By Bill Rice
There is a good possibility that you may be one of these negative housing statistics, or will be in the near future. The good news is that banks, mortgage lenders, and servicers have never been more willing to help you avoid foreclosure.
Loan modifications are becoming the new mortgage refinance. With an increasing number of homes sinking into double-digit depreciation and many mortgages upside-down, most homeowners lack the necessary home equity to complete a traditional mortgage refinance.
Loan modifications are just as the term implies, a renegotiation or modification of your existing loan. Unlike traditional mortgage refinance you are not getting a new mortgage. In the loan modification process you are simple modifying the terms of your existing agreement.
Most major banks, as well as government controlled entities like Fannie Mae and Freddie Mac have adopted generous guidelines to renegotiate troubled mortgages. Generally, these loan modifications were targeted at borrowers that had already become past-due. However, the deepening mortgage crisis is making these options available to an ever expanding group of borrowers.
So, why might you consider a loan modification? There are certainly a variety of reasons you might qualify for or simply consider a loan modification.
Here are a few of the most compelling reasons to renegotiate your mortgage:
* You have missed a mortgage payment
* Your mortgage rate or payment is set to adjust
* Your home has lost a significant amount of value
* Your income has been negatively impacted
* One or more household earners has lost a jo
* Your mortgage payment exceeds 37 percent of your income
Note that missing a mortgage payment is no longer a pre-condition to considering renegotiating your mortgage. If your financial circumstances have changed, start talking to your lender about modifying your mortgage.
Anytime there is despair in the market it is time to be cautious. Those seeking a loan modification should heed this warning. Loan modification scams and rip-offs are proliferating in this troubled market. So, carefully follow some simple steps to manage your search for a loan modification.
Start with your mortgage statement. Your mortgage servicer is ultimately the only organization that can modify your mortgage loan. That is why you should call them first. This will help you understand your specific options with the lender with which you have a mortgage contract.
The next step is to gather up complete documentation of your income and expenses. A simple calculation of your debt to income ratio will give you a good indication if your "hardship" will be considered by your servicer. If your debt exceeds 37 percent of your income, most lenders will consider your request to modify you loan.
With this basic information call your servicer--this is the name and telephone number on your loan statement. They will most likely request a "hardship letter" and all of the documentation you just collected (i.e., W-2's, 1099's, bank statements, and mortgage statements), estimates of debts and expenses, and some estimation of your home value.
This will kick off your loan modification process. This process will be long and frustrating. There are millions of homeowners in your same situation. This is causing an immense queue of homeowners. Therefore, make sure that you keeping calling and following up on your inquiry. This is the only way to get it done.
There will be fees involved in completing your loan modification, but careful scrutinize every item. You can reasonably expect your lender to request a "Good Faith Payment" and fees related to attorney and processing fees. You may also be asked to "impound" insurance and back property taxes.
The most important consideration in accepting any loan modification is can you afford the new payment. It is amazing how many early renegotiations of mortgages had borrowers accepting higher payments. Your new mortgage, by extending the term, lowering the mortgage rate, or reducing principle should make your payment more affordable.
Mortgage Cram-Down Bankruptcy Legislation Passes in House
By Bill Rice
According to reports from the Congressional Budget Office this law will help 1 million homeowners remain in their homes. The proposed law would give Federal judges the authority to modify mortgage contracts by lengthening terms, cutting mortgage rates, or reducing loan balances. It would also permanently increase the Federal Deposit Insurance Corporation (FDIC) coverage of deposits to $250,000.
Although this law would arguably give judge more tools to help consumers recover from crushing debt, it will continue to apply pressure to banks and housing prices.
The bill stalled in the House earlier this week amid significant opposition from the banking industry. Industry groups, like the American Banker, claim that this legislation will just further destabilize housing prices. There was also concern with the earlier version of the bill being too attractive; therefore, ceasing to be a true "last resort."
As a result, the House tightened the legislation with the provisions such as a equity share that would be paid back to the bank if the property was sold later at a profit.
Experts believe that this will significantly increase Chapter 13 bankruptcy filings. Chapter 13 bankruptcy code allows individuals with regular income to pay all or a portion of their debts and avoid losing their homes in foreclosure.
Friday jobless numbers that continue to climb give us reason to believe that this bankruptcy provision is likely to get a lot of exercise, if passed. February jobless claims reported another 651,000 jobs lost. This raises the unemployment rate to 8.1 percent from 7.6 percent in January, the highest level since 1983. Total job loss since the recession began in December 2007 reaches 4.4 million.
