foreclosure Archives - Page 6 of 8 - Real Estate News and Commentary

October 30, 2009October 5, 2019

Looming rental crisis

Renting is not just for those who are unprepared to own a home. These days, many individuals and families are finding that they are seeking rentals because they are being evicted by their foreclosing lenders.

Some have called the influx of renters a crisis in the making, but the extent of the crisis is not yet clear. Many seeking a rental are finding that it is not as easy as they thought; they are finding that applying for a rental is much like applying for a mortgage.

If you plan to apply for a rental (home or apartment) be prepared to provide your personal information to the landlord/management company. Much like mortgage underwriters, landlords and management companies want to make sure you have the ability to pay the monthly rent and through the term of the lease. In addition to collecting your income and employment information, they may also require references from employers and/or previous rentals. Additionally, they will check your credit report to see if you have a history of paying your bills on time.

Before applying for your rental, be prepared by having a month’s worth of pay stubs as proof of your income (self employed individuals may need to provide other forms of income verification) as well as communicating with your employer that they may be called upon to verify your income and employment history. If you’re unaware of your credit standing, be prepared by ordering a free copy of your credit report in case you may need to explain any reported derogatory information.

Additionally, along with your application you should have your first month’s rent and security deposit available. The security deposit is provided as a safeguard against damages to the home and can be equivalent to the first month’s rent or more depending on the terms of the lease and/or additional circumstances (such as pets).

Although the recent decline in home sales has made the rental market competitive, there are rentals available – but you may have to act quickly. If you waiver in your decision or just not prepared, you may lose your rental. For a wealth of information on renting, you can turn to the Montgomery County Department of Housing and Community Affairs (www.montgomerycountymd.gov/dhctmpl.asp). The DHCA offers online resources for landlords and tenants, including a rental guide and rental listings.

Many who have had recent foreclosure are finding that not all landlords/management companies are open to allowing them to rent due to their credit issues. However, some former home owners are finding that some landlords/management companies are flexible in accepting renters with past credit issues; these “understanding” landlords/management companies may require additional deposits as security.

Although there are many recently evicted home owners who are finding rentals, some are having trouble and are at risk of becoming homeless; after all, they may be financially challenged and may not have enough money for rent and security deposits. If you are or know someone who is at risk of becoming homeless, consider contacting the Montgomery County Coalition for the Homeless (301-217-0314). The Montgomery County Coalition for the Homeless is described as a non-profit and community-based organization, and a leading provider of permanent and transitional housing, emergency shelter and supportive services for people experiencing homelessness.

This column 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 October 12, 2009. Copyright © 2009 Dan Krell

July 1, 2009October 5, 2019

Option Arm resets- the coming crisis

by Dan Krell &copy 2009
www.DanKrell.com

The Next Foreclosure Crisis

As the real estate market appears to be stabilizing, another wave of foreclosures poised and to interfere with a recovery. No, the expected wave of foreclosures is not a forgotten portfolio of subprime loans; rather the expected defaults are expected to come from Alt-A mortgages, the bulk of which are to come from resetting option arms.

The Federal Reserve (federalreserve.gov) describes the option arm (also known as a payment option mortgage) as an adjustable rate mortgage with several monthly payment options. The typical payment options include the traditional principal and interest payment, the interest only payment, and the minimum payment. The traditional principal and interest payment is the payment that you would typically make to have an amount applied to the principal amount of the mortgage to pay down your mortgage as amortized. The interest only option only pays the interest for the month without applying anything to the principal, which does not pay down your mortgage. The minimum payment option is typically less than the interest option and applies the month’s unpaid interest to the principal. Not only does the minimum payment not pay down your mortgage, but using the minimum payment over a short period of time will shortly have you owing more than the value of the home (which is called negative amortization) due to the increasing principal.

When the option arm mortgage was first conceived, it was initially used by sophisticated and affluent home owners mostly to assist with cash flow. However, the option arm became increasingly attractive to home buyers who wanted to purchase the maximum home they could qualify for during the market buildup earlier this decade. The option arm allowed the home buyer to be qualified at the very low initial interest rate (do you remember those 1% teaser interest rates?). The interest rate initially resets (or recasts) to market rates after three to six months, and again in three or five years.

When the interest resets, the payments increase. If you used the minimum payment option, then the monthly payment increases significantly due to the increased principal amortized at the new interest rate. Because of the potential for negative amortization, the lender can adjust the mortgage before the recast period if the principal amount grows beyond a predetermined number (usually 110% to 125% of the original principal loan).

