mortgage


Can’t Pay Your Mortgage?

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If you find yourself waking up at 2 a.m., wondering how you’re going to pay your mortgage, you’re not alone.  Since the start of the Great Recession, thousands of people who never thought they’d be worried about money are struggling every month just to stay afloat.  Or, perhaps your home is now worth far less than what you owe and you wonder if it makes sense to continue to pay on negative equity.

Everyone’s situation is unique, and I certainly don’t profess to have all of the answers, but over the last four years I’ve been able to help many people find a solution to their mortgage woes.  I am not an accountant or a lawyer, so I certainly encourage you to consult the appropriate professional for answers to your specific questions.

I have written a short guide book that I would like to offer to you free of charge, with no obligation.  The guide book is designed to provide you with an overview of your different options so that you are in a better position to make the decision that’s right for you.  It begins with a one-page overview, followed by more in-depth discussion of the various options.  Click here to request your free guide, “What to Do When You Can’t Pay Your Mortgage”.

If you can’t pay your mortgage please don’t ignore the problem.   Chances are you won’t win the lottery, and your financial troubles are real.  As soon as you are 30 days late on your payment, the lender’s clock starts ticking.  There is help and you have several options.  Start by reviewing all of the information found at www.makinghomeaffordable.gov and call 888-995-HOPE (4673) to speak with a HUD approved housing counselor.  It is okay to ask for help and advice.  Just remember that time is of the essence.  Acting early allows you to make the decision that is best for you.  Wait too long and your choices disappear.

My real estate practice is in San Diego County.  Please don’t hesitate to contact me at 619-846-9249 if I can be of service to you.

What to Do When You Can’t Pay Your Mortgage

If you are upside down and owe more than your home is worth, you have probably considered a short sale.  In a short sale, the lender allows you to sell your home for less than what is owed and your debt is cancelled.  Prior to 2007 however the amount not re-paid to the lender was taxable income, which created a huge hardship for homeowners seeking relief from high mortgages.

In 2007 congress enacted the Mortgage Debt Relief Act which generally allows taxpayers to exclude income from the discharge of debt on their principal residence. This includes debt reduced through loan modification and short sale, as well as mortgage debt forgiven in connection with a foreclosure.  This act has allowed thousands of underwater homeowners to sell their homes without fear of tax consequences.

The clock is ticking however, as the Mortgage Debt Relief Act was a piece of special legislation designed as a short-term fix to help alleviate some of the problems created by the collapse of the housing market.  It will expire on December 31 of this year, and it is unclear whether or not it will be extended.

So, if you are considering a short sale, the time to act is NOW if you hope to avoid being taxed on the unpaid balance owed.  A short sale takes anywhere from 60 days to several months, so with 5 months left in 2012 the time is right to still get your short sale completed before the end of the year.

For a free, no-obligation consultation, please give us a call.  Our success rate listing and negotiating short sales is over 95% and we are happy to supply references.  We are not a huge, impersonal office of paper-pushers and we deal with each client on a personal basis, making sure we address your individual needs and situation.  Please call Steele Group Realty Broker/Owner Marti Kilby at 619-846-9249.

I live and work in San Diego County, which is a big military town for the Navy, Marine Corps and Coast Guard.  Over the years I’ve had the opportunity to work with many active military and veteran buyers using a VA loan to purchase a home.  But lately, I’m struggling to help my VA buyers complete a purchase as they are facing what I see as a marketplace that discriminates against them.

Most of my VA buyers are young, first-time buyers who have steady income, but not necessarily much money saved for a down payment.  As a VA loan offers 100% financing, this would seem to be a perfect solution and a great opportunity.  However, here are the obstacles they face:

  • The price point for many of the young VA buyers in San Diego Countyis relatively low, so when bidding on a house they are often competing with cash buyers.
  • As the buyer is  not allowed to pay certain closing costs on a VA transaction, and most VA buyers need a considerable concession, the seller in this competitive market is more likely to select a buyer that doesn’t ask for closing costs.  Even if the VA buyer comes in with a  higher offer to allow the seller the same net profit, there is the risk  that the property won’t appraise at the higher value and the deal won’t go through.
  • The VA also requires a termite clearance, and the buyer is not allowed to pay for it.  So, this pretty much rules out every short sale as the seller is not going to pay for an inspection, repairs or clearance, and it is highly unlikely that the seller’s bank will pay.
  • The properties themselves often pose the biggest challenge in this market of REOs.  According to VA guidelines, the home      must be habitable with a working stove and heat source, floor coverings, no large holes in walls, or missing window trim or baseboards, no mold or  mildew, and plumbing that does not leak.       So buying a fixer is out of the question as the VA buyer is not  allowed to pay for any repairs.

I would like to think that sellers might choose to actually make an effort to sell to a member of our military, but I think the VA itself has made it unnecessarily difficult.  I understand the VA’s desire to reduce the financial burden for the military buyer, and make sure they are protected in the transaction, but from where I stand, I see that the rules that are meant to protect them are actually hurting their chances of successfully buying in this market.