According to reports from the Congressional Budget Office this law will help 1 million homeowners remain in their homes. The proposed law would give Federal judges the authority to modify mortgage contracts by lengthening terms, cutting mortgage rates, or reducing loan balances. It would also permanently increase the Federal Deposit Insurance Corporation (FDIC) coverage of deposits to $250,000.
Although this law would arguably give judge more tools to help consumers recover from crushing debt, it will continue to apply pressure to banks and housing prices.
The bill stalled in the House earlier this week amid significant opposition from the banking industry. Industry groups, like the American Banker, claim that this legislation will just further destabilize housing prices. There was also concern with the earlier version of the bill being too attractive; therefore, ceasing to be a true "last resort."
As a result, the House tightened the legislation with the provisions such as a equity share that would be paid back to the bank if the property was sold later at a profit.
Experts believe that this will significantly increase Chapter 13 bankruptcy filings. Chapter 13 bankruptcy code allows individuals with regular income to pay all or a portion of their debts and avoid losing their homes in foreclosure.
Friday jobless numbers that continue to climb give us reason to believe that this bankruptcy provision is likely to get a lot of exercise, if passed. February jobless claims reported another 651,000 jobs lost. This raises the unemployment rate to 8.1 percent from 7.6 percent in January, the highest level since 1983. Total job loss since the recession began in December 2007 reaches 4.4 million.
Mortgage Crisis Expands as Economy Weakens
By Bill Rice
According to First American CoreLogic's data 1 in 5 homeowners owe more than their properties are worth. This number represents 8.31 million homes with negative equity at the end of 2008. A number that is up 9 percent from 7.63 million at the end of September 2008.
The real alarm is in the report's analysis that 2.16 million more homes could be added to those already under-water is home prices drop another 5 percent--a real possibility give current economic indicators.
The aggregate value of residential properties in the US fell from $19.2 trillion from $21.5 trillion in 2007. The housing markets currently impacted the most are California, Florida, and Nevada. However, as the economy continues to weaken housing markets in multiple States are feeling consistent declines--Arizona, Georgia, Michigan, and Ohio are starting to feel even larger percentage declines resulting from job loss impacts.
Mortgage Bankers Association data is showing the first order effect of these job loss models. Released today, the MBA default statistics show 5.4 million behind in payments or in foreclosure. This represents 12 percent of US mortgages.
Mortgage defaults and foreclosures are up 10 percent in the July-September 2008 quarter, up 8 percent from a year prior.
The sharpest increases in mortgage defaults and foreclosures are in Louisiana, New York, Georgia, Texas, and Mississippi--all States facing massive job loss.
According to First American CoreLogic's data 1 in 5 homeowners owe more than their properties are worth. This number represents 8.31 million homes with negative equity at the end of 2008. A number that is up 9 percent from 7.63 million at the end of September 2008.
The real alarm is in the report's analysis that 2.16 million more homes could be added to those already under-water is home prices drop another 5 percent--a real possibility give current economic indicators.
The aggregate value of residential properties in the US fell from $19.2 trillion from $21.5 trillion in 2007. The housing markets currently impacted the most are California, Florida, and Nevada. However, as the economy continues to weaken housing markets in multiple States are feeling consistent declines--Arizona, Georgia, Michigan, and Ohio are starting to feel even larger percentage declines resulting from job loss impacts.
Mortgage Bankers Association data is showing the first order effect of these job loss models. Released today, the MBA default statistics show 5.4 million behind in payments or in foreclosure. This represents 12 percent of US mortgages.
Mortgage defaults and foreclosures are up 10 percent in the July-September 2008 quarter, up 8 percent from a year prior.
The sharpest increases in mortgage defaults and foreclosures are in Louisiana, New York, Georgia, Texas, and Mississippi--all States facing massive job loss.
Fannie and Freddie Extend Foreclosure Moratorium
By Catherine Brock
In the late-80s, a children's television comedy series called Out of This World featured a main character who could freeze time. It's an enviable skill, one that would be particularly appealing to homeowners who are skidding towards foreclosure. Fortunately, with respect to mortgages, there's a next best thing-time can't be frozen, but foreclosures can.