Some financial experts have called the expected foreclosure crisis (which will peak in 2010 and carry through 2012) a tsunami as compared to the recent foreclosure wave. Fortunately, due to low interest rates, option arm defaults have remained relatively low after the recast. However, as interest rates begin to rise, we will see the foreclosure wave swell. Prashant Gopal reported in Business Week (Good News: Option ARM Resets Delayed; April 16, 2009) that the problem will increase beginning in spring of 2010 and peak in 2011. Gopal stated that (according to Barclays) there is a 4% to 5% default rate for option arms originated in 2006-2007.

The increased default potential is sure to overwhelm the already over burdened system. Home buyers looking for bargains will likely have another large pool of foreclosures in the next two years. Home sellers will have increased competition for home buyers. If you have an option arm, weigh your options now – before it’s too late.

May 14, 2009October 5, 2019

Prepare for repairs when purchasing distressed properties

by Dan Krell (c) 2009.
www.dankrell.com

So you decided to buy a foreclosure! You’re excited and made arrangements for renovations to begin the day after settlement. But wait; there is an unexpected glitch- your lender is requiring the mold in the basement to be remediated before closing. Home buyers’ lenders requiring repairs to be made prior to settlement is a common scenario of buying a foreclosure or short sale.

Besides imposing qualifications for borrowers, lenders also impose minimal property standards for the homes being financed! Among the many types of items that lenders may require you to repair prior to closing include (but not limited to): mold, termite damage, faulty plumbing, or roofing issues. For FHA mortgages, the minimal property guidelines were notoriously strict in the past; the seller could almost expect a laundry list of seemingly nitpicky repairs from the FHA appraiser. However, recent changes to FHA allow more discernment from the appraiser.

It seems to be somewhat of a paradoxical situation: you’re buying the home as-is, but your lender is requiring you to make repairs to the home prior to settlement. If the home is a short sale you could ask the seller to make the repairs, but then again many home owners selling their home by a short sale don’t have the funds to make their mortgage payment let alone the resources to make any repairs. If the home is a foreclosure, the rule of thumb is that banks do not make repairs to their foreclosed homes. Even though the seller won’t make repairs, you still have a couple of options to save your transaction.

Since you decided that the home you are purchasing is such a bargain, you figure that you might do the repairs yourself. However, not all home sellers will allow you to make repairs prior to settlement because of their liability (such as in a foreclosure transaction where repairs are typically not allowed prior to settlement).

If the repairs are beyond your capabilities, funds are limited, or the seller will not allow you to make repairs, you might think that your deal is dead. However, one of the little known secrets to purchasing distressed properties is the FHA 203k mortgage (HUD.gov). The FHA 203k is similar to a typical FHA mortgage, but the difference is that the loan will finance the repairs and renovations to the home.

The FHA 203k mortgage is not provided by all FHA lenders. Since the FHA 203k has requirements that are above and beyond a typical mortgage, it is highly recommended that you seek assistance from a qualified FHA 203k lender. You can find local FHA 203k lenders at HUD.gov.

Another option that was common in the past is to escrow repair funds. If the buyer’s lender allows, the buyer can place the repair funds in escrow at settlement with the intention to make repairs after closing. However, as underwriting guidelines and practices have become more stringent most lenders will no longer allow for escrowed repair funds.

Buying a distressed property is a great way to get a bargain, but the transaction does not always follow the “typical” home buying process. If you are buying a distressed home, it is a good idea to plan for all contingencies including unexpected repairs by consulting with qualified professionals.

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 April 20, 2009. Copyright © 2009 Dan Krell

February 20, 2009October 5, 2019

Another Try for Mortgage Modification

by Dan Krell, © 2009

As more and more home owners default on their mortgages, something must be done to soften the blow of the foreclosure tsunami facing America. Mortgage modification is one form of home owner assistance that has been attempted since the beginning of the recent crisis. As there are strict criteria for such assistance, it is clear that not all home owners can be helped by a mortgage modification.

A mortgage modification is when a mortgage servicer or lender changes the terms of a mortgage, usually to make repayment easier for the home owner. A modification may be in the form of a lower payment through an interest rate adjustment, lengthening the mortgage term, or both. Home owners who are at-risk of foreclosure will typically have their arrearages added to the principal and/or added to their monthly payment.

