Just a quick note with some good news for financially strapped homeowners, for a change–

In the recent past, your lender wouldn’t talk to you about modifying the terms of your mortgage if you lost your job, or otherwise got to a place where making your mortgage payments was impossible, until you had already missed at least two, and usually three, payments.

By that time your credit was already shot, you had racked up heavy late fees and penalties, and you were probably in a hole too deep to get out of.

Fannie Mae, which owns or guarantees about 18 million mortgages, has recently changed its policy, and will allow borrowers to request “Early Workouts” if they are reasonably certain that changes in their income will cause them to miss loan payments.  In fact, Fannie Mae is instructing the banks servicing the loans to make borrowers aware of this program.

Borrowers who qualify will enter into a trial period, usually for four months, where they will be allowed to make a smaller payment as a result of whatever loan modification terms you and your lender can negotiate.  If the borrower makes the payments as scheduled, and the income situation hasn’t been solved, the change will be made permanent.

Of course, it will be an annoying process with lots of rules and restrictions and red tape and proving that the need is real.  It won’t work for everyone, but if you qualify, it just might prevent default and foreclosure and loss of your home and ruining of your credit.

Your lender will have more information and details.  Ask about “Early Workout Loan Modifications.”  You can also check out http://www.fanniemae.com/newsreleases/2008/4547.jhtml for a summary of the program.

If you have more information or experience with this program, please speak up and let me know!

Bye for now.

Scott

My HELOC is Freezing…

I really didn’t want to go back to discussing homes and mortgages and the housing market – how depressing.  But, this has come up over and over, so I wanted to address it.

We started to hear from stressed-out people in our circles over a year ago that their HELOCs were being frozen (yes, in almost all instances the lender is allowed to do that).  Even before things really got crummy, lenders were worried about their exposure due to plummeting home values.

Each month since then, more HELOCs have either been cut or frozen so that people couldn’t borrow any more from them.  This didn’t have anything to do with how good people’s credit was, their employment situation, etc.

Lenders simply ran their “Automatic Valuation” modeling tools, and if it told them that values dropped 20% in a certain region, people’s HELOCs in that region were next on the chopping block.

Honestly, in some areas and some situations, it would probably be difficult to argue with their decision.  But in others you might get lumped in to a group when you really shouldn’t be.

If you are in the middle of a home-improvement project, you probably have the best chance at getting some of your credit line back.  If you can show the bank where you are on your project, and how much more you need to finish (don’t ask for the whole thing back), they’ll probably grant it to you unless your home value has been hit really hard.

If you just want to maintain that “cushion” in case you lose your job or something bad happens, well, that is tougher.  Of course, if you explain that to your bank, that isn’t good – they don’t want to be the cushion you lean on in bad times, as sometimes that cushion doesn’t get paid back.  So, I would advise you to really think through your position before you call them…

Either way, if it is important to get back at least some of your credit line, you’ll want to get an appraisal done.  Most lenders will only have the automated report to go on, so if your appraiser does a good job, that can make all the difference.

By the way – make sure that your appraiser plans to use very close (distance-wise) and very recent comparables.  If they are old or distant, I can almost guarantee your lender will take one look, toss it, and then support their original decision to cut or freeze your HELOC.

Most appraisers left in business at this point are experienced and reputable and this shouldn’t be a problem…but be careful here or you’ll be out a few hundred bucks for the appraisal and still have a frozen HELOC.

As you know by now, I can ramble on pretty well.  I’ll wrap up this part of the post by saying that if you are in this situation and you want further information, read this informative Los Angeles Times Article on HELOCs for more.

What About My Next Home Loan

This isn’t an urgent issue, but I feel it is worth a few lines to plant this idea in your head for the future.

Your next loan will be much more difficult to get than your last loan was.  The days of a 620 credit score, “liar’s loan” with no money down are gone – probably (hopefully) forever.

