Monthly Archive for October, 2008

Fannie Mae will require homeownership counseling for first-time buyers without solid credit histories or strong loan applications. This is expected to lower the risk of borrowers getting into trouble and ending up in foreclosure. Now, while sub-prime borrowers don't have to comply with Fannie Mae's requirements, why wouldn't you want to do something that could reduce your own risk of mortgage problems?

You can't just use any old counselor to make it good with Fannie--they have to be accredited. But even if you just do this for yourself, wouldn't you want a certified expert? You'll learn things like credit, budgeting for and selecting a home, and getting a mortgage. You also get a personalized evaluation of your financial position and readiness for homeownership, and an analysis of your credit history and current financial situation.

Even if you can't do it in person. you can get your counseling ove the phone or online. Click here to use Fannie's Find a Counselor" search tool, on its Web site. the information can help you make home ownership a success, whether you get a Fannie Mae, FHA, or subprime or alternative mortgage loan.

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HOPE NOW, the private sector coalition of ownership counselors, mortgage lenders and servicers, and investors has focused its efforts on preventing foreclosures and keeping homeowners in their residences. As of today, the organization reported that nearly 2.5 million homeowners have avoided foreclosure and been able to stay in their homes since July 2007. In addition, cooperative mortgage lenders helped 212,000 homeowners sidestep default or foreclosure in September.

In September, mortgage servicers helped homeowners avoid foreclosure by creating 212,000 loan workouts, which involve modification to the terms, lowering the balance, refinancing arrearages, a combination of all three. Barring an unforeseen life event such as a job loss, death, or illness, all workouts are designed to enable a homeowner to remain in his or her home as long as he or she wishes to do so.

Here's an example of how a loan modification might make it possible to avoid foreclosure. Miss Jones bought her home for $250,000 with a zero down ARM loan starting at 4%. Her payment was $1,195. Next year, her rate increased to 6% and the payment to $1,491. By year three, she was paying 7.75% and the payment had increased to an unaffordable $1,767. While she paid her balance down about $11,000 in three years, home values dropped too. So Miss Jones had't enough equity to refinance--yet she could't afford her payments either. She missed two payments, added about $3,000 to her principal--now she owed more than her home was worth!

Miss Jones was capable of making her mortgage payment when it was $1,491. By getting the lender to cut her balance to $200,000, she could get her payment to 1,475 at her current rate. But very few banks or investors are willing to take a $45,000 hit to avert foreclosure. What else can a lender do to help?

1. Finance arrearages. The loan can be officially brought to current status with a small second mortgage. At five years and 6% the payment is only $58. And the credit damage stops piling up.
2. Change the interest rate and term. By granting a new loan with a 40 year term and fixing the ARM at 6% for the next 5 years, Miss Jones gets a more manageable payment of $1,348, which added to the $58 second lien means that Miss Jones has a guaranteed manageable payment of $1,406 for the next 5 years. In that time it is likely she will have equity and enjoy more solid financial footing.

Suggesting that your lender write off huge loan balances doesn't go down well with investors, and it's harder to get that kind of concession. However, there are many things you can tweak to get a manageable payment and keep your home.

The San Jose Mercury-News throws light on a problem in many housing markets. The surge in foreclosures not only hurts those trying to sell homes, it affects renters looking for homes too. Tenants may find themselves in a double bind--the landlords continue to collect their rents but do not make the mortgage payments on the properties. The landlords have the tenant's security deposits as well. And while legally the deposits belong to the tenants, in foreclosure or bankruptcy proceedings the money may not be returned for a long time, if at all.

So the poor tenants find themselves evicted by the new owners, with no security deposits to give a new landlord. In addition, the explosion of foreclosed properties being rehabbed for sale has left a dearth of homes available for rent. So rents are higher and harder to get, adding insult to injury. In other words, it's a great time to be a landlord and a lousy time to be a tenant.

How can you prevent this? First, check a property's status before signing a rental agreement. The landlord checks your background, you should check his. Notices of Default are public filings and the county should make records pertaining to the property and the owner available to you. For example, in Washoe County in Nevada you could go to the County Assessor's Web site, type in an address, and find out who owns the property. Then, you check the County Clerk's Web site, type in the name of the owner, and any filings involving the company or individual will show up. Even if the property in question isn't in default, a slew of filings on other properties should alert you that maybe this person isn't a good risk. Finally, many court systems allow you to check for legal filings too. In Washoe County you can check District Court cases--enter the person's name and up come any lawsuits in the system.

Remember: Your landlords will check you out--you owe it to yourself to return the favor.

List of Lenders Who Are Participating in the HOPE for Homeowners (H4H) Program

HUD officials estimate this program could help about 400,000 homeowners to keep their houses. Today the agency released a still-growing list of lenders voluntarily participating. HUD strongly urges homeowners in trouble to contact the servicing or loss mitigation departments of their lenders as soon as possible.

If they are unable to reach someone who can help or are uncomfortable dealing with their lenders directly, there is help avaible through approved housing counseling services.

The list will be updated on Fridays. If your lender isn't on it yet keep checking. And stay in contact with its workout department. If you truly want to keep your home and can afford it (with reasonable modifications) then don't give up.

And check out the recent NINJA post for ideas on retrenching and keeping that roof over your head.

One result of the increase in foreclosure sales is a surge in "distressed" properties on the market. So maybe this creates an opportunity for those shut out of the market before. There are discounts out there, but what's involved with getting a fixer-upper? You're willing to do some work--is anyone willing to lend you the money?

The FHA Streamline K program may be just the ticket. You get a single loan to purchase and rehabilitate your property. Here's what you need to do:

* Find a property. Your purchase offer must state that you will need a 203(k) loan to complete the purchase.

* Find a contractor to write an estimate of work needed and materials required. You aren't allowed to do the work yourself unless that's your line of work. Even then, you won't be allowed to pay yourself. But you may be allowed to save money by doing cleanup and hauling.

* Find a lender approved to do 203(k) loans. Get your mortgage application approved. Get your project appraised (there will be two--before and after--and your loan will be based on the cost of buying and fixing, not the home's eventual value.

* Complete repairs. When the loan closes, the seller will be paid and the remaining funds will be held in escrow for the contractor.

* Move in! Once the repairs are complete and approved, the builder receives final payment. You owned a "fixed up" house that may already be worth more than you paid. Those willing to make a little extra effort can benefit. It's true that hard circumstances can create opportunities for those willing to look.

It's about to hit the fan, your job is history, and you know it. And your "emergency fund" just funded an emergency jaunt to Vegas. This is exactly the point at which some sort of financial suicide instinct kicks in. For many people, anxiety about money creates a compulsion to spend whatever's left. Wrong! Even ...

100% mortgages have not gone completely by the wayside. While layering risk by lending to borrowers with low credit scores + no down payment + no income documentation will no longer fly (good!), there are programs out there for those who don't face all of those challenges. The USDA Rural Development home loan is one ...