By Joel Persinger
The recent signing of the Housing and Economic Recovery Act of 2008 by President Bush has a great many distressed homeowners clambering to find out how much help the new law might actually provide. Many of these folks are desperate to find some way to keep their homes and are hopeful that this new law might provide some new options to help them do it.
Like most laws passed these days, this new housing act makes changes in many areas. Among other thing; it raises the conforming loan limits, increases regulation of Fannie Mae and Freddie Mac, modernizes some FHA programs, creates some tax incentives, establishes new licensing requirements and gives birth to something the House of Representatives called the “Hope for Homeowners Program.”
During the run up to the signing of this bill, just about every news story that I saw focused more on the possible bailout for distressed homeowners than on any other part of the bill. This is precisely because the law provides an opportunity for some distressed homeowners to refinance their existing high interest rate loans into new, affordable FHA-insured loans based upon the current market value of their homes. That’s right… current market value. If the home was worth $600,000 when you purchased it and it’s only worth $400,000 now, the new loan would be based upon the $400,000 current value. It sounds like a miracle! Still, there are some limitations that you should know about.
While the program appears to be a good one, there are some hitches that borrowers should be aware of before they dive in. First of all, this program is not available to everyone. In order to be eligible, borrowers must have taken out their current loan on or before January 1, 2008. They must also certify that they did not intentionally default on their original mortgage or any other debts as well as declare that they did not provide false information in order to obtain the loan. If the borrower has been convicted of fraud or has previously defaulted on a government loan that borrower is not eligible. The borrower must also meet other standards established by the program’s governing board, including documenting income by use of the borrower’s two most recent tax returns. But, the biggest obstacles for the homeowner to overcome are these: the borrower’s current lender has to agree to take the loss and the borrower has to agree to share any future equity they may gain the home with the government on a 50/50 split. Like my grandfather used to say, “There’s no such thing as a free lunch.”
Still, if you’re trying to save your home, this new law and the program it provides may just be the ticket. But, be careful, get lots of advice and remember that this is new to those in the real estate industry too, and it may take a while before we “experts” have a full grasp of all the possibilities.
Monday, August 4, 2008
A Good Alternative to Foreclosure
By Joel Persinger
With all the talk of increasing foreclosures, and fears of banking failures such as that which occurred with Indymac Bank and the worries surrounding the general stability of the lending market, more and more people I meet are asking probing questions about possible alternatives to foreclosure. One such alternative is the “Short Sale.”
Short sales were last used extensively during the market down-turn of the 1990s. A short sale occurs when property values have declined to the point that homeowners owe more on their properties than the properties themselves are worth. When that happens and a homeowner can no longer make the required payments, the two most common results are foreclosure or selling the home for less than what is owed on it with the permission of the lender. The latter is called a short sale.
If you are keeping your eye on the market in San Diego, you have probably noticed that a significant percentage of the homes currently for sale in the county are distress sales. Many are foreclosures, but a large number are short sales. This may be due to the fact that a short sale can do far less damage to your credit rating than simply going through a foreclosure.
According to an article published on the CBS News website in June of 2007,
“While in both cases, short sale and foreclosure, the delinquent mortgage will negatively affect (the seller’s) credit rating, at least short sellers avoid having a “debt discharged due to foreclosure” on their credit reports. Mortgage and credit experts say that, after bankruptcy, having a foreclosure on your credit report is the worst result and will reduce your credit score by over 250 points. You could also have to wait up to three years to qualify for a mortgage at a reasonable rate.
The article goes on to state that a short sale will generally be report as, “a pre-foreclosure in redemption… and can result in a credit score reduction of 100 points or less.” According to CBS News, “People who successfully complete a short sale may also qualify for a mortgage at a reasonable interest rate in as little as 18 months.”
Given the current market and the large number of distressed sellers in San Diego County, many real estate offices, including my own, have focused on helping sellers in financial distress complete short sales. This is simply because a short sale is often a far better alternative than a foreclosure. So, if you or someone you know is in financial distress and facing foreclosure, a short sale may be a better way to go. A qualified, experienced real estate professional should be able to help.
