foreclosure Archives - Page 4 of 8 - Real Estate News and Commentary

March 30, 2010October 5, 2019

Benefits for delinquent home owners while reducing foreclosures

by Dan Krell © 2010

Additional assistance for financially challenged home owners was announced last Friday (March 26th) by the U. S. Treasury (ustreas.gov). To assist struggling home owners keep their homes and lessen the number of foreclosures, the expansion of the Home Affordable Modification Program (HAMP) will address unemployed home owners, negative equity, second mortgages, and “premature” foreclosures.

Unemployed home owners take heart. You may be afforded a mortgage forbearance period of at least three months (not to exceed six). Once you find employment you will be considered for a permanent HAMP mortgage modification if you stay current on your forbearance payments and your monthly mortgage payment is more than 31% of your monthly income. You will have to provide proof of income and the modification must meet the standard net present value (NPV) test (The NPV test compares the cash flow of a modified mortgage to the cash flow of an unmodified mortgage). However, if you do not find employment during the mortgage forbearance period, you will be considered for the Home Affordable Foreclosure Alternatives program.

If you are looking to regain some of your home’s equity, you may now have a vehicle to do so through a HAMP mortgage principal write down. Participating lenders will be offered additional incentives to provide onetime mortgage principal write downs when mortgage balances exceed 115% of the home’s value. An alternative principal reduction plan will be combined with a HAMP mortgage modification and may be permanent as long as modification payments are timely for three years.

If you’re seeking to refinance your HAMP eligible mortgage but your loan balance exceeds 115% of your home’s value, you may qualify for a FHA refinance in conjunction with a lender mortgage principal write down. The new loan may not exceed 97.5% of the value of the home (current FHA borrowers are not eligible). The refinance may also qualify to consolidate a first and a second loan under these circumstances.

If a second mortgage is giving you trouble, it may now be eligible for a modification if your first mortgage was already modified through HAMP and your lender participates in the Second Lien Modification Program.

Finally, further protections have been added to assist you if you are pursuing a HAMP modification or seeking bankruptcy protection. In an effort to prevent “premature” foreclosure sales while home owners are seeking modifications, lenders are advised to increase communication with home owners (through telephone and mail) as well as requiring a written certification that the home owner is not HAMP eligible prior to conducting a foreclosure sale. Additionally, home owners who have pursued bankruptcy protection will no longer be excluded from HAMP programs.

Although the HAMP enhancements will not be up and running immediately, the full program is expected to be available by the fall (with pieces implemented gradually). Additionally, mortgage principal write down programs may take some time to implement; however some lenders may already have similar programs in place.

To qualify for these new programs, home owners must be HAMP eligible (and meet other specific requirements). Unfortunately, reports of these programs on the internet and other media outlets are sometimes incomplete, incorrect and/or exaggerated; it is highly recommended that you check the fact sheets on the Making Home Affordable (www.makinghomeaffordable.gov) website as well as talking to a Making Home Affordable counselor.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of March 29, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell

March 17, 2010June 28, 2019

HAFA – a misunderstood program

As April 5th approaches, everyone is excited about the official start of the Home Affordable Foreclosure Alternatives (HAFA) program. HAFA is a major development to curb the number of foreclosures by allowing home owners the opportunity to sell their home through the short sale process. Many incorrectly misunderstand the program to approve all short sales; however, it is a measure to facilitate lenders’ loss mitigation processes (the process that lenders use to determine the manner in which to dispose of property and lose the least amount of money) that includes short sales, deed-in-lieu (of foreclosure), and foreclosure.

To provide assistance to financially challenged home owners, the Making Home Affordable program (MHA) was announced February 2009. The program was devised to assist eligible home owners retain their homes by either mortgage modification or refinance. HAFA was introduced in May of 2009 to provide structure to the seemingly convoluted loss mitigation process (www.treas.gov).