So, even if it is months or years into the future, start making your life easier now:

• Get written documentation on everything you can.  Your income documentation is most important here, but save anything having to do with your job, bonuses, reimbursements, commissions, promotions, etc.  This is a big hot button for the new world of home loans.
• Save everything you can regarding your housing history.
  • If you are renting an apartment or house, pay with a personal check in your name (not a money order or cashier’s check – trust me).  Either get a copy of the cancelled check, or at least make sure you can do so in the future.
  • If you are renting a room or paying rent to friends or relatives, again – pay by personal check, and ensure that they cash the check in a timely manner.  (Yes, a landlord that waits a month or two before cashing your check can make it appear that you paid late if you just go off of your cancelled check.  It isn’t common, but it does happen!)
  • If you are not paying rent, you need to start.  You might think that lenders would reward you for being smart and saving money before you buy a house, but this actually isn’t the case.  They want to see proof that you are responsible enough to make your current rent payments before they’ll take a chance that you’ll pay your mortgage.  You can pay a small monthly rent (did you guess…by personal check) to friends or family and be in much better shape.
  • Last, if you are in a Lease Option or Land Contract (not too common, but you know who you are), PAY BY PERSONAL CHECK.  The lenient requirements from the past are gone, and this is more than likely the only way a lender will allow this as an eligible housing history.
• Hopefully you already save your income tax returns and bank statements, but if you don’t, you should start now.  You might also want to save your utility bills in case they are needed.  (Too much of a special case to go into here, but can save lots of time and hassle down the road if you need them).
• Keep your credit score as high as possible.  This is kind of obvious, but your credit score is going to be more important than ever to your next mortgage.
• Also pretty obvious, but start saving now.  Nobody knows exactly where the “down payment line” will stabilize, but I can assure you that having more of a down payment in the bank will put you in a much better position.  Don’t plan on getting a no-money-and-no-closing-cost loan any time soon.
• Make sure that you are “ready” to buy a house at least 60 days before you apply.  That means having the money in the bank account that you’ll provide bank statements for.  That means nothing new on your credit report whatsoever.  Actually, this advice applies until after you close and have the keys.

Easy stuff.  Just trust a guy that spent many years in the industry…and do it.

I’ll make you a quick promise – the final three parts in this series will not focus on anything else having to do with homes or mortgages.  Deal?

Talk to me.  Am I off base on anything here?  I want to know what you think!

Scott

If you are in the process of selling your home because you can’t make your mortgage payments anymore, see the initial post in this series for more info.

We all know that this is a huge hot button in our country right now.  Things are changing daily, and there is a bunch of solid, reputable information out on the Internet that can help – I won’t waste your time restating that.  I’m just going to quickly bring up a couple things that most people we’ve talked to haven’t been aware of.

First, many people do not know about the Federal HOPE For Homeowners (also known as H4H) program.  There are limitations and qualifications that you should read more about at http://www.hud.gov/hopeforhomeowners, but it is a good option in certain instances.  There is a fact sheet and FAQs on that site, but keep in mind that you can talk to a live person fairly easily which I highly recommend.  There is a map for contact information by state at http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm.

Second, BE CAREFUL if you are talking to anybody about doing a “loan modification.”  There are reputable companies out there for sure, and this can actually be a good solution.  But, where do you think many of the unemployed real estate and loan professionals went when the housing market crashed?  Yep, straight into loan modifications, mortgage negotiation, etc.

My advice?  Look for a company that will give you a money-back guarantee if they cannot get your loan modification approved.  Not everybody will do this, and I think that is just plain wrong.

Sure, maybe they keep a nominal charge for processing, but you should get all or almost all of your money back if they can’t get you approved.

There is a pretty specific set of guidelines for loan modification candidates.  They should be able to give you a pretty accurate feel just after asking you a few questions and “prequalifying” you, and shouldn’t waste your time just “giving it a shot.”

Just a few things that the typical loan modification programs requires:

• They usually require that you are already behind on your mortgage – 30, 60, even 90 days past due.  I think it is interesting that you can’t head off the problem early and that you already have to be in really bad shape to have any chance at all.  But, I guess otherwise there would be too much abuse…
• Typically the more “under water” (home value vs. existing mortgage balance) you are, the more willing they are to work with you.
• Most of the time they’ll only work with Adjustable Rate Mortgages (ARMs), and especially Negative Amortization Loans (aka “Teaser Loans”, “Neg Am”, “Pick-A-Pay”, “Payment Option ARMs”, etc)
• The worse overall financial position you are in, the better your odds.  Your “position” can be based on many things, but they’ll usually look at the whole picture.  For example, if you and your family are healthy, and just one person only recently lost their job…that probably isn’t enough for them to allow a loan modification to proceed.  Extended unemployment, medical problems/bills, accidents, etc. are usually more common triggers for loan modifications.

So, do some homework to see if it is right for you, and again, be careful – there are some shady (and desperate) operators in this market.

