Can’t Pay Your Mortgage?

 Image

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

Advertisements

 

For most of the 22 million homeowners who owe an average of $40,000 – $65,000 more than their home is worth, the recent $25 billion dollar settlement with the banks will bring no relief. According to Robert Menendez, Chairman of the Senate’s housing subcommittee, “When you owe more than your house is worth, relief can be hard to come by.”   Among borrowers whose homes have dropped in value through no fault of their own, many choose to simply walk away, which according to Menendez, “Only exacerbates the problem.”

Menendez has introduced a bill that provides an interesting twist on the idea of principal reduction.  The Preserving American Homeownership Act would encourage lenders to write down principal balances by allowing them to share in the home’s appreciation at a later date.  The principal balance would be written down in increments over a three year period to 95% of the current value, so long as the homeowner remains current on their payments.

In exchange for the write-down, the lender would receive a fixed percentage of any future appreciation when the home is either sold or re-financed.  That share could not exceed 50%.  So if a principal balance was reduced by 25%, the bank would receive 25% of any future appreciation.

The Act would apply to primary residences only, but any homeowner could apply.  Borrowers who are in default or even in foreclosure could qualify, but would be required to make their reduced mortgage payment on time in order to remain in the program.

The article in DSNews where I read about the bill did not indicate if the Act would apply to all types of loans or whether or not the modified loans would be re-written at today’s lower interest rates. Presuming so, this Act could provide enough incentive to many underwater homeowners to persuade them to stay in their home versus initiating a strategic default.

As a fan of principal reduction, I like this idea as it seems to be a win-win situation for both homeowners and the banks.  Banks don’t take as big a hit as they would with a short sale or foreclosure, and the write-down is taken over a three year period, AND homeowners get to keep their homes with reduced payments and principal.  Even the opponents of principal reduction might find something to like about this plan!

Foreclosure in California

Whether you’re facing an involuntary foreclosure or considering a strategic default, here is what you need to know about the process and time line for foreclosure in California.

 

Thanks to my wonderful and talented video producer husband, I’ve just launched the first in a series of short videos designed to help educate consumers on a variety of real estate topics.

The first in the series discusses your 8 options if you can’t pay your mortgage. Would love to hear your comments!

And please don’t hesitate to contact me for a free, confidential consultation. 619-846-9249.

As I’ve mentioned more than once, I’m no Economics genius. So I was pleasantly surprised to read the October 12th NY Times article by Martin S Feldstein, a Harvard professor of Economics and former chairman of the Council of Economic Advisors. It appears that Professor Feldstein and I agree that the only way to stop the drop in home values is by principal reduction.

The professor points out that for most Americans, their homes are their primary source of wealth. Since the housing bubble burst in 2006, Americans have lost $9 trillion or 40% of their wealth. This sharp decline in wealth means less consumer spending, fewer jobs and a stalled economic recovery.

Today, nearly 15 million homeowners owe more than their homes are worth and of this group about half of the mortgages exceed the value by more than 30%. The professor maintains that housing prices continue to fall because millions of homeowners are defaulting on their mortgages and the sale of the foreclosed properties drive down prices. Because most mortgages are non recourse loans, underwater borrowers have a strong incentive to simply walk away.

Professor Feldstein suggests that instead of throwing tax dollars at ineffective programs aimed at reducing interest rates, the government should address the real problem which is that the amount of the mortgage debt exceeds the value of the home.

Here is a summary of his idea: The government would reduce mortgage principal to 110% of the home value. The cost for doing this would be split between the government and the banks. This would help about 11 million of the 15 million underwater homes at a cost of under $350 billion. Considering the millions of mortgages held by Fannie and Freddie, the government would in essence be paying itself.

This would of course be a voluntary program. In exchange for the principal write-down, the borrower would agree that the new mortgage was a full recourse loan and the government could go after other assets if he defaulted on the loan.

I think it sounds fair, as everyone makes a sacrifice and we put the brakes on strategic default. It is a huge one-time cost, but continuing to allow housing prices to fall could risk another, even more costly recession. And speaking for my short sale clients, I know that most would have gladly signed up for a principal reduction if it meant saving their home.

