Posts Tagged ‘underwater borrowers’
Monday, March 5th, 2012
These days it is frustrating to figure out options to avoiding foreclosure. Many homeowners who call me to discuss short selling have similar questions: what are my options. Of course, there are options out there – like refinancing (HARP2 will be able to help some underwater borrowers starting in a few weeks – see previous blog) and short selling.
Lately you may have heard talk about banks selling underwater homes to third parties, allowing the sellers to remain in the home as tenants. This idea is not new, but it has been considered lately as one solution to preventing foreclosures. There are positive and negative elements to establishing a program of this nature.
The positive side: If you are a homeowner the ideal situation for you, if you are underwater and will no longer be able to pay your mortgage, would be to stay in your home. The government agrees, and it wants the banks to sell your home to an investor, keeping you in the property as a long term renter (you still have to qualify as a renter, of course, so no unemployment). Your payments would likely drop substantially, and although you would not longer “own” the home, you would be able to stay there. Sounds good, right?
The not-so-pretty fine print: The problem with the above scenario is twofold: first, we have to consider the effect it may have on the housing market. At what discount will all these homes be sold to the third party investors? It would have to be a big discount, to make sense from an investment perspective. This will devastate neighborhoods, bringing the comparable sold properties down even lower.
But so do short sales and foreclosure, you argue, right? My second point demonstrates another issue…
Allowing homeowners to stay in their homes as renters will make things even worse for housing, because what kind of message does it send? Hey, if you can’t afford your home, you can still live there and just rent it! I can see this becoming a problem, and some homeowners will undoubtedly try to take advantage of it, hurting local markets and neighborhoods even further.
A smarter solution to the housing nightmare is to make the banks approve short sales faster. Although it is so difficult for homeowners to have to short sale their homes, they have an opportunity to start over and get back on their feet, make smart decisions and be homeowners again in the future. I do think that turning the vacant bank-owned inventory into rentals could be a positive spin on things, but I DO NOT think the government should be in the business of renting homes, so for this option to work an investor would have to come in and buy the bank-owned property and rent it out. But of course, this brings us back to the issue of deteriorating prices.
Trying to figure out the best ways to help both distressed owners AND the housing market is tough. I say the banks should bless the short sales and make the process more streamlined, so at least we can get more inventory on and off the market quickly, and get people on their way to healing. What do you think?
Thursday, February 16th, 2012
One of the biggest problems with the state of housing ownership is that one in four homeowners in the U.S. are underwater, meaning that they owe more on their mortgage than the current market value of their homes. In many situations this leads to foreclosure or other options like short sales or deeds in lieu of foreclosure. But what about the homeowners who are not delinquent, have been making their payments, maintaining their credit and doing the right thing, despite the drastic drop in value of their homes? Help is on the way…
The new HARP2 (Home Affordable Refinance Program, version 2) debuts March 15. This new revised version of the program hints at helping those who could not qualify under the original program because they were not delinquent. Here are the differences:
Proposed program: The new HARP guidelines, which will be released next month and have been extended until December 31, 2013, will enable underwater homeowners who are not delinquent to refinance their homes. This program will allow refinances, like HARP, for underwater homeowner regardless of whether your loan is with Fannie or Freddie. Here are the requirements:
1. Loans must be current, with a good 12 month payment history – no late payments in the last 6 months and only one is allowed in the last 12 months
2. Loan to value limits will be eliminated, so homeowners will be able to refinance regardless of how far the values of their homes have dropped (under the current HARP, the loan to value limit was set at 125%, so many homeowners did not qualify).
3. No appraisals or underwriting will be required, making the refinancing process easier. There will likely be a home inspection, just to make sure the home is in decent condition, but not a formal appraisal.
4. The loan must be backed by either Fannie Mae or Freddie Mac. To find out if your loan qualifies, you can visit http://www.fanniemae.com/loanlookup/ and http://www.freddiemac.com/corporate/.
There has been some talk of a similar program to HARP that will help those who do not have loans backed by Fannie or Freddie. Hopefully in the future we will see such a program.
The new HARP will undoubtedly help many people stuck in that gray area – where they are not delinquent but feel trapped under a mortgage that exceeds current value and an interest rate that is much higher than current rates. Contact your mortgage broker to discuss whether you can qualify for the new HARP. For more information on HARP, go to http://www.makinghomeaffordable.gov or call (888) 995-HOPE (the number for HopeNow, a government-sponsored counseling organization that is a wonderful resource).
Thursday, November 10th, 2011
Keep Your Home California, a state program that was designed to help homeowners avoid foreclosure, has broadened criteria and may now help you keep your home. The program, which debuted just over a year ago with four ways to help distressed homeowners, will now offer mortgage relief to more state residents.
