Housing BUZZ

Can Loan Modifications help the 'Distressed Homeowner'?

Unfortunately we are currently going through a very tough time - with real estate and stocks all at 5 year lows and now Ben Bernanke, the chairman of the Federal Reserve dropping the "d" word last week (deflation that is), we are surely in for a wild ride over the next year. So with things looking so grim for the time being, what exactly can a struggling homeowner do to get out from under a killer mortgage payment if they cannot refinance?

Call your Lender - The biggest way a homeowner can help themselves is by picking up their phone and pro-actively communicating with their loan servicers. If a homeowner feels that they will not be able to continue to make their mortgage payments they should ask their current lenders for help. And if homeowners feel intimidated to contact their servicers, then there are plenty of free resources available that can provide assistance.

Contact a Non-profit Organization or Local Mortgage Professional - The Hope Now Alliance is one place to turn, as well as their local HUD Councilors who can speak their lenders on behalf of the distressed homeowner. And if you still are not getting anywhere, turn back to the last mortgage professional that helped you with your current mortgage, or even look one up on-line or in the yellow pages, just make sure they are local and know how to help you.

So now that you've made contact with someone that can help you, what exactly are they going to be able to do?  There are several outcomes to a distressed homeowners situation - they can apply for a loan modification, ask for a temporary forbearance, they can sell their home, they can forfeit title to their home back to the lender, or they can do nothing and let the lender ultimately foreclose on their home. In this blog I am only going to discuss loan modifications because their is currently a great deal of confusion surrounding them.

Loan Modifications - Homeowners must qualify for most modifications, which is a written agreement between the borrower and the lender to temporarily or permanently change the terms of their mortgage. There is no standard" modification, each lender has their own policies when it comes to changing the terms of a mortgage - remember, when a borrower signs the mortgage note they are making a promise, which is secured by their home, that they will repay their loan based on the terms provided in the note. In other words, by allowing a loan modification, the lender is allowing the borrower to break their promise.

Types of modifications range from temporary payment reductions, to permanent interest rate reductions and even loan balance forgiveness (which may create a taxable event for the borrower).

Modifications take a lot of time and patience and can be very frustrating for borrowers to negotiate on their own. This is why there are some business that can provide services to distressed homeowners for a fee. In California, only licensed real estate brokers and attorneys may negotiate the terms of a loan for a borrower.

With the rise in defaulting borrowers and foreclosure brings a rise in foreclosure scams - so before a homeowner agrees to pay for loan modification services, it is important for them to understand who is offering to help them.

As mentioned above, some help is free to the borrower - all they have to do is contact their lender directly and try working out a loan modification with their lender's loss mitigation department. Although, a lot of lenders will not even consider a modification unless the borrower is behind on their mortgage payments - this does not mean that anyone should purposely fall behind on their mortgage though! In this situation, a distressed borrower may want to hire a professional to negotiate on their behalf.

I recently assisted a homeowner who had been desperately trying to negotiate their own modification for months prior to contacting me. After sending them through the Hope Now Alliance, within a matter of days that homeowner was offered a modification that allowed them to keep their home.

I you feel that you are struggling to make your payments or know someone that is in trouble, please feel free to offer them my contact information. 

Fed's, GSE's, Banks, and State All Enacting New Foreclosure Mitigation Plans

At the end of last month JP Morgan Chase led a new trend by anouncing a new, agressive change to the way they handle their foreclosure and loss mitigation process. Followed thereafter by CitiMortgage and just earlier this week, the GSE's (Fannie & Freddie) and Federal Housing Finance Agency as well.

For the last two years homeowners have faced much frustration and dissappointment with obtaining loan modifications and short sale approvals. For a while it seemed like banks just did not want to deal with the reality of the distressed real estate markets and come to terms with what would best help their investors and most importantly their homeowners. Instead they allowed short sales and foreclosure sales to languish for months without response all-the-while depressing the home values in their respective neighborhoods.

The Federal Housing Finance Agency yesterday announced a new loan modification program designed to reduce preventable foreclosures with a simplified, streamlined program to put struggling homeowners into mortgage they can afford. The goal is to have a uniform process for loan modifications that the majority of lenders and servicers will use. Participants include Fannie Mae, Freddie Mac, Federal Home Loan Banks, Hope Now participants, the U.S. Dept. of the Treasury, the Federal Housing Administration and the Federal Housing Finance Agency, and Wells Fargo.