You probably already know that a short sale occurs when a home owner sells their home for less than what they owe their lender. In a short sale, the lender is asked to give their blessing and to “forgive” the difference between the sale price and what is owed. Home buyers often seek out short sales as a means of purchasing a “bargain” priced home. Unfortunately, the traditional short sale is typically a lengthy process that is full of pitfalls; but for patient home buyers the short sale is worth the wait.

On average, it is not unusual to wait 2 to 4 months to receive third party approval for a short sale; some short sale approvals can take much longer. Reasons for lengthy waits for short sale approvals are complex and varied, but may be due to (and not limited to) consultations with bond holders (of mortgage backed security within which the loan was pooled), a vast backlog of files, and the loss mitigation process itself.

The HAFA program is intended to reduce the cost and impact of foreclosure to lenders as well as neighborhoods. The program allows the home owner 90 days (or more depending on the market) to procure a buyer for their home at a sale price that is set by their lender; this allows a home buyer to purchase the short sale without waiting months for a short sale approval. If the short sale period ends unsuccessfully, the home owner must give the home back to the lender via a deed-in-lieu.

Foreclosure proceedings are allowed to coincide with the short sale, however the foreclosure sale is deferred until the short sale process is concluded. Monetary incentives are given to participating lenders as well as to home owners who adhere to the program until its fruition. Eligible home owners will be accepted into the HAFA program until December 31, 2012.

Since HAFA will officially begin in a few weeks, information is being provided through many outlets. It is understandable that some of the information provided is incorrect and/or sensationalized. To qualify for HAFA, the home owner must be eligible for MHA (mostly, loans that have been bought by Fannie Mae or Freddie Mac) but either did not qualify for a modification or was unable to complete the process. If you are unsure of your eligibility, program guidelines, and additional information, check with your lender and/or the Making Home Affordable website (www.makinghomeaffordable.gov).

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

March 15, 2010October 5, 2019

Extending Foreclosure Protections for Members of Armed Services

by Dan Krell © 2010

Extending foreclosure assistance for active duty service members
As concerns over increasing foreclosures throughout the country, foreclosure assistance and relief for active members of the United States Armed Services that was included in H.R. 3221: Housing and Economic Recovery Act of 2008 is set to expire December 31, 2010. In response and support for those who are actively serving, Rep. Thomas Perriello (D-VA)introduced legislation October 29, 2009 to extend foreclosure assistance for active members of the U.S. Armed Services.

H.R. 3976: Helping Heroes Keep Their Homes Act of 2009 to extend those protections to expire December 31, 2015 was introduced October 29, 2009. The bill is still alive in Congress and calls for the “Extension of enhanced protections for servicemembers relating to mortgages and mortgage foreclosure under servicemembers civil relief act (section 2203(c)(2) of the Housing And Economic Recover[Y] Act Of 2008 (public law 110-289).”

The bill was last reported by Committee on March 4th and recommended to be voted on by the house. If this bill becomes law unamended, current protections for foreclosure relief for members of the Armed Services would be extended to the end of 2015.

March 3, 2010October 5, 2019

Strategic Default: The new face of foreclosure

by Dan Krell © 2010

Foreclosures have been the focus of headlines for a couple of years. Monthly statistics of home owners losing their homes has created a debate about solving a crisis that has been sucking the life out of the economy and our communities. Clearly many financially challenged home owners do not have a choice about leaving their homes. However, the trend of homeowners who are deliberately not paying their mortgages is a telling story.

“Strategic default” is a term that is used to describe the processes of non-payment of a loan by a borrower who has the financial ability to pay. Although strategic default is typically used to describe the “walking away” from a financial obligation by a home owner who is not having financial difficulty, the term has become loosely used to encompass any home owner that walks away from their mortgage.

As home values have decreased, there are an increasing number of home owners who are realizing that the amount they owe to their lender is more than the value of their home (this is also known as negative equity). Increasing sentiment among many home owners is that they don’t want to continue paying for a home for which they no longer have equity. The growing number of strategic default advocates, which have spawned popular web sites such as YouWalkAway.com, may be indicative of a “movement” of sorts.