By the way, I’m calling some of my old mortgage peers to find a good loan modification source for a personal friend.  If you are interested, send me a private message and I’ll tell you what I found fairly soon.  If I get enough good info on different sources, I’ll post it on this blog.

After the long, complex home value post last time, I’ll wrap this one up before it gets too long.

As always, please tell me what you liked or didn’t like about this post, I value your comments…

Scott

We’ve been receiving lots of calls and emails from people in a panic about their finances.

“How do I manage my huge credit card debt?”
“The house next door sold for $200K less than I paid for mine!”
“Should I even bother saving?  My bank will probably go under anyway!”
“What about my pension/Social Security?”

Sure, you’d have to be living under a rock not to be at least a little scared about our world right now.  But as usual in life, there are things you should worry about (those you can do something about), and things you should ignore – why bother if you can’t change them?

So let’s cut through all the noise and doom-and-gloom to talk about what you should be worried about – or not – TODAY.

Worry #1 – Your Home Value

If your home has dropped in value, you’re not alone.  There are very few places in the country that have not been impacted.  We’ve watched our home’s value fall 35% since early 2006, so I’m there too.  (If you are and have been renting the last couple years…congrats, you’ve got great timing.   Maybe you should be writing this post instead!).

But stay with me a second.  As much as that, well…sucks… if you don’t have to sell your house now, just put it out of your mind.  Seriously.

If a job change or personal circumstances or whatever are not forcing you to sell, don’t worry about it!  After all, who cares what your neighbor’s house just sold for?

I used to play “shoulda-woulda-coulda” all the time – if we sold when we were thinking about it at the top of the market, we could have put a big chunk of cash in the bank.  Now we don’t have that option.  Yep, pretty frustrating.

Don’t Walk Away

Oh, and you aren’t thinking about “walking away” from your house and mortgage because your house isn’t worth what you paid for it, are you?

As you probably know, the real estate market runs in cycles.  Even if you are underwater now, when the market starts going up again, the “bottom” will be higher than it was before.  So, your house will be worth more six or eight years from now than it was in 2006.

Also, this might tweak some people, but your house is not an asset.

You shouldn’t plan on it doubling in value in a couple years like during the crazy boom we just went through.  It is a place to live, and it is an expense – again, not an asset.  Sure, you might have equity you can borrow from someday, or make money when you sell it one day.   The value will go back up eventually – always has, always will.  But it isn’t an asset.

We’ll talk a bunch more about this some day, but I’ll get off my asset soapbox now.  Until then, if you want to know more about assets and expenses/liabilities, pick up Robert Kiyosaki’s “Rich Dad, Poor Dad.”  Great book that has made a difference for lots of people.

So, if you can afford the payments and still feed your family, don’t walk away and let the lender foreclose on your house.  Ride it out, and do the right thing if there is any way.

Home Shopping A Few Years From Now . . . You’ll Thank Me

Keep in mind that a foreclosure is the single most damaging thing that can hit your credit report.  The next time you want to buy a house, you can have all kinds of problems with your credit and the lender probably won’t care too much.

$39 collection from a doctor?  $17 charge-off from a department store?  Except for the very top tier programs, lenders don’t care as much about that stuff – everybody makes a mistake here and there.  You know what they do care about when they are ready to lend hundreds of thousands of dollars on a home?  Yep.  “How did this borrower handle it the last time somebody lent them hundreds of thousands of dollars on a home?”

If you even had a late payment or two, you are already at a big disadvantage.  If the lender foreclosed on your property, you’ll have a very difficult time getting another mortgage with any kind of decent rate, down payment, etc.

Anybody that can avoid adding to the mass of bank-owned homes out there will help this whole mess get cleaned up quicker.  Hint, hint – which means if you do want to sell your house eventually, you’ll be able to do it sooner and more profitably.

Values/Schmalues – Who Cares?  But I Actually DO Have To Sell My House Now!

Okay, let’s talk more about the dark side of this subject.  If you do need to sell your home now for any one of a handful of reasons, it isn’t going to be fun – but you knew that already.

If you’ve been in your home since 2003 or 2004 and haven’t sucked all the equity out of it, then you are probably okay.  You won’t make nearly what you could have during the boom days, and it will take much longer to sell, but most likely you aren’t upside-down.

If you bought in 2005-2006 or later, you could be in trouble.