With all the talk of increasing foreclosures, and fears of banking failures such as that which occurred with Indymac Bank and the worries surrounding the general stability of the lending market, more and more people I meet are asking probing questions about possible alternatives to foreclosure. One such alternative is the “Short Sale.”
Short sales were last used extensively during the market down-turn of the 1990s. A short sale occurs when property values have declined to the point that homeowners owe more on their properties than the properties themselves are worth. When that happens and a homeowner can no longer make the required payments, the two most common results are foreclosure or selling the home for less than what is owed on it with the permission of the lender. The latter is called a short sale.
If you are keeping your eye on the market in San Diego, you have probably noticed that a significant percentage of the homes currently for sale in the county are distress sales. Many are foreclosures, but a large number are short sales. This may be due to the fact that a short sale can do far less damage to your credit rating than simply going through a foreclosure.
According to an article published on the CBS News website in June of 2007,
“While in both cases, short sale and foreclosure, the delinquent mortgage will negatively affect (the seller’s) credit rating, at least short sellers avoid having a “debt discharged due to foreclosure” on their credit reports. Mortgage and credit experts say that, after bankruptcy, having a foreclosure on your credit report is the worst result and will reduce your credit score by over 250 points. You could also have to wait up to three years to qualify for a mortgage at a reasonable rate.
The article goes on to state that a short sale will generally be report as, “a pre-foreclosure in redemption… and can result in a credit score reduction of 100 points or less.” According to CBS News, “People who successfully complete a short sale may also qualify for a mortgage at a reasonable interest rate in as little as 18 months.”
Given the current market and the large number of distressed sellers in San Diego County, many real estate offices, including my own, have focused on helping sellers in financial distress complete short sales. This is simply because a short sale is often a far better alternative than a foreclosure. So, if you or someone you know is in financial distress and facing foreclosure, a short sale may be a better way to go. A qualified, experienced real estate professional should be able to help.
Can Congress Fix The Problems With The Housing Market?
By Joel Persinger
Everywhere I go these days people ask me what I think will happen if Congress passes all the “Fixes” and “Reforms” it is promising in order to “help struggling homeowners” in the current housing crunch. Since so many folks have asked, I thought it might be nice for me to give the question some consideration.
So far, Congress has proposed relief for struggling home owners, a tightening of regulations for mortgage lenders, punishing the lending industry in one form or another, making it more difficult for high risk borrowers to get loans in the first place, saving Freddie & Fannie as was done a week or so ago and so on, and so on. Among the most recent proposals is a plan to bail out those homeowners who can’t pay their mortgages. Of course, nobody seems eager to mention that the money to bail these folks out must come from somewhere. So, who do you think is going to pay for it? It’s not a trick question. The answer is, you. The tax payer is going to pony up the coin for any such deal that becomes law.
I’ve been sitting back quietly watching those in government wrestle with the problems of the housing and lending market for a while now and since I have been asked so often lately about my thoughts on the issue, I have come to three inescapable conclusions:
Everywhere I go these days people ask me what I think will happen if Congress passes all the “Fixes” and “Reforms” it is promising in order to “help struggling homeowners” in the current housing crunch. Since so many folks have asked, I thought it might be nice for me to give the question some consideration.
So far, Congress has proposed relief for struggling home owners, a tightening of regulations for mortgage lenders, punishing the lending industry in one form or another, making it more difficult for high risk borrowers to get loans in the first place, saving Freddie & Fannie as was done a week or so ago and so on, and so on. Among the most recent proposals is a plan to bail out those homeowners who can’t pay their mortgages. Of course, nobody seems eager to mention that the money to bail these folks out must come from somewhere. So, who do you think is going to pay for it? It’s not a trick question. The answer is, you. The tax payer is going to pony up the coin for any such deal that becomes law.
