Top Real Estate Articles

Foreclosure Solutions: Refinance and Mortgage Modification Plans

Apr 14, 2009 Real Estate Services

I remember a time when all the neighbors banded together to complain about the vacant, boarded house in their neighborhood. Now, I see neighborhoods where several of these properties exist on each street! And these neighborhoods are not just in urban areas; nice neighborhoods in the suburbs are having the same problem.

Declining real estate values and the troubled economic times have forced many responsible people to be at risk of losing their homes. Unemployment, pay cuts and the decrease in job benefits has caused millions of homeowners to face foreclosure; millions more are expected to struggle before things improve.

Though the crisis seems to be temporary, something still needs to be done to assist distressed homeowners. Sure, we will find a balance as prices continue to decline and the demand for real estate goes up, but until then, we need to decrease the number of foreclosures which add to the problem.

Vacant homes, littered with debris, are an eyesore to the neighborhood and a danger to the community. Children and teens find these empty houses attractive as they go in to explore or play. They can be injured or, heaven forbid, fall victim to predators who may be waiting inside or force them inside.

New Programs Provide Hope for Homeowners

The Obama Administration launched several new programs in March, 2009, to offer assistance to as many as 9 million homeowners who continue their effort to make their mortgage payments. The plan is to reduce the destructive impact of the housing crisis on families and communities. The Making Home Affordable program was designed to support a recovery in the housing market and ensure that responsible homeowners will be able to continue making their mortgage payments.

The Making Home Affordable Program requires the cooperation of the government, loan servicers, investors and borrowers who will share the responsibility of helping people avoid foreclosure and stay in their homes.

The Home Affordable Refinance Program

This program is designed to provide the opportunity for up to 5 million responsible homeowners to refinance their mortgage. Current interest rates are at historically low levels which allow homeowners to reduce their monthly mortgage payments. Under current rules, homeowners must owe no more than 105% of their homes value in order to qualify. Millions of homeowners put 20% down when they purchased their homes; some even made additional principal payments, but are still facing problems refinancing their homes due to sharply declining market values. The Obama Administrations program offers an opportunity for responsible homeowners whose loans are guaranteed or owned by Freddie Mac and Fannie Mae to refinance through the two institutions, reducing their monthly mortgage payments to make their homes more affordable.

A Home Affordable Modification Program

This is a $75 Billion program intended to prevent foreclosures and help responsible homeowners keep their homes by modifying the terms of their mortgage. The Treasury Department is working with federal agencies on a comprehensive multi-part strategy to prevent millions of foreclosures.

This program will help millions of homeowners owe more on their mortgage than their home is worth in todays market. Many are in trouble because of the current recession; others have fallen victim to hidden fees and increased payments resulting from subprime mortgages. This program should promote security for distressed homeowners and stability for neighborhoods hardest hit by foreclosures.

One of the greatest things about this program is that it brings all parties together to share the cost of making the program work. The government offers financial incentives to lenders who take a reduced interest rate while responsible homeowners continue making their payments. The result will be a reduced number of foreclosures and vacant properties which force the values to continue declining.

How it Works

The Treasury will partner with financial institutions and investors to reduce homeowners monthly mortgage payments.

As the lender agrees to a mortgage modification, they will reduce monthly payments to a level no greater than 38% of the borrowers income.

The Treasury shares in the cost to reduce the payment further, from 38% down to 31% of the borrowers income.

The reduced amount of the payment is kept in place for 5 years, and then the interest rate can be gradually increased by 1% per year until it reaches the capped rate that was implemented at the time of modification.

To reach the lower payment, interest rates can be reduced to as low as 2%. If the debt-to-income ratio is till above 31%, then lenders will extend the term of the mortgage, amortizing it for a period of up to 40 years, and as a last resort, forbear principal at no interest until the payment is reduced to the 31% target.

Lender Incentives to Cooperate

A $1,000 reward is given to lenders/servicers for each eligible loan modification which meets the guidelines established under the new programs. In addition, they will receive $1,000 per year, for 3 years for each successful modification program.

Servicers will be offered similar incentives if they modify FHA, VA or Agriculture Department loans, or refinance loans according to the Hope for Homeowners or similar FHA programs.

Even more incentives are offered to lenders and mortgage holders who agree to a loan modification before ones payments become delinquent, because it has been found that the success rate of modifications is much better if the mortgage is current.

Hopefully these programs will be successful in creating stability for the community and security for homeowners who take action now. We certainly dont need any more vacant homes in our neighborhoods.