To be eligible, the borrower must: have missed three or more payments; own and occupy the property as a primary residence; have not filed for bankruptcy; and be able to have their mortgage modified so their entire mortgage payment, including association dues, if applicable, is no more than 38 percent of their gross income.

Program details are still forthcoming, with a targeted implementation set for Dec. 15. Troubled homeowners should inquire with their lenders or servicers as to participation and eligibility for this new program.

By the way, the best thing to do if you find that you are falling behind on your mortgage payments is to call your lender or mortgage servicer and find out what options you have. Other resources exist such as the Hope Now Alliance or you can look up your local HUD counselor who can assist you as well. Don't hesitate to contact your real estate agent or mortgage broker either as they can be helpful as well.

Finally we are seeing a joint effort in the way that Lenders are responding to rising foreclosures with an increased effort to streamline their loan work outs and short sale approvals.

Are we back on track yet?

I must hear this question at least 20 times a day, from past clients to those who are still hanging on in the business. Since I'm an optimist, my answer is always a resounding "yes" and lately I'm believing myself more and more.

Although we've been hearing negative news for quite some time now things aren't as grim as they may seem. This morning was no exception with a nice front page article entitled '1 in 7 Homes is Underwater - Mortgage Meltdown' contributed by the San Jose Mercury News.

While it may be true that 1 in 7 homeowners in Santa Clara County owe more on their home than it is worth, if you look at the statistics you'll see that not every neighborhood is the same - some neighborhoods have larger price declines while other neighborhoods have seen little to no decline at all, like in Cupertino, for example, "only 1 percent of owners who purchased their homes since 2003 were underwater in the third quarter" of this year. And for those borrowers who do owe more than what their homes are worth, as long as they can hold on and make their mortgage payments, the value of their home will eventually rise again. And for the other unfortunate homeowners who find that they can no longer afford their mortgage payments, loan modifications and even short sales are becoming streamlined and easier to negotiate.

By the way, the best thing to do if you find that you are underwater and feel that you cannot or will not be able to make your payments anymore is to call your lender or mortgage servicer and find out what options you have. Other resources exist such as the Hope Now Alliance or you can look up your local HUD counselor who can assist you as well. Don't hesitate to contact your real estate agent or mortgage broker either as they can be helpful as well.

For some positive news, I found an article published by Realty Times, 'Real Estate Outlook: Home Sales Rise' that suggests that home sales are on the rise in California. According to the author, "Resales of existing homes jumped by 5.5 percent last week -- that was the largest monthly increase since July of 2003, in the middle of the housing boom. In the western states, sales were up a record 34.4 percent!"

And according to RisMedia's article, 'Good news for Real Estate? Largest monthly home sale percentage increase in 5 years reported', the month of October showed the highest gain in home sales in 13 months and the highest pecentage gain in over 5 years. Although alot of the gain in sales can be contributed to the increased demand for foreclosure properties, this may be interpreted as a start to a turn-around in our market - the demand for the lowest priced homes is continuing to outpace supply - which should lead to a rebound in price stability accross the board. 

Along with falling inventory, mortgage interest rates are still at historic lows. Buyers can get 30 year fixed mortgage financing in the high 5% to low 6% range, which in historic perspective is outstanding. The hardest lesson to face on the financing side is that programs have been tightening up even disappearing making it difficult for buyers to qualify without perfect credit score or large down payments. Although there is still plenty of useful down payment assistance programs for qualifying first time home buyers.

And for real estate investors, or even those looking to get out of the stock market and into a more secure investment, real estate is looking more appetizing by the day. The credit crunch continues to put upward pressure on the rental market making everything from single family residences to multiple unit properties more attractive than ever, especially if investors can get these properties at 30% to 40% discounts off their 2005 values.

We're in a market where in five years you'll hear everyone saying that they wish they had purchased properties back in 2008. There is only continuing evidence that this may become reality sooner than most people think, especially with the expected decrease in foreclosures to come from additional legislation pointed at assisting delinquent homeowners. As well as news from major lenders such as Chase Bank and CitiMortgage announcing new plans to increase their efforts at modifying their existing delinquent loans while agreeing to stop pre-foreclosure filings for the next 90 days.

