In today’s economic climate, many families are finding themselves in dire straights. The home that was once a blessing has now become a financial burden.
In an attempt to avoid foreclosure, which can reap havoc on one’s credit for years to come, homeowners are searching out details on short sales.
In simple terms, a foreclosure is when, after defaulting on payments (typically after 3 months), an estate becomes the absolute property of the lender. And what’s more, in some cases you, the homeowner, may also be responsible for “deficiency judgments.” These mean if the sale of the foreclosed property doesn’t satisfy the amount of the loan, you may be obligated to pay the difference.
On the other hand, a short sale, according to MSN Money, is “the sale of a house for less than what the owner still owes on the mortgage. If the lender agrees to a short sale, the rest of the homeowner’s debt typically is forgiven. Lenders sometimes agree to the procedure in order to take a small loss and avoid the lengthy and costly foreclosure process.”
There are more reasons to avoid foreclosure than just your credit rating. A recent report from NeighborWorks America ® notes that other factors come into play in neighborhoods affected by foreclosures. These issues include such things as lowered property values, increased incidence of financial scams, youth stress and instability, and increased crime rates. The report notes, “Abandoned homes from the foreclosure crisis have a direct effect on the rise in crime in communities.” And according to another study by Dan Immergluck of the Georgia Institute of Technology in Atlanta and Geoff Smith of the Woodstock Institute in Chicago, “When the foreclosure rate increases one percentage point, neighborhood violent crime rises 2.33 percent.”
There are some prudent steps to take when considering a short sale.
First, learn about loan modifications. Honesty is the best policy when it comes to lenders. Pick up the phone and call your lender, explain your situation, and see what your options may be that could allow you to stay in your home. The processes of foreclosure and short sale can be costly to lenders, and they may be willing to work out a payment schedule that will get you through this trying time.
Second, consult with the experts. According to the National Association of Realtors, by using a qualified team of short sale professionals, along with a real estate attorney, you can ensure that you aren’t taken advantage of during the short sale process. This team can help:
- Provide you with a comparative market analysis (CMA) or broker price opinion (BPO).
- Help you set an appropriate listing price for your home, market the home, and get it sold.
- Put special language in the MLS that indicates your home is a short sale and that lender approval is needed (all MLSs permit, and some now require, that the short-sale status be disclosed to potential buyers).
- Ease the process of working with your lender or lenders.
- Negotiate the contract with the buyers.
Next, prepare for a long selling process. Waiting for your lender’s approval of your short-sale package can take several weeks to months.
Finally, a short sale is not the end all solution to your problems. Though there have been recent allowances made by the government under the Mortgage Forgiveness Debt Relief Act and the Debt Cancellation Act, debt forgiven by your lender may be considered income that taxes will have to paid upon.
If you are having issues making your mortgage payments, call me to discuss your options regarding debt programs and short sales.
Published: May 10, 2010
The expiration date of the $8,000 first-time home buyer may have already passed for most, but there are some potential homebuyers who can still take advantage of this great opportunity.
For those who are qualified service members, you have an extra year to cash in on the credit. Your new deadline is April 30, 2011. The government defines “qualified service member” as a member of the uniformed services of the U.S military, a member of the Foreign Service of the U.S., or an employee of the intelligence community.”
The reasoning behind this extension is simple. National Association of Home Builders Chairman, Bob Jones, says, “Congress recognized that many service members may have missed out on the home buyer tax credit due to being posted overseas. It is only fitting that they be given another year to take advantage of this opportunity in appreciation of the sacrifices they have made serving our country.”
There has been another modification to the credit for members of the armed service. Currently, a buyer must repay the credit if they move out of their new home within three years. This particular contingency has been waived if the move is due to government ordered extended duty service.
Buyers must meet the other qualification for the credit, however, including the income limits. These limits are set at $125,000 for single taxpayers and $225,000 for married taxpayers filing joint returns.
You must be a first-time home buyer, which is defined as “a buyer who has not owned a principal residence during the three-year period prior to the purchase. For married taxpayers, the law tests the homeownership history of both the home buyer and his/her spouse.”
If you don’t fit under this definition, then be sure to check into the $6,500 repeat buyer tax credit.
To get the first-time home buyers credit, you will need to claim it on your federal income tax return. There is a specific form (IRS Form 5405) that helps you determine how much the credit will be. Be sure to talk to your tax professional about the credit to ensure it is submitted correctly.
For those interested in the credit, you can visit FederalHousingTaxCredit.com to find out more information.