No evictions 'til March
Nationalized mortgage giants Fannie Mae and Freddie Mac have once again extended the foreclosure moratorium. The move pushes out the foreclosure freeze deadline to February 28. The mortgage companies are still proceeding on early-stage foreclosures, but they're stopping short of locking people out of their homes. A temporary foreclosure prevention measure, the foreclosure moratorium has been in effect since November 26 of last year.
Fannie and Freddie, under government control since last September, own or guarantee roughly half of all U.S. mortgage loans. Given that breadth, the two companies have been heavily pressured to develop and initiate programs to lead the country out of this mortgage crisis.
New landlords in town
At some point, the foreclosure moratorium will be lifted. When that happens, Fannie Mae and Freddie Mac will have a list of evictions to process and foreclosed homes to seize.
Both companies have announced a new rental program that will hopefully ease that transition. The program allows foreclosed homeowners to stay in the home under month-to-month lease agreements. The ex-mortgage borrowers would pay market rents, but would not be responsible for the home's maintenance costs.
Although the rental program doesn't pursue the goal of foreclosure prevention, it does offer some advantages. It will minimize the household disruption associated with foreclosure, while keeping the homes occupied. The latter is important because empty homes often fall into disrepair and become targets for vandalism; this impacts the quality of life in the neighborhood and puts downward pressure on housing values. Both factors have contributed to the record decline in housing prices over the last two years.
Fannie Mae and Freddie Mac will also benefit by generating income off these properties until they can be sold.
Foreclosure prevention kudos
The Center for Economic and Policy Research (CEPR), an independent and nonpartisan group, supports the decision to implement the rental policy. Co-Director Dean Baker believes Fannie and Freddie could improve on the program by offering five- or 10-year leases on those properties. In a press release, he indicated that a longer-term program would provide a strong incentive for lenders to renegotiate mortgage terms so that those loans don't fall into foreclosure.
Fannie Mae and Freddie Mac don't have Out of This World powers at their disposal, but they do have access to a very large number of distressed homeowners. That puts the onus on them to implement foreclosure prevention and housing recovery programs that will make a difference going forward.
In the late-80s, a children's television comedy series called Out of This World featured a main character who could freeze time. It's an enviable skill, one that would be particularly appealing to homeowners who are skidding towards foreclosure. Fortunately, with respect to mortgages, there's a next best thing-time can't be frozen, but foreclosures can.
No evictions 'til March
Nationalized mortgage giants Fannie Mae and Freddie Mac have once again extended the foreclosure moratorium. The move pushes out the foreclosure freeze deadline to February 28. The mortgage companies are still proceeding on early-stage foreclosures, but they're stopping short of locking people out of their homes. A temporary foreclosure prevention measure, the foreclosure moratorium has been in effect since November 26 of last year.
Fannie and Freddie, under government control since last September, own or guarantee roughly half of all U.S. mortgage loans. Given that breadth, the two companies have been heavily pressured to develop and initiate programs to lead the country out of this mortgage crisis.
New landlords in town
At some point, the foreclosure moratorium will be lifted. When that happens, Fannie Mae and Freddie Mac will have a list of evictions to process and foreclosed homes to seize.
Both companies have announced a new rental program that will hopefully ease that transition. The program allows foreclosed homeowners to stay in the home under month-to-month lease agreements. The ex-mortgage borrowers would pay market rents, but would not be responsible for the home's maintenance costs.
Although the rental program doesn't pursue the goal of foreclosure prevention, it does offer some advantages. It will minimize the household disruption associated with foreclosure, while keeping the homes occupied. The latter is important because empty homes often fall into disrepair and become targets for vandalism; this impacts the quality of life in the neighborhood and puts downward pressure on housing values. Both factors have contributed to the record decline in housing prices over the last two years.
Fannie Mae and Freddie Mac will also benefit by generating income off these properties until they can be sold.
Foreclosure prevention kudos
The Center for Economic and Policy Research (CEPR), an independent and nonpartisan group, supports the decision to implement the rental policy. Co-Director Dean Baker believes Fannie and Freddie could improve on the program by offering five- or 10-year leases on those properties. In a press release, he indicated that a longer-term program would provide a strong incentive for lenders to renegotiate mortgage terms so that those loans don't fall into foreclosure.
Fannie Mae and Freddie Mac don't have Out of This World powers at their disposal, but they do have access to a very large number of distressed homeowners. That puts the onus on them to implement foreclosure prevention and housing recovery programs that will make a difference going forward.