The original program offered help via payment subsidies, mortgage reinstatements, negative equity reductions and financial assistance to those who must move (cannot afford to stay). Last Spring the program announced it was expanding to include home equity lines of credit, or for those took equity out from a refinance. The program has helped close to 8,000 moderate and low income homeowners who were heading toward loan default.
The new changes include the following:
– Allowing cash-out borrowers to be assisted under all four aspects of the program (this part of the program was proposed last Spring)
– Allowing multiple property borrowers to apply to the program. Those with second homes or those who are on title to another home will not be excluded from the program any longer.
– Extending the mortgage aid for unemployed borrowers to nine months instead of the original six. As defined under the original guidelines, borrowers receiving unemployment benefits are eligible to receive up to $3000 in aid per month.
– Increased reinstatement amount. Under the original program, if you missed one or more mortgage payment you could be eligible to obtain up to $15,000 or 50% of the delinquent amount, whichever is less, in order to reinstate your mortgage and avoid foreclosure. That amount has now been increased to $20,000.
There are still restrictions and qualifications to participate in this program. For more information and to find out if you qualify, visit http://www.keepyourhomecalifornia.org/ or call (888) 954-5337.
Sunday, August 7th, 2011
In trying times you can surely bet that there will be those who will come up with ideas – some good, some bad. There is one mortgage servicer that has been following a plan for the last year, and it has proven successful in helping underwater homeowners (those who owe more to their mortgagors than the current market value of their homes). The program has been so successful it is going to be applied to many more loans the servicer is acquiring.
Ocwen Financial, a mortgage company that services 460,000 loans throughout the country, just completed a one year study of their new program, achieving an unbelievable 2.6% redefault rate (compared to nationwide 40-50% redefault rates for federal programs). Here is how it works: the mortgage servicer agrees to reduce your loan balance to the point that your debt is 5% below current appraisal value (giving you equity in your home). They then modify your mortgage so your new monthly payments are based on your reduced principal balance. Over the next three years, in annual increments, they write off the amounts of the original debt that they reduced (so you are truly paying a mortgage based on current value, with equity, and there is no tacking on the old balance to the end of your loan).
There is a catch: the homeowner has to agree to keep loan payments current, and has to share 25% of any future gain realized if the home is resold. Sounds like a good plan, right? Considering that there are an estimated 11 million homeowners who are underwater on their mortgages, with an expectation of 2 million of those who will face foreclosure (according to an article posted today by Ken Harney), this could be a program that might prevent more foreclosures if adopted by other lenders.
I think this idea is good enough to share, and I hope that other lenders will follow suit and initiate similar programs. Some big lenders, like Wells Fargo and Bank of America, do offer principal reduction programs, but they do not utilize the “shared appreciation feature” inherent in Ocwen’s plan. I believe it is a brilliant possible solution for many people, so if your loan is not serviced by Ocwen please discuss this with your lender. Thank you to Ken Harney for bringing this story to light.
Monday, March 8th, 2010
There is a new program on the horizon that aims to help homeowners who have not qualified with loan modifications become more likely to obtain their lender’s permission for a short sale. This could be big news for many, possibly eliminating millions of foreclosures. The clincher: homeowners could receive a payment in exchange for leaving their homes. Sound too good to be true?
This new aggressive approach stems from a brutal fact: over five million homeowners owe more than their homes are worth and face the possibility of foreclosure. The government, who has formulated other plans to assist with loan modifications, is hoping that this new plan will prove more helpful than it’s predecessors.
Set to roll out April 5, the new program focuses on short sales and getting their approval. Here’s how it works: if a homeowner has tried unsuccessfully to obtain a loan modification from it’s lender the lender will now be compelled to accept a short sale. The lender will be given $1,000. If there is a second lien holder it will be given $1,000. And the cherry on the cake: the homeowner will be given $1500 as “relocation assistance.” In return the lender will agree not to come after the borrower for the difference between the sales price and what was owed on the balance (the capital gains).
Assuming this plan actually works, what are the benefits?
1. Less foreclosures. This is good for neighborhoods and homeowners and the housing market.
2. The homeowners’ credit will not be affected as negatively as if there had been a foreclosure.
3. Chances are that the homes will not be left in such a poor state, since the homeowners get a financial gain from the deal (the $1500).
4. Lenders will save money by not having so many foreclosures on their hands.
5. The housing market will likely benefit, as short sales will no longer take mysterious amounts of time, thus reducing inventory and getting more homes sold.
So, will this one be the one that works and benefits all those parties involved? There are naysayers out there but I sure hope so. It sounds interesting and going after the short sale is definitely better than letting millions of homes go into foreclosure. It is not the cure for the housing woes, but it’s a start. Let’s hope it works.