Published: May 4, 2010
By Stephanie Armour, USA TODAY
The Obama administration’s initiative to help homeowners obtain modifications of second mortgages is getting off the ground.
Just this month, Bank of America became the first major lender in the program to send letters offering modifications to home-equity loan customers struggling with their loans. Citigroup, JPMorgan Chase and Wells Fargo joined the program in March, when updated guidelines were issued by the government. Those banks hold about half of the USA’s second liens.
The program, originally introduced in August, is aimed at overcoming an impediment to permanent modifications of first mortgages. Holders of first mortgages have been reluctant to take losses unless the holder of the second-lien mortgage does, too. More borrowers are staying current on their second mortgages, however, which has made those lenders less inclined to take losses.
“This is a huge concern for consumers,” says Marietta Rodriguez, national director for homeownership and lending at national non-profit NeighborWorks America. “You have two financial institutions trying to get a payment out of you. How do you respond?” The government’s second-mortgage program, called 2MP, offers incentives to borrowers, mortgage servicers and investors to modify second mortgages. How it works:
•When a borrower’s first loan is modified under the federal program, known as the Home Affordable Modification Program (HAMP), and the servicer of the second loan is also a participant in HAMP, that servicer must offer to modify the borrower’s second lien.
•Servicers can stretch the term of the second loan to 40 years.
•Second-lien lenders must defer the payment of the same proportion of principal that was deferred or forgiven on the first loan.
The second loans also must have originated on or before Jan. 1, 2009, to be eligible for a modification. Modifying a mortgage with a second lien can be more difficult because of the additional parties involved. A second lien may be held by another servicer or investor, and getting all parties to agree on interest rate reductions or other steps to ease borrowers’ monthly payments can be time-consuming or difficult. The government program aims to make the process easier. The number of homeowners who will get assistance is limited.
While the program is expected to reach up to 1.5 million homeowners who are struggling to afford their mortgage payments, there are an estimated 19 million residential junior liens, with an average balance of $57,000 as of January, according to First American CoreLogic. Up to 50% of at-risk mortgages have second liens, according to the Treasury Department. Even with the incentives the government is offering mortgage lenders to modify second mortgages, they could still prove to be an obstacle as pressure grows to reduce borrowers’ loan principal. “First-lien holders become more reluctant to do principal reduction because of the second” lien, says Jack Schakett, loss mitigation strategies executive at Bank of America. “Everyone is calling for doing more principal reduction. Second liens will be a problem.”
By Aldo Svaldi – The Denver Post
Homes in Colorado and the U.S. are falling into foreclosure at a much faster pace this year than last, according to a report Thursday from RealtyTrac. But a freeze on foreclosure activity early last year by lenders waiting for new federal guidelines on loan modifications can explain much of that gap. The government had asked lenders to voluntarily halt foreclosures until the new guidelines came out, and many did so. In Colorado, overall foreclosure filings in the first quarter were running 27.1 percent higher than in the first quarter of 2009, according to RealtyTrac. Nationally, they were increasing at a 16 percent pace. Colorado reported one foreclosure filing for every 134 homes during the quarter, ranking it 10th among states. Nationally, the rate was 1 out of 138 homes. Ryan McMaken, author of a separate foreclosure report from the Colorado Division of Housing, said foreclosure activity in the state is running higher this year than last. He attributes that to the voluntary moratorium last year. But the first-quarter state numbers are tracking on par with, and in some cases lower than, other quarters last year. “I haven’t seen anything that indicates why Colorado has accelerated more than the nation,” McMaken said. That isn’t to say that lengthy periods of unemployment and lower incomes aren’t weighing on many home owners despite efforts to help them. Some economists and industry experts expect more borrowers to lose their homes through foreclosure or short sales, in which they sell the property for less than they owe, as government and industry mortgage- relief programs falter. “We’re not surprised to see an influx of (repossessed properties). We thought this would be coming; we just didn’t know when,” said Daren Blomquist, spokesman for RealtyTrac. The Washington Post contributed to this report. Aldo Svaldi: 303-954-1410 or firstname.lastname@example.org
Posted April 13, 2010on:
For the third month in a row, Denver-area home prices showed a year-over-year increase in January, according to the latest S&P/Case-Shiller Home Prices Index.
Out of 20 U.S. cities in the closely watched report from Standard & Poor’s, released Tuesday, Denver was one of nine that showed a year-over-year increase in prices.
Denver-area home prices were 2.6 percent higher in January 2010 than in January 2009. That followed a 1.2 percent year-over-year increase in December and a 0.5 percent gain in November.
However, prices slipped 1.3 percent in January from December 2009.