Tags: affordable mortgage, Avoid Foreclosure, credit counseling, deed-in-lieu, financial, foreclosure consultant, Foreclosure Help, legal, legal help, Loan Modification, modify mortgage, Real Estate Services, refinance home, walk-away

Coping with Foreclosure: Foreclosure Solutions

Apr 14, 2009 Real Estate Services

If you are facing foreclosure you are not alone. Thousands of people have lost their homes to foreclosure in the last year and thousands more will face financial hardship leading to foreclosure before things balance out.

The Foreclosure Epidemic

The increase in foreclosures began with the subprime mortgages that ultimately led to the mortgage melt-down. Many are placing the blame on the mortgage industry; however, no one could have predicted this. The adjustable rate mortgages, known as ARMs were one example of creative financing methods that were great for some people. The benefits of this plan included 100% financing at a low interest rate that was only fixed for 3 years. The plan was to refinance before the ARM reset and rates were increased.

Unfortunately, the economy took a devastating downturn. With unemployment on the rise, many people lost their jobs and defaulted on their mortgage; therefore, they were unable to qualify to refinance their home. Now, they are stuck with a mortgage payment that they cannot afford. In addition, real estate market values declined sharply, making homes unable to appraise for anything near the amount owed on the mortgage; therefore, another roadblock to refinancing.

To Make Matters Worse

The devastation continues as people are walking away from their homes. Investors are taking a huge loss and mortgage guidelines are getting strict. Even people with very high credit scores are finding it difficult to get a new, fixed rate mortgage.

Bad things happen to good people! Foreclosure hurts, no matter what the cause. People facing foreclosure are devastated; many feel helpless, hopeless and depressed. They wonder who to turn to as they receive countless phone calls and letters from their mortgage company, demanding payment.

To make matters even worse, they are getting letters from consultants and services promising to help them, using phrases like we will save your home or we can stop foreclosure. Though some of these companies are honest, many are scandalous, preying on the helpless, demanding big fees and providing little service. A reputable company does not approach you; they may advertise, but they do not send letters that guarantee favorable results. They are predators who found your name on a foreclosure list or in the legal news.

Foreclosure Solutions

Now that we know how we got into this situation its time to find a solution to the problem. You might just walk away. This is what a lot of people are doing; however, it should be the last resort. Foreclosure is very damaging to your credit and it takes a long time to be removed from your credit report. In some cases, walking away is the only option, but there are other options to consider.

You can always contact your lender to see if they will consider a loan modification plan to help make your payments more affordable. They might reduce your interest rate or increase the term of the loan. They might even go as far as reducing your balance and writing off some charges. Loan modification didnt used to be an option when people were already in foreclosure; however, today, lenders are altering their practices as they stand to take a greater loss with so many mortgages in default.

Another solution is to list your home and see what kind of offers you get. Chances are you will not be able to sell the home for what you owe on the mortgage because market values have declined sharply. In this case, you need to negotiate with your lender to convince him/her to accept a short sale. A short sale is a transaction where the lender is willing to accept less than what is owed now rather than foreclose on the home, incur legal expenses, wait out the redemption period, evict the homeowner, secure the home, list the home, etcAll of this takes time and effort; meanwhile, values continue to decline and the mortgage holder takes a greater loss.

Homeowners can discuss these solutions with their mortgage company, but many are too upset and they just dont know what to say. Just getting through the system to reach the person you need to speak to is an ordeal and the negotiation process is difficult as well. There are honest consultants who specialize in this type of service for a reasonable fee.

Tags: credit consulting, finance, Foreclosure Help, foreclosure options, Foreclosure Solutions, Home And Family, legal help, Loan Modification, Mortgages, Real Estate Services, refinance home, short sale

About Loan Modification: Obama Foreclosure Rescue Solution

Mar 29, 2009 Real Estate Services

Perhaps you have read some of the many reports from Washington, including the one about President Obamas foreclosure rescue programs. The information can be overwhelming, which is why I am writing this article in hopes of minimizing the confusion by explaining the highlights as I understand them. It has been estimated by the government that Obamas plan will help up to 9 million people who are facing foreclosure. Though this may sound like a lot, realize that the Mortgage Bankers Association reports that there are about 51 million first mortgages in the US; therefore, only about 18% will qualify for this program which began in March of 2009. Following is a summary of a complex program; more information can be found at financialstability.gov, a US Government website.

We all know that the foreclosure problem is a very serious matter, but all of the new acronyms are starting to get a bit annoying. The new initiative is being called Making Home Affordable (also known as MHA); heres just a few of the government acronyms to keep track of: TARP, TALF, H4H, GSE, FNMA, FLHMC, PITI, FHA, VA, USDA, etc. Its starting to get a bit overwhelming even for real estate and finance professionals.