With the supply of new foreclosures that may be coming onto the market decreasing, and with home sales already picking up, combined with an aggressive charge led by Capital Hill to loosen our lending standards, we just might feel that sunlight at the end of the tunnel sooner than later! 

What to Know About Inheriting Property

Inheriting real estate can be one of the most painful ways to acquire property. You've lost a loved one and now you have to settle their estate. Unless you're the surviving spouse – in which case legal transfer of the property to you should occur relatively quickly and seamlessly and without tax penalties – receiving an inheritance can be a long and complicated process. It could take several weeks for the executor of the estate and the courts to divvy up the deceased's assets and property, including the home.

If you plan to sell the property make sure you read on to get a general idea about what to do next as inheriting property can be exceedingly confusing for the heirs.

Transferring the property. Getting legal advice should be your first step. Depending on where you live, the legal process will vary, but all states allow those who inherited property to have the property transferred from the previous owner's name to theirs. Sometimes a lawyer will be needed for this process and other times the clerk of courts office can guide you through the process. Since the property isn't being sold to those inheriting it, it's unlikely that there would be any transfer tax.

Transference of real-estate property can become exceedingly sticky when more than one beneficiary is named. Unless the will is very clear about the percentage of ownership each beneficiary receives or includes provisions about what will happen if one beneficiary wants to sell the home while the others do not, be prepared for disputes that may arise.

Meeting of the minds. After a death, most people are upset and not always able to think clearly about what they should do with the property. Some family members may want to keep it while others may want to sell the property right away and still others may think it should be sold after some time has passed. So if there are multiple heirs to the property then this is the time to have multiple round-table discussions to come together and try to have a meeting of the minds. Allow everyone to express their opinions and ideas about what should happen with the property. Depending on how different everyone's thoughts are, this could take several attempts to reach a decision. However, it's worth the time to try to determine who might want to keep the property and who wants to sell it immediately. Finding a viable solution for all could avoid a lawsuit that forces the sale of the property.

Check the condition of the property. Go to the house and see what condition the property is in. Sometimes inherited property can be badly run down and need a tremendous amount of work before it is ready to be sold. There are cases where those who inherited the property find they have inherited a huge mess that needs immediate attention. If immediate attention isn't necessary, before you dive into fixing up the home, consult with a real estate agent to see which improvement projects might help the home sell faster. Be sure to keep good records of any and all costs for improvements; this will be important when determining if capital gains and state taxes apply.

Get financially organized. Right away it is crucial to figure out if the mortgage has been paid and if there are any liens on the property. Some lenders treat the death of a borrower as a trigger for immediate repayment of the loan, however given the current climate of the market most lenders will not immediately accelerate the note as long as they continue to receive payments. And, if there are provisions for survivorship either through a trust or deed, then the loan will remain in effect.

Your legal advisor or even real estate professional can help you conduct a title search against the property to determine any and all possible liens that may be against the property. Also, check to make sure the property taxes and homeowner's insurance are current and paid until the property is sold or transferred to its new owner occupant.

Get the property appraised. It's very critical to get an accurate appraisal so everyone understands the value of the home. This helps the inherited parties to see how much they can expect to receive after the home is sold. Once the appraisal comes in, have another meeting to determine your low-end offer that will be accepted.

Taxing situations. Inheritance tax may be imposed on the transfer of assets, including real estate. The tax rate is dependent on the relationship between the descendent and the inheritor. Estate taxes, meanwhile, are imposed on the value of the property at death. The Federal government currently has an estate tax for estates in excess of $2 million dollars.

It's easier to sell the home after death as inherited property is taxed on the value of the property the day the owner died and therefore less capital-gains tax. If you are required to pay capital-gains you will be taxed on the difference between what you net from the sale and your taxable basis (the fair market value at time of inheritance plus improvements minus depreciation). Currently, the federal capital-gains tax is 15 percent.

Contact professionals to help. Inheriting a home or other property is an incredibly complex issue with ramifications that can vary from state to state. If you're due to inherit real estate, be sure to contact professional for advice on all areas of the inheritance.