What do you think?

Anyone who knows me would probably say that I’m a fairly optimistic person, but lately it seems as though the real estate market is developing into a vicious cycle with no way to correct itself.   In a report released on Monday, the researchers at Capital Economics said that we could expect nationwide home prices to fall an additional 3% this year, bringing the year’s total decline to about 5%.  So, despite the fact that some markets inSan DiegoCountyhave seen modest gains in home prices over last year, overall, the picture is less than rosy.

So what are the driving forces behind this downward spiral?  Well, the obvious answer is that there are many complicated factors at play, but the cycle we’re seeing is really pretty simple:   Housing prices are falling due to low demand and too much inventory. Normally after a recession, home sales start to pick-up, but that’s not what we’re seeing.  Instead, demand is being strangled by increasingly stringent lending requirements which restrict buying power.  So instead of more buyers coming into the market to take advantage of the low interest rates, we’re seeing fewer that are able to qualify because of high credit score and/or high down payment requirements.   Even existing homeowners looking to sell and buy up or down are caught in a stalemate as most have limited or no equity to leverage against a new property. 

The cycle picks up momentum every time prices drop.  Lower prices, mean less equity for existing homeowners and for those with a mortgage, an increasing number of borrowers are choosing strategic default.  These voluntary defaults are adding to the foreclosure inventory already on the market and the estimated 5 million foreclosed homes lurking in the shadows.  And so the cycle continues; more foreclosures create a bloated inventory.  With an insufficient number of buyers able to buy, sales drop and prices fall, which breeds more foreclosures, and on, and on.

As I’ve noted before, I’m no economist and certainly don’t have all the answers, but there are clearly two actions that could put the brakes on falling prices and encourage increased sales:

  1. Congress should oppose the Quality Residential Mortgage (QRM) requirements being proposed.   The QRM would require an unnecessarily high down payment of 20% and impose a very stringent debt-to-income ratio for conventional loans.  The result would be that more borrowers would seek FHA loans, which in turn would likely raise qualification standards and insurance requirements.  The bottom line result will be fewer qualified buyers and fewer sales.
  2. Banks need to address the issue of negative equity by offering programs that provide principal reductions.  When a borrower feels that he/she is paying on lost equity that they will never recoup they are more likely to choose to default, adding to the inventory glut.

Do you have any ideas about breaking the cycle of falling prices?  I’d love to hear from you!

 

A recent study by analytics company CoreLogic reported that nearly 25% of all mortgage borrowers owe more than their home is worth.  The aggregate amount of negative equity in the U.S. was a whopping $750 billion at the end of last year.   This lost equity prevents homeowners from refinancing or moving, and according to the report, is the “dominant factor” driving the real estate market.

If you’re among the millions who are paying each month for negative equity, you probably have some questions about your options.  To help address this issue, I’m offering a FREE workshop here in San Diego covering the following:

  • Should I wait for home values to increase?  What is the future of San Diego real estate?
  • What about a loan modification?  What programs are available, how do I qualify, and how many loan modifications are actually approved?
  • If I can’t afford my payments, what are my options?
  • What is involved in the foreclosure process?  How long can I stay in my home? How will it affect my credit?
  • Will filing Bankruptcy save my home?
  • What is a strategic default?  What are the risks?
  • What is a Deed in Lieu of Foreclosure?
  • Is a short sale better than foreclosure?  What is the process? What is a HAFA short sale?
  • What about deficiency judgments and 1099s?  When can I qualify to buy again?

Saturday, June 25th  10:00 – 11:30 a.m. 

San Diego County Library, 4S Ranch

10433 Reserve Dr, San Diego, CA 92127

There is no fee or obligation for attendance, but space is limited.  Advance registration is required.  Homeowners will receive comprehensive workshop materials.

Call 1-888-464-1820 x104 to Register Today

As mentioned previously, I’m not an accountant or lawyer and you should always consult the appropriate professional before making any major decision about your home.