Republicans Move to Fix Mortgage Crisis
By Catherine Brock
If only Angus MacGyver were here! Certainly he could solve this mortgage crisis, and with nothing but a Swiss Army knife and a stick of chewing gum. Unfortunately, since MacGyver was cancelled in 1992, we have to rely on politicians and legislation to do the trick.
Fueling demand for new homes
When President Obama's economic stimulus plan was put before the Senate, Republican senators criticized it for being stuffed with spending proposals that ultimately won't help the economy. Since the House version of the plan passed without a single Republican vote, they took a stand to put their own spin on solving the mortgage crisis. The Republican vision included three key strategies:
* Government subsidies to push mortgage rates down to 4 percent
* $15,000 tax credits to homebuyers
* Assistance to homeowners whose mortgage loan balance was greater than the market value of the mortgaged property
The core of this vision is the belief that the housing market can be healed by driving demand for home purchases. Mortgage rates of 4 percent, along with $15,000 tax credits, could fuel that demand by significantly reducing the cost of home ownership. A $300,000 mortgage financed at 5 percent carries a principal and interest payment of about $1,610. But lower that rate to 4 percent, and the payment drops to about $1,432. For those households with high annual tax bills, the tax credit would cover the closing costs of the purchase.
Playing party lines
Not surprisingly, Democratic senators weren't wholly supportive of the Republicans' housing push. Some, in fact, questioned the Republicans' motives for becoming suddenly concerned with the mortgage crisis. The Democrats also argued that the economic stimulus plan passed by the House already addressed housing, by way of a $7,500 tax credit for homebuyers.
The version of the economic stimulus plan that the Senate approved on February 10, 2009, did include the $15,000 tax credit. But Republicans were unable to win support for the subsidized mortgage rates.
Mortgage rates could fall anyway
In December, James Lockhart, Chairman of the Oversight Board of the Federal Housing Finance Agency, stated publicly that the government's efforts to fix the mortgage crisis could send mortgage rates to "well below 4 percent." This commentary came after the Fed's announcement that it would buy up mortgage-backed assets, but before the Republicans began pushing for the mortgage rates subsidy.
MacGyver's not around anymore to weigh in on whether 4 percent mortgage rates actually would fix the housing problem. It may be that the right solution is the action plan nobody wants to consider: waiting for housing prices to fall back down to where they'd otherwise be, had the bubble never happened.
If only Angus MacGyver were here! Certainly he could solve this mortgage crisis, and with nothing but a Swiss Army knife and a stick of chewing gum. Unfortunately, since MacGyver was cancelled in 1992, we have to rely on politicians and legislation to do the trick.
Fueling demand for new homes
When President Obama's economic stimulus plan was put before the Senate, Republican senators criticized it for being stuffed with spending proposals that ultimately won't help the economy. Since the House version of the plan passed without a single Republican vote, they took a stand to put their own spin on solving the mortgage crisis. The Republican vision included three key strategies:
* Government subsidies to push mortgage rates down to 4 percent
* $15,000 tax credits to homebuyers
* Assistance to homeowners whose mortgage loan balance was greater than the market value of the mortgaged property
The core of this vision is the belief that the housing market can be healed by driving demand for home purchases. Mortgage rates of 4 percent, along with $15,000 tax credits, could fuel that demand by significantly reducing the cost of home ownership. A $300,000 mortgage financed at 5 percent carries a principal and interest payment of about $1,610. But lower that rate to 4 percent, and the payment drops to about $1,432. For those households with high annual tax bills, the tax credit would cover the closing costs of the purchase.
Playing party lines
Not surprisingly, Democratic senators weren't wholly supportive of the Republicans' housing push. Some, in fact, questioned the Republicans' motives for becoming suddenly concerned with the mortgage crisis. The Democrats also argued that the economic stimulus plan passed by the House already addressed housing, by way of a $7,500 tax credit for homebuyers.
The version of the economic stimulus plan that the Senate approved on February 10, 2009, did include the $15,000 tax credit. But Republicans were unable to win support for the subsidized mortgage rates.
Mortgage rates could fall anyway
In December, James Lockhart, Chairman of the Oversight Board of the Federal Housing Finance Agency, stated publicly that the government's efforts to fix the mortgage crisis could send mortgage rates to "well below 4 percent." This commentary came after the Fed's announcement that it would buy up mortgage-backed assets, but before the Republicans began pushing for the mortgage rates subsidy.