November’s rise was the first year-over-year home price increase in the Denver area since November 2006, according to a Denver Business Journal analysis of Case-Shiller data. Between those months, Denver had 36 straight months of year-over-year price declines.
Denver’s home price index was 125.59 in January, meaning that a typical home in the area was worth nearly 26 percent more than in January 2000, which is the index’s base year.
Nationwide, the Case-Shiller 20-City Composite Home Price Index declined 0.7 percent year over year, while the 10-City Composite Home Price index was flat. This is the nearest that either index has come to positive territory since January 2007, three years ago, according to S&P.
“The report is mixed,” David Blitzer, chairman of the Index Committee at Standard & Poor’s, said in a news release. “While we continue to see improvements in the year-over-year data for all 20 cities, the rebound in housing prices seen last fall is fading. Fewer cities experienced month-to-month gains in January than in December 2009, on both a seasonally adjusted and unadjusted basis. Moreover, in four cities — Charlotte, Las Vegas, Seattle and Tampa — prices reached new lows following the financial crisis.”
Other recent housing data also paint a mixed picture, Blitzer said.
“Housing starts continue at extremely low levels, recent reports of home sales suggest the market remains difficult, and concerns remain about further foreclosures and a large shadow inventory of unsold homes,” Blitzer said. “We are in a seasonally weak part of the year, but given the S&P/Case-Shiller Home Price data reported today, we can’t say we’re out of the woods yet.”
WASHINGTON — The Obama administration plans to overhaul how it is tackling the foreclosure crisis, in part by requiring lenders to temporarily slash or eliminate monthly mortgage payments for many borrowers who are unemployed, senior officials said Thursday.
Banks and other lenders would have to reduce the payments to no more than 31 percent of a borrower’s income, which would typically be their unemployment insurance, for three to six months. In some cases, administration officials said, a lender could allow a borrower to skip payments altogether.
The new push, which the White House is to announce today, takes direct aim at the major cause of the current wave of foreclosures: the spike in unemployment. While the initial mortgage crisis that erupted three years ago resulted from millions of risky home loans that went bad, more recent defaults reflect the country’s economic downturn and the inability of jobless borrowers to keep paying.
The administration’s new push also seeks to more aggressively help borrowers who owe more on their mortgages than their properties are worth, offering financial incentives for the first time to lenders to cut the loan balances of these distressed homeowners. Those who are still current on their mortgages could get the chance to refinance on better terms into loans backed by the Federal Housing Administration.
The problem of “underwater” borrowers has bedeviled earlier administration efforts to address the mortgage crisis as home prices plunged.
Officials said the new initiatives will take effect over the next six months and be funded out of $50 billion previously allocated for foreclosure relief in the emergency bailout program for the financial system. No new taxpayer funds will be needed, the officials said.
The measures have been in the works for weeks, but President Barack Obama is finally to release the details days after his watershed victory on health care legislation. Following that bruising battle on Capitol Hill, his administration is now welcoming a chance to change the subject and turn its attention to the economy and, in particular, the plight of the unemployed — concerns that are paramount for many Americans.
In addition to mortgage relief for unemployed borrowers, the program features four other key elements, including several steps to address the growing population of borrowers who owe significantly more than their home is worth, according to officials who spoke on the condition of anonymity because the official announcement had not been made.
The first key element is that the government will provide financial incentives to lenders that cut the balance of a borrower’s mortgage.
Banks and other lenders will be asked to reduce the principal owed on a loan if the amount is 15 percent more than their home is worth. The reduced amount would be set aside and forgiven by the lender over three years, as long as the homeowner remained current on the loan.
Until recently, administration officials had been reluctant to encourage lenders to cut the principal balance, worrying that this would encourage borrowers to become delinquent. But as federal regulators have struggled to make an impact on the foreclosure crisis, those qualms have weakened.
Second, the government will double the amount it pays to lenders that help modify second mortgages, such as piggyback loans, which enabled homebuyers to put little or no money down, and home equity lines of credit. Third, the new effort also increases the incentives paid to those lenders that find a way to avoid foreclosing on delinquent borrowers even if they can’t qualify for mortgage relief. For example, the administration is scheduled to launch a program next month encouraging lenders to have borrowers sell their homes for less than the mortgage balance in what is known as a short sale.
Fourth, the administration is increasingly turning to the Federal Housing Administration to help underwater borrowers who are still keeping up their payments. The aim is to help these borrowers refinance into a more affordable loan. The FHA will offer incentives to lenders that reduce the amount borrowers owe on their primary mortgages by at least 10 percent.