There are essentially 2 parts to the program: The first is a plan to refinance eligible mortgages and it is being referred to as Home Affordable Refinance. The other part deals with loan modifications and is known as…Home Affordable Modification. Its just a matter of time until these are called HAR & HAM I am predicting.

First the HAR (Home Affordable Refinance):

The current mortgage must be insured by either Fannie Mae (FNMA) or Freddie Mac (FLHMC). To find out if your mortgage meets this requirement, call (800) 7FANNIE or (800) 7FREDDIE between 8:00am and 8:00pm, Eastern Standard Time. The home in question must be your primary residence, not a second home or investment property. The homeowners income must be sufficient to qualify for this program. Payments must be current, with no payments being 30 days late during the last year. The amount of the first mortgage cannot be over 105% of the homes current market value; therefore, if the property is worth $100,000, the most that can be owed is $105,000. If there are other liens, like a second mortgage or equity line of credit, lien holders must be willing to subordinate, in writing, to the first lien holder. This means the first mortgage holder will retain their superior position. The total owed can exceed 105% of the homes value; however, the refinance of the first mortgage cannot exceed this amount. This program was launched on March 4, 2009.

Now comes the HAM (Home Affordable Modification):

Investor/Lender participation is optional and voluntary; your mortgage servicer must be willing to participate in a modification program. The purpose of this program is to avoid foreclosure whenever possible; each case is analyzed and evaluated to determine if the borrower has sufficient income to afford a modified mortgage payment. The current PITI (Principle, Interest, Taxes and Insurance) must exceed 31% of the borrower(s) gross monthly income. Thats right, another acronym! Borrowers can be behind on their mortgage payments as each individual case is analyzed and evaluated. The plan is intended to reduce the current PITI payment for all mortgages to an amount of 31% or less than the borrower(s) monthly gross income. This includes all liens and lien holders must be willing to subordinate their position to the new modified mortgage. The modified mortgage must be for your primary residence, second homes and investment properties do not qualify. The mortgage must have been executed before January 1, 2009 and the amount owed cannot be more than $729,750. Im sure there is a reason why this is the maximum; however, I have not found any information as to how the government came to this amount. The reduced payment is a result of either a lower interest rate, a longer mortgage term, or, as a last resort, a reduced principle balance. Remember, lender/servicer cooperation is both required and voluntary. There is a 90 day trial period for the modified mortgage where the borrower must honor all the terms, and then the modification is extended for a period of no less than 5 years. Starting in year 6, the interest rate can be increased by no more than 1% per year, until the rate reaches the Freddie Mac Primary Mortgage Survey Rate on the date the modification is executed.

This article briefly explains the highlights of these new programs; more detailed information can be found at financialstability.gov.

I do hope that this new program is more successful than the H4H (Hope for Homeowners Program that was launched in October, 2008. The following information was in an article published recently by Time Magazine:

Grade: F The Plan: Enacted on Oct. 1, Hope for Homeowners was to be the main foreclosure rescue plan from Congress, which allocated $300 billion for the effort. Supporters in Congress, like Massachusetts Representative Barney Frank, said the program would allow hundreds of thousands of borrowers, perhaps millions, to refinance into lower-cost loans by cutting the amount they owed, which for many at-risk-of-default homeowners was more than their house was worth.

The Result: So how many people have Hope for Homeowners saved from foreclosure? Zero. There have been 326 applications in the three months since the program started, but none of those people ” let alone the nearly 6 million homeowners who, by some estimates, may face foreclosure in the next few years ” have received a new mortgage or a modification for the one they have. What’s more, none of the major mortgage lenders, such as Bank of America, Citigroup and Wells Fargo, has signed on to the loan-principal-reduction program ” which gives Hope for Homeowners little chance of being successful anytime soon. “Foreclosure is the problem we have to spend a lot more effort trying to solve,” says the Economic Policy Institute’s Robert Scott. “We need to put a floor under housing prices, and stopping foreclosures is the way you do that.”

Please keep in mind that this is my understanding of the guidelines and that all information should be independently verified. Finally,…please remember…since this is a government program, all rules and guidelines are subject to change. Stay tuned…….

Tags: affordable mortgage, Avoid Foreclosure, counseling, deed-in-lieu, financial, foreclosure consultant, Foreclosure Help, legal, legal help, Loan Modification, modify mortgage, Real Estate Services, refinance home, walk-away