Either way, if you have to sell…then really SELL!  Don’t screw around pricing it high because it makes you feel better about what it used to be worth.  The only people buying right now are bargain-hunters, and they aren’t in a rush (plus, do you think they might have just a few options to choose from?)

Go to an experienced real estate professional that you can trust, and listen to what they say!  The listing price will hurt the first time you hear it, but more than likely, it is the right price at which to list your home.  (If you really don’t believe it, pay the extra $300 for an appraisal by a second company – it is worth it in piece of mind).

Again, if you need to sell, you need to SELL!  If you price too high and make a few more mortgage payments during the time when nobody is coming to look at your home, then you are out even more money.  Price it right and get it sold.

Oh, and in this market, you don’t want to sell your home yourself.  Trust me – it really is something you’ll regret.  Pay the commission and figure that it is covered by the higher price that they got you and the time and mortgage payments they saved you.

Make sure that your real estate professional  is taking advantage of technology to get you maximum exposure.  Make sure they know the little secrets about the different websites – to allow you to price it right to have it seen by two price-group searchers instead of just one.  They should know what that means and some other tricks.  Every bit helps, right?

One other thing to keep in mind…nobody cares as much about selling your house as you do.  So, be involved, and pay attention.  Do a little extra work and sometimes that can make all the difference.

For example, there is a real estate expert named Bruce Norris who says you should price your house so you are the “next logical sale in your neighborhood” (or something close to that).  You need to monitor the sales in your neighborhood weekly (yes – sales, not listings), and drop your price if you need to so that your home remains the best-priced one in the neighborhood…and the next logical sale.

If you are able to sell high enough to pay off your mortgage, great.  Take it and run, and be thankful – next time you’ll probably time it right, get a great deal and build lots of equity.

What Exactly Is A Short Sale?

If you can’t pay off your mortgage with what your home is worth, you are not alone.  It is a terrible situation which can make you feel pretty helpless.  My advice to you is to communicate openly and honestly with your lender.  If you can get them to agree to a short sale (where they’ll accept less than you owe on your mortgage), that is often the best solution.  There are some ramifications (tax and otherwise), but all in all they would rather lose some money on the transaction than take your home back.

Your lender does not want to take your home back – trust me, I’ve seen it many times during my years in the mortgage industry.  Lenders make money by loaning money on homes, not foreclosing and owning and selling them.

They don’t have time to deal with properties in foreclosure – they just want to get rid of them ASAP.  When they do that, they almost always get less money than the home is truly worth.  They also spend a bunch of time and expenses during the legal process to take the home back from you, in addition to substantial fees in getting it ready to sell.

Let me say it again – they do not want to take your home back.  So, call them early and call them often.  Tell them exactly what is going on.  Swallow your pride and do it.

You’ll shoot yourself in the foot if you try to take advantage of them, however.  I’ll say it again – they don’t want your house back.  But, they want every last cent they can possibly get from you to minimize their losses.  C’mon, you’d be the same way if you were them – if you were already losing on the transaction, you’d want as much as you could collect.  This is to save your house – give as much as you can in the negotiation, and plead with them to meet you there.

Remember that there are many other people out there in the same situation, many of them further along this unfortunate path than you are.  So be patient and understanding, but be persistent.

You’ll want to present your position as somebody that truly wants to take care of the problem.  After all, you are taking care of this early, rather than after they’ve spent lots of time and thousands of dollars in fees going through their legal foreclosure process.

But BE NICE!  Don’t confuse the positioning I mentioned above as being aggressive, or they’ll squash you.  Or at least not return your calls and cause you to lose valuable time.  Think about the fact that they are on the phone all day, every day dealing with a pretty depressing subject, one after another.

If you aren’t getting anywhere, think outside the box if you need to and do something to make an impression.  Sure, spending any money when you are in that position is tough, but what about a cheap bouquet of flowers or having the local pizza shop deliver them a $10 pizza?  You might melt enough of the ice to really get them on your side and fight for you.

What Are The Other 6 Things to Worry About?

I intended to make this a fairly detailed post, but to discuss all of the 7 items that have come up most often recently.  But once I started digging in to my call logs and emails, there were lots of things to be covered about people’s homes…a pretty complex subject.

In my next post, I’ll discuss some options if you can’t afford to keep making your mortgage payment but selling your home isn’t possible.  After that, I’ll make the rest of the posts shorter, since they aren’t so complicated.

I look forward to your feedback, whether on the post, or just to tell me that yes…I babbled way too much!

Stay Tuned.

Scott