Short Sale vs. Foreclosure

People often ask me if a short sale is really worth the effort.  Well, I’d be the first to admit that short sales can be a real pain for everyone involved…sellers, Realtors, buyers…and because so many fail, people often have a negative view of the short sale process.  But, do you really know the benefits over foreclosure that might make it worth the effort?  Watch this short video and see why short sale if becoming an attractive alternative to foreclosure for many homeowners.

 

Of all the articles I’ve written, posts about Bank of America and their Cooperative Short Sale Program seem to draw the most attention.  Is that because people have been disappointed in the results?  Or are they nervous about potential problems?  Well, I thought it would be interesting to share the progress of a new B of A Cooperative Short Sale that I’ve just listed to see just how good, (or bad) the process really is now that the program has been around for a while.

This sale is a bit different than most short sales I’ve done, as the owner had already begun the Cooperative program when I was hired.  Thus a lot of the initial paper work was already in the system, and the bank had ordered an appraisal.  The turn-around time on the appraisal was fairly quick, and I was pleased to see that the suggested list price approved by the bank was reasonable according to all of my research, so at least we are not dealing with an unrealistic starting price.

We did lose a couple of days as I tried to connect with the B of A representative, who will be my primary contact, but we finally spoke and she seems pleasant and knowledgeable.

So just when I thought this might be smooth sailing, the homeowner received a notice that the 2nd mortgage had been sold to a new investor, and the servicing also transferred away from Bank of America.   So how do you sell a 2nd mortgage that is upside down?  There is absolutely no equity in the home to provide collateral backing for the 2nd TD, so it seems odd that it was sold at this stage of the game.

This of course throws a bit of a wrench into the works as I will now have to negotiate a totally separate approval with the new note holder, through the new servicing company…..once they even figure out that they have the account.  Sigh.  We will have to see how this affects the B of A approval process…really not sure what to expect at this point, but I’ll keep you posted.

First steps are often small and hesitant, but generally precede a more confident stride.  We can hope so.  Apparently U.S.households took a baby step out of financial distress during the first quarter of this year, according to the numbers released yesterday by CredAbility.  The non-profit counseling agency said its Consumer Distress Index hit its highest score in two and a half years, indicating that household financial distress is beginning to ease.

The index measures financial distress in five categories:  employment, housing, credit, household budgets, and net worth.  Average American households are queried and scored on a 100 point scale – the higher the score, the lower the level of financial woes with a score below 70 indicating financial distress.  So a score of 68.15 doesn’t sound like a lot to cheer about, but that is up from a score of 67.2 in the last quarter of 2010.

“I believe a new trend is emerging,” said Mark Cole,COOof the Atlanta-based counseling organization. “Our index has increased by four points in the last five quarters, an indication that the averageU.S.household is getting financially healthier [and] that the majority of consumers are on the right track.”

The positive direction of the index is credited to increased employment rates, but it was no surprise to me that the category dragging down the overall score continues to be housing.  The housing score in fact dropped in the first quarter of this year, indicating that mortgage delinquencies are still a major problem for American households.

So pay attention banks;  if you want us all out there spending money and using credit you’ve got to cut loose the ball and chain holding back our baby steps.  The quicker you cut your mortgage losses, the sooner we’ll all reap the rewards of moving up and out of the distress zone.  Principal reduction, anyone?

The most frequently asked question about selling your home through a short sale is “What will this do to my credit?”  Like most questions in today’s real estate market, there is no single answer.  But the good news is that you may be able to buy another home much sooner than you think.

There are many factors that determine the all-mighty credit scores, but generally a short sale will cause your score to drop by 100 – 200 points.  This is true if your short sale is reported as “settled for less than agreed”, and no deficiency judgment is filed.  This is a critical point, and it is important that you and your Realtor carefully read the language used in any short sale approval.   In California, SB 931 goes into effect on January 1, 2011 which protects borrowers from lender recourse on a 1st  mortgage, but may still leave them vulnerable on 2nd mortgages.  If you are unclear about whether or not your lender can file a judgment or if they ask you to sign a promissory note, consult with an attorney before signing anything!  A deficiency judgment or other recourse will increase the long-term negative impact of the short sale on your credit.

Another important factor is the length of time of default before the sale and whether or not a Notice of Default (NOD) was ever filed.  For many lenders, the filing of a Notice of Default is nearly as derogatory as an actual foreclosure.  A foreclosure stays on your report for 7 years and with either a foreclosure or NOD, you will most likely not be able to buy another home for a full 3 -5 years.  However, with a short sale that did not include an NOD, you may be able to qualify in as little as 2 years, according to some lenders.  This is another reason why it is important to act quickly once you realize you can no longer make your mortgage payments.

The most important factor is improving your score after a short sale is how you manage the rest of your credit.  I have several clients who just 18 months after a short sale have brought their credit back up over 700!  A few of their tips include:

  • Don’t take on additional debt
  • Stay ruthlessly current on every payment
  • Gradually pay down balances to a level that is 1/3 of your total credit line, but don’t close accounts.  Better to pay them off, and use them occasionally.