Although there are numerous media reports of loan services and lenders making mortgage modifications available to at-risk home owners, the results of voluntary mortgage modification attempts have been mixed. Many home owners’ requests for mortgage modifications from their mortgage servicers/lenders fell on deaf ears. Some home owners who were successful in modifying their mortgage found that their monthly payment increased when arrearages were applied to the new terms; and there are reports of home owners who are delinquent even after successfully modifying their mortgages.

The reason why mortgage modifications as whole have not been widely successful thus far is because of the complexity of the relationship of those involved. A majority of the mortgages that are at-risk are securitized instruments which have many investors (thousands in many cases), to which the servicers and lenders have a fiduciary responsibility. In order for the loan to be modified and meet their fiduciary roles, the servicer/lender would have to have all investors for each mortgage agree to the new terms. In many cases, the servicers and lenders are walking a tightrope balancing between mortgage losses and investor law suits.

Government efforts to make mortgage modifications available to home owners who meet criteria set by HOPE for Homeowners have not been successful, as reported by the National Association of Consumer Bankruptcy Attorneys (NACBA.com). In a December 2008 report, the NACBA stated that the HOPE for Homeowners modification program had a total of 312 applications and no modified mortgages. Additionally, the NACBA reported statistics that indicate voluntary mortgage modification has not benefited homeowners and advocates for judicial mortgage modification (also known as court supervised modification).

Critics voice dissention to judicial mortgage modification and government subsidized mortgage modifications citing concerns that these programs will not only fail to significantly lower foreclosure rates, but will have unintended affects as well. In addition to pointing out that majority of mortgages are not subject to modification (due to deaths, divorce, among other reasons), critics state mortgage interest rates will rise to cover future potential losses from these mortgage modification programs.

Home owners, mortgage servicers and lenders, as well as Wall Street investors are awaiting (with great anticipation) the details of new foreclosure prevention programs unveiled by the Obama Administration. It is unclear what effects the new mortgage modification programs will have on foreclosure rates and mortgage interest rates; however it is clear that modification programs will be only one feature of a total recovery plan.

May 28, 2008November 23, 2021

If Cheap isn’t Selling, What is?

by Dan Krell
Google+

“Home buyers want location, quality, and value.”

Everyone has been talking about bargain real estate for many months now. However, are these bargain homes really selling? If you look on the local MLS, there are presently twenty four single family homes listed in the county priced under $250,000. Of these twenty four homes, approximately 16 of these homes are short sales, 6 are bank owned, and 2 are being sold by the resident. It sounds as if there are a lot of great bargains available, but if you take the time to read the MLS listing and walk through the homes, you realize that these homes may be cheap, but they are no bargain.

Although a short sale (when a home owner sells for less than what they owe their lender) could be a great opportunity to get a bargain home, the obstacles are many and the purchase can be needlessly complicated by the real estate agent who does not know how to manage this type of transaction. Buying a bank owned home (foreclosure) could also represent a home buying bargain; however once inside the home you may realize that the cost of acquiring and repairing the home can exceed the purchase price of neighborhood homes for sale that are in move in condition. The many bank owned home auction events (many of these foreclosures are unsold MLS listings) are an indication that most home buyers feel that a cheap home does not represent a bargain.

So if “cheap” isn’t selling, what is? Unlike the recent the seller’s market when a “tear down” rambler next to the train tracks attracted a bidding war, today’s home buyers are back to basics. Home buyers are looking for a combination of location, quality, and value.

Location, location, location. Yes, the clichéd saying always had meaning, but for various reasons (including gas prices) a home’s location is more important than ever. Whether it’s the local amenities, proximity to Metro, or both- some neighborhoods always seem to be in demand.

When you compare your home to other neighborhood homes, does your home have a superior or inferior location (consider physical location and proximity to amenities)? If your home has a lesser desired location, you might consider making an adjustment in the listing price.

Don’t under estimate the home buyer. Home buyers are savvy and they desire quality and value for their money. Often times, renovations and updates that are completed cheaply repel potential home buyers- mostly because of poor craftsmanship. Needless to say, uncompleted do-it-yourself projects have the same effect. New appliances and carpet make any home look better, except when you choose to buy the cheapest available. Thinking that home buyers won’t know the difference in quality is erroneous. If you look at the recent neighborhood home sales, many are likely to have had quality updates and renovations. If you decide to make updates to your home prior to listing, do it tastefully with a mind for quality. If you cannot, then consider not making updates but adjusting the listing price.

Although price is always at issue, it’s not always the “cheap” home that sells. Some home buyers may make sacrifices in location and quality; but the reality is that home buyers want value for their money.