belief they will ever lose their home to the bank, and some people understandably hate the idea of failing to fulfill a contract.

Our advice? Think positive.

Yeah, that’s right, try with everything you’ve got to stay up instead of down. And here are some ideas on just how to make that happen.

First, look around you. You’re not the only person out there who’s having trouble making their mortgage or even losing your home. It’s happening all over America.

One theory is, that someday, when you try once again to buy a house, lenders may believe that it wasn’t you it was the economy and might give you some slack.

And speaking of buying a house, you might think that going through a foreclosure means that’ll never happen again, but it can.

If you have gone through a foreclosure you have to wait five to seven years, before you can get another mortgage.

If you go through a deed in lieu of foreclosure, in which you give the house back to the bank, you can buy again in 2 to 7 years depending on the deal you made. And after a short sale, you can buy about two years later.

So, you can see it’s not the end of the world.

But let’s leave you with some solid advice on how to make that dream of home ownership happen, one more time down the road.

Fixing your credit is a good place to start. There is no doubt that your score takes a hit if your home is seized by your lender. Foreclosures do stay on your record for seven years, but as time goes on, their significance in your credit history diminishes.

What’s most important now is protecting what credit you have left. Pay the rest of your bills on time. Use your credit cards wisely, and pay them off completely if you can, but by all means, keep exercising that credit. The more quickly you can build trust with your creditors, the quicker you will make amends with your credit history.

Live within your means and do not spend money you don’t have. Set a budget for essentials, such as utilities and groceries. And every time a new smart phone comes out or computers get faster, or the new sports sedan is all you dream about remember, you don’t have to get that stuff.

Keep your eye on home ownership not consumer goods.

Save as much money as you can, as fast as you can. Those waiting periods we talked about will pass by quickly, so start building up your reserves. Have a pile of cash ready to go by the time you’re ready to buy once again.

With every passing year the nightmare of foreclosure will be further in the past and the dream of homeownership will once again, be closer to coming true.