MacGyver's not around anymore to weigh in on whether 4 percent mortgage rates actually would fix the housing problem. It may be that the right solution is the action plan nobody wants to consider: waiting for housing prices to fall back down to where they'd otherwise be, had the bubble never happened.
Mortgage Tax Deduction May Be at Risk, Quietly Wounding Mortgage Payers
By Bill Rice
Currently, households taxed at the 33 and 35 percent rate can claim mortgage deductions. However, under the newly proposed Obama Federal budget the deduction would be eliminated for anyone over the 28 percent tax bracket. In the 2009 tax year that would mean those households making more than $208,850 in taxable earnings will not be eligible to claim a mortgage deduction.
The elimination of the mortgage deduction for this income tax bracket seems to tie to the president's campaign promis to increase taxes on households earning over $250,000.
In a statement from the Mortgage Bankers Association, CEO David Kittle says the timing couldn't be worse. "This proposal could have an adverse effect on a market that is already in trouble, and this is not the time to reduce incentives for buying or refinancing a home."
Advocates of eliminating the tax deduction argue that first-time home buyers are rarely at the high-point of their earning potential. Therefore, it will have little impact on the recovery of the housing market.
However, consulting IRS data shows the disincentive may be larger than expected. Lower-income households rarely itemize deductions, so the incentive only applies to the upper two-thirds of income levels. And according to the most recent IRS study, conducted in 2003, 36 percent of those claiming a mortgage deduction had adjusted gross incomes exceeding $100,000.
The National Association of Realtors (NAR) battled a similar Bush proposal in 2005 that would have eliminated the deduction in exchange for a 15 percent tax credit. NAR argued that removing the deduction would directly decrease the value of homes, especially in high-cost areas like California. Some econometric studies demonstrate that the tax beliefs of homeownership add 5 to 7 percent to the value of a home.
Taking away key incentives for those that can afford to own homes seems counterproductive. Meanwhile, the government is considering incentives for lower-income home buying--bringing back seller down payment assistance. A program that is documented by FHA to directly correlate to increased mortgage defaults.
It seems that where the government is placing the incentives on mortgages and housing may make the housing crisis worse.
The Obama administration appears to be agressively battling the mortgage crisis with foreclosure prevention aid packages, while quietly wounding folks that continue to pay their mortgages--the only strength in the mortgage market.
Currently, households taxed at the 33 and 35 percent rate can claim mortgage deductions. However, under the newly proposed Obama Federal budget the deduction would be eliminated for anyone over the 28 percent tax bracket. In the 2009 tax year that would mean those households making more than $208,850 in taxable earnings will not be eligible to claim a mortgage deduction.
The elimination of the mortgage deduction for this income tax bracket seems to tie to the president's campaign promis to increase taxes on households earning over $250,000.
In a statement from the Mortgage Bankers Association, CEO David Kittle says the timing couldn't be worse. "This proposal could have an adverse effect on a market that is already in trouble, and this is not the time to reduce incentives for buying or refinancing a home."
Advocates of eliminating the tax deduction argue that first-time home buyers are rarely at the high-point of their earning potential. Therefore, it will have little impact on the recovery of the housing market.
However, consulting IRS data shows the disincentive may be larger than expected. Lower-income households rarely itemize deductions, so the incentive only applies to the upper two-thirds of income levels. And according to the most recent IRS study, conducted in 2003, 36 percent of those claiming a mortgage deduction had adjusted gross incomes exceeding $100,000.
The National Association of Realtors (NAR) battled a similar Bush proposal in 2005 that would have eliminated the deduction in exchange for a 15 percent tax credit. NAR argued that removing the deduction would directly decrease the value of homes, especially in high-cost areas like California. Some econometric studies demonstrate that the tax beliefs of homeownership add 5 to 7 percent to the value of a home.
Taking away key incentives for those that can afford to own homes seems counterproductive. Meanwhile, the government is considering incentives for lower-income home buying--bringing back seller down payment assistance. A program that is documented by FHA to directly correlate to increased mortgage defaults.
It seems that where the government is placing the incentives on mortgages and housing may make the housing crisis worse.
The Obama administration appears to be agressively battling the mortgage crisis with foreclosure prevention aid packages, while quietly wounding folks that continue to pay their mortgages--the only strength in the mortgage market.
Subscribe to:
Posts (Atom)