As short sales become more and more common on credit reports their impact on your non-mortgage credit will likely lessen, and even if you once again choose to buy a home, you may be eligible in as little as 2 years.

We all agree that reducing the national debt and annual deficit is important to the long-term stability and health of our nation’s economy.  But why, in a time when the housing market is so fragile, would anyone think that reducing one of the principal benefits of home ownership is a good idea?

Yesterday, the Deficit Reduction Commission issued its recommendations which included cuts to Social Security, Medicare, Defense spending, and the Mortgage Interest Deduction, among other programs.  The Mortgage Interest Deduction has been around for over 80 years and is one of the principal benefits of owning a home.  This provision allows homeowners to take the annual interest paid on their mortgage as an income tax deduction. Take away or significantly lower the deduction and the benefits of home ownership are reduced to choosing your own paint colors.   Values are not appreciating; no one is building equity, so why buy?

Coincidentally the Federal Reserve’s Beige Book was also released yesterday showing that the depressed housing market continues to be one of the biggest stumbling blocks to economic recovery.  So if I understand correctly, the Feds are saying that our economy won’t show significant improvement until the housing market recovers and at the same time the Deficit Commission is proposing that we make home ownership less appealing.   The logic eludes me.

I believe that the impact of this proposal will be a significant blow to the struggling housing market, whether or not it is ever enacted.   The public in general is still nervous that home values will continue to decline, so many would-be buyers are sitting on the sidelines waiting to buy.  The news reporting of this proposal, and even the remote possibility that the deduction will disappear gives them one more reason to stall, further delaying recovery.

Although I don’t always agree with their politics, the National Association of Realtors got this one right.  This is a stupid idea and I hope that you’ll join me in asking your Representative to defend the Mortgage Interest Deduction.

Behind on your mortgage?  Beware.  You could become the target of a growing scam by foreclosure prevention “specialists” who use deception and outright lies to sell services that promise relief to distressed homeowners.

In the scam, homeowners are asked to pay an upfront fee to retain the services of an auditor, who is supposedly backed by an audit attorney.  This fee might be as much as 1.0% of the principal balance.  On a $350,000 loan that could be as much as $3500, and some audit companies even charge a monthly retainer of $1000.  For this fee, the audit team then offers to review your loan documents to determine if your lender complied with all state and federal lending laws.  The auditors propose that if irregularities are discovered, you can use the audit report as ammunition against your lender to stop foreclosure, get your loan modified, the principal reduced, or even cancel the loan.

Not true.  According to the FTC there is no evidence that forensic loan audits will help you get a modification or any other foreclosure relief, even if conducted by a legitimate attorney.  Some federal laws may allow you to sue your lender for errors in your loan documents, but even if you win your lender is not required to modify your loan.

The bottom line is that if it sounds too good to be true, it probably is and looking for lender errors or omissions is not going to save your home.  But you do have options.  For free guidance visit www.hopenow.com , view the options I discussed  in a previous post, or for immediate answers, please don’t hesitate to contact me directly.

According to numbers released on Monday by the Treasury Department, the Home Affordable Modification Program (HAMP) continues to be an ineffective tool for homeowners.  Loan servicers completed just 28,000 modifications during September, down 16% from August.

The goal of the program was to help 3-4 million borrowers keep their homes by modifying their existing loan to an affordable level.  To date, 1,369,414 modifications have been initiated through the program, but there are only 466,708 active permanent modifications.  Through September, 699,924 trial modifications and 21,190 permanent modifications have been canceled.  That’s a failure rate of over 50%, certainly not a good track record for any program.

So why has this program failed so miserably?  According to Edward Pinto, a prominent housing consultant who recently testified before the House Oversight Committee, HAMP requirements are so confusing that servicers have difficulty complying.  In his words, “There are only two words to describe HAMP’s guidelines:  Numbing complexity.”

So from the banks perspective, the program is difficult to implement and lacks financial incentives, but what do the people most affected think? I asked several clients who tried to get loan modifications about their experience and they cited many problems with the program: 

  • The interaction with lenders was very frustrating.  They were never able to actually speak with anyone who was making a decision about their loan and could only speak with a customer service representative who had limited information and was often from an outsourced international location.
  • They were required to fax reams of documentation, over and over as it apparently was lost and never made it into their file.
  • The time period for review was way too long.  Several clients were in forbearance agreements during the process, couldn’t afford to continue to make the payments and simply gave up.
  • Even after modification, the payments were still too high.  For many borrowers going from an interest only loan to a fixed rate, their payments were actually higher after the modification.
  • The issue of value is not addressed.  Even with modification, paying on negative equity is a difficult pill for many borrowers to swallow.

My prediction?  There will be fewer borrowers even attempting a loan modification and an increase in short sales as more underwater homeowners seek a viable solution.

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