More Foreclosures on the Way - Take Advantage

The other day I wrote that more properties were headed to market in the not too distant future. Well, the other day one of the trade rags wrote the following:

Treasury Says Millions More in Foreclosures are Coming; Are You Ready?

RISMEDIA, September 17, 2009—According to recent announcements by the U.S. Treasury Department, another wave of foreclosures is on the way in 2010. For over a year, now, we’ve been digesting foreclosures and distressed properties and it looks like we’ll all be doing it for another year or so. It’s too large a market segment to ignore: in some parts of the country, distressed properties account for about 65% of sales these days.

With more properties coming online, perhaps you should consider how to participate. Broken down to its simplest truth, the foreclosure craze breaks down to this -everyone wants a bargain, and it is a fact that a great many people who rise to the bait of foreclosure properties are simply looking for a bargain. Nothing drives investors like smelling bargains, and there are bargains aplenty in most markets these days.

Government financing continues to be attractive and prices remain low. Give me a call to discuss your ability to purchase a property.

Numbers, numbers everywhere but who to believe?

Just the other day, I heard that wise souls at USD devined there to be almost 7 million houses in default across the country in what has recently be termed 'shadow inventory'. This includes short sales, short sales pending, foreclosures, pre-foreclosures, foreclosures and short sales under contract, and 30-60-90 late payers on loans in addition to whatever the banks have been holding back from the marketplace. That number is 5.5 million more than is being bantered about by banking authorities.

Why such a large discreptancy? That is a tough question and although I don't have the answer I know that as I look around different mediums the reportage of numbers is astonding. Just like the deficit and all of the money being thrown hither and yon, it all just seems to flow with no meter on the open tap. Of course, banks are more than reluctant (see article below) to share numbers or be proactive out of shear fear or greed.

So, you might think that this newly redefined 'shadow inventory' of 7 million is ripe for the picking, and that good deals are 'just around the corner'. Yet, if the recent past is any indicator of the future it is my opinion that the banks will continue to be stingy in settling short sales, providing meaninful loan modifications, and miserly in doling out foreclosed properties to the marketplace because they can!

The following article gives a glimpse into the reason they can...



Creative Ways a Loan Modification Lowers Your Monthly Payments

Creative is probably not the first word that comes to mind when you think about loan modifications. There doesn’t seem to be many new ideas in the loan modification department.
The Government is definitely doing its best to reach the borrowers that need the help, especially those that reach those that can pay affordable mortgage payments. This helps “guarantee” the government is not throwing away good money after bad with borrowers that overstretched themselves and cannot afford any reasonably monthly payment.

However all signs show that these programs are not being as successful as they hoped. But how do loan modifications lower, or attempt to lower your monthly payments. The first and main way is by lowering your interest rate. Actually one of the main purposes of loan modifications is to allow homeowners whose homes have dropped drastically in price to still take advantage of the lower interest rates now available. The problems come when low interest rates are not enough. The government is currently trying to drop interest rates to around 2%. However if this level of interest rate is still too high to make your monthly payments affordable there are still some options open to you. You servicer or lender can still extend your payment term.

This means you will extend the amount of time you take to pay your loan. This idea is pretty intuitive if you owe $1,000 and you have to pay it in 10 months you have to pay around $100 plus interest. If you can pay it in twice the time your payments should be half as much plus interest. Servicers can extend the loan to up to 40 years which can have a drastic effect on your loan payments even though it keeps you in debt well into your eighties.

What if all this is not enough? What if you still can’t afford your monthly payments? Your lender or service provider can actually defer a portion of the principal (original) amount you owe until the maturity of the loan. We call this a principal forbearance. This does not mean the debt or part of it is forgiven just deferred or set aside until you sell your home or the rest of your mortgage has been paid. This option can be very effective in lowering your monthly payment but will create a balloon payment on your mortgage. This means that your payments will be lower monthly but you will have to make a very large payment at the end of the mortgage. This can be beneficial if you are planning to sell your home and cut short your mortgage anyway or if you want a break in your monthly payments now and expect your income to increase in the future.

Another option, not very popular with service providers is to simply forgive the principal owed. This is a long shot to say the least but still worth a try. Service providers are not required to do this so don’t keep your hopes too high.

Loan Modification Primer

Ok, I've refrained from saying much about the loan mod program mostly because so few loans are being recast as to make the topic 'rarified'. However, in the past week or so I've met people who have accomplished the task and apparantly done well by it. They certainly think so, and they are the clients. On one hand the debt reductions sound impressive while on the other one must look at the current market value to see if they've truly been repositioned and are no longer 'under water'. That being said, for those of you curious as to the steps and procedures, please read the following;

Loan Modifications Eligibility Criteria, The Rules Explained.

Providing loan modifications to those that need them and are eligible according to the current criteria is the goal of the cash happy loan modification aid program.

The goal is to keep out scammers and those who wish to take advantage of the system while not letting the “deserving” fall through the cracks. This is an ambitious goal. As we have discussed in previous blogs making good rules that keep out the cheats and welcomes the eligible is very hard.

Here is the current ten point criteria for loan modifications:
1.) Loans must be conforming conventional loans or conforming jumbo mortgage loans and they must have been contracted before January 1, 2008. What is a “conforming” loan is changing all the time.
2.) You must be three payments past due. This requirement was happily dropped. You don’t need to be behind in your payments although you must be able to prove you can’t pay your mortgage payments but could afford those of a modified loan.
3.) The loan is secured by a one-unit property and must be the borrower’s primary residence.
4.) The current mark to market LTV must be of 80 per cent or more.
5.) Property must not be abandoned, vacant, condemned or in serious disrepair as well as being the borrowers primary residence.
6.) The goal of the loan modification is to reduce monthly payments to 33% of the homeowners monthly income. In order for this to occur, servicers may:
7.) Capitalize accrued interest, escrow advances and costs as far as state law allows.
8.) Extend the term of the mortgage (tenure) by up to 480 months (40 years).
9.) Reduce the mortgage loan interest rate in increments of .125% to a fixed rate of no less than 3%. If this causes the rate to be below market rate it will step up in annual increments to a market rate after 5 years have passed.
10.) As a last resort eligible borrowers will be provided principal forbearance which will result in balloon payment. This means payments will be kept low while the big money is paid when the house is sold or the loan matures.

Some of the points of this criterion are under their third or even fourth revision so checking for accuracy is wise. The key criteria is to be able to afford the reduced monthly payments. If you can’t afford a reasonable loan modification there is little hope. This does not mean unemployed borrowers are automatically barred from loan modifications but they must provide some proof of income or prove they are likely to find employment soon.

The methods the government suggests to reduce monthly payments are rather bold which explains why many banks are doing their best to drag their feet as in many cases it actually costs them money to provide the loan modification.