However, not all home owners who are under water will walk away from their homes; there are many moral and ethical arguments, as well as other consequences, against the strategic default of a mortgage.

Most of the research conducted after the recession of the early 1990’s (when mailing a house key to the lender was not uncommon) concluded that the lower the down payment (including down payment assistance) combined with negative equity results in significantly higher incidents of strategic default. So even though it was likely that lender analysts and actuaries knew the risks of borrowers not having “skin in the game,” they hedged their bets on an appreciating economy.

Contemporary research has pointed to the same factors when it comes to strategic default:

Downing, Stanton, & Wallace (An Empirical Test of a Two-Factor Mortgage Valuation Model: How Much Do House Prices Matter? Real Estate Economics. 2005, vol 33, Iss. 4; p. 681) concluded that mortgage termination models that do not include house price changes present significant bias to price and hedge ratios.

Austin Kelly (“Skin in the Game”: Zero Down payment Mortgage Default. Journal of Housing Research. 2008. Vol. 17, Iss. 2; p. 75) found that mortgages that required no money from the borrower (either zero down payment or receiving down payment from other sources) had significantly higher incidents of defaults.

Edmiston & Zalneraitis (Rising Foreclosures in the United States: A Perfect Storm. Economic Review – Federal Reserve Bank of Kansas City. Fourth Quarter 2007. Vol. 92, Iss. 4; pg. 115) concluded that the number of strategic defaults will increase as home values decrease and the owners are unlikely to sell.

As more options become available to home owners considering a strategic default, simply walking away without consideration of moral, ethical, and legal consequences may not be prudent. Lenders are increasingly becoming interested in working with home owners rather than have them walk away. As always, consult your attorney and/or CPA for assistance with such legal and financial decisions.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of March 1, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell

December 18, 2009October 5, 2019

How the Fed delays the next foreclosure wave

On Wednesday, the Open Market Committee of the Federal Reserve decided to keep the key interest rate unchanged (http://www.federalreserve.gov/newsevents/press/monetary/20091216a.htm). The rationale provided was that although the economy as a whole shows signs of recovery, it continues to be fragile. The OMC cited signs of a recovery as the “abating” unemployment, expanding household spending, and a stabilizing real estate market. The economy continues to be fragile due to tight credit, lower household wealth, and the reluctance for business to hire new employees.

Although there is no direct relationship between the Fed’s key interest rate and mortgage interest rates, the monetary policy of the Federal Reserve’s Open Market Committee does affect investor behavior; a majority of mortgage interest rates are directly related to bond yields that are traded in bond markets around the world.

Since adjustable mortgages have historically been more sensitive to any Fed rate adjustment (up or down) due to the nature of its short term vulnerability, many homeowners with adjustable rates (that are expected to reset in the next several months) are probably unaware that they may have dodged a bullet (in the form of possible negligible rate adjustments).

If you recall, many homeowners in 2006 and 2007 purchased homes with adjustable rate mortgages that had teaser rates as low as 1%. Many of these homeowners may not have been able to afford the homes if they were qualified at the higher fixed rate mortgage. The anticipated foreclosure wave is to include many of these homeowners who cannot afford the higher mortgage payments when rates reset at a higher interest rate. However as interest rates continue to stay relatively low; the anticipated foreclosure wave continues to be delayed as adjustable mortgages resets stay lower than anticipate.

Because many adjustable rate mortgages are due to reset this coming year, financial experts expected the next foreclosure wave to peak between 2010 and 2012. The Fed’s continued monetary policy to maintain the federal funds rate between 0 and ¼ percent as well as continued purchases of mortgage backed securities (albeit at a continued slower pace) will most likely have the indirect effect of abating another wave of foreclosures.

It is unclear what message would be sent if the Fed took another tack on monetary policy; however one could speculate that it may have signaled the beginning of the second foreclosure wave and possibly the beginning of the double dip recession.

This article is not intended to provide nor should it be relied upon for legal and financial advice.