I’ve been sitting back quietly watching those in government wrestle with the problems of the housing and lending market for a while now and since I have been asked so often lately about my thoughts on the issue, I have come to three inescapable conclusions:
- While it could be debated whether the government had any part in getting the housing market into its current troubles, it appears to be an absolute certainty that no-one in the government has the vaguest idea how to fix them.
- The old political axiom, “When in doubt, grand stand” has never gone out of style. Only in politics can so many supposedly grown men and women madly scurry around in a frantic attempt to look good while actually knowing and accomplishing nothing and still manage to get paid for it.
- The use of smoke and mirrors is not exclusive to flashy Las Vegas magicians. Government types know that if they keep the public off balance by proposing useless “Fixes” long enough, the market will eventually correct itself. The sad truth is that nobody in government is actually trying to fix anything. They’re just trying to rack up the highest number of “Fixes” so they can take credit for fixing it when it finally gets around to fixing itself. Never in my 50 years of life have I ever seen government actually attempt to fix anything without making things much worse in the process.
So, what are we left with? First, government is not going to fix this. It will fix itself if we just let it. Second, if government actually tries to fix it, it will get worse. Third, the market is supposed to do what it is doing. It spiked upward and needed to correct downward. So, it went down and it will continue to do so until it is done correcting for the spike. Like the old saying goes, “What goes up must come down.” And lastly, there is no painless way out of this. Uncle Sam is not really our long, lost, rich Uncle and he can’t bail us out every time we blow it. Some times we just have to fend for ourselves.
Do you own your house or does it own you?
By Joel Persinger
When I was a kid my mother used to caution me not to put more food on my plate than I could eat. If I didn’t listen and ended up sitting at the table, stuffed to the gills and unable to finish my supper, she would look at me with a disapproving scowl and remark, “Your eyes are too big for your stomach, young man.” These were words I heard many times growing up and they taught me more than the obvious lesson they were meant to teach. Among other things, I learned that gluttony and bad consequences go hand-in-hand.
In today’s American society, many of us have failed to learn that our eyes are often bigger than our stomachs, or in many cases, our bank accounts. Even if we did learn it as kids, every aspect of our culture rails against that lesson and entices us to have more and bigger regardless of the consequences. As Brian Buffini (a popular business coach) is fond of putting it, we are driven to “…spend money we don’t have buying things we don’t need to impress people we don’t even know.”
Just yesterday I had the opportunity to talk to an old friend at church. He was brimming with excitement as he announced to me that he and his wife had finally purchased a home. I have seldom seen him so excited. He told me all about the house itself, how excited he and his family were and then finally, about the deal. To his credit, he had really done his homework. He had established a family budget, investigated the current real estate market, determined exactly what his family could afford, and then and only then gone shopping for a home. As a result, he made a fabulous purchase. His new home is just what they need as a family, exactly what they can afford and best of all, they own it. It doesn’t own them. Many other folks cannot say the same.
As I write this column, Realtors, attorneys and credit experts all around the country are working to help thousands and thousands of families who are upside-down on their homes. How did so many people end up in such a mess? I submit that it is a result of never having learned the simple lesson my mother used to preach, “Only take what you can eat, Son. Remember, your eyes are often bigger than your stomach.”
When I was a kid my mother used to caution me not to put more food on my plate than I could eat. If I didn’t listen and ended up sitting at the table, stuffed to the gills and unable to finish my supper, she would look at me with a disapproving scowl and remark, “Your eyes are too big for your stomach, young man.” These were words I heard many times growing up and they taught me more than the obvious lesson they were meant to teach. Among other things, I learned that gluttony and bad consequences go hand-in-hand.
In today’s American society, many of us have failed to learn that our eyes are often bigger than our stomachs, or in many cases, our bank accounts. Even if we did learn it as kids, every aspect of our culture rails against that lesson and entices us to have more and bigger regardless of the consequences. As Brian Buffini (a popular business coach) is fond of putting it, we are driven to “…spend money we don’t have buying things we don’t need to impress people we don’t even know.”
Just yesterday I had the opportunity to talk to an old friend at church. He was brimming with excitement as he announced to me that he and his wife had finally purchased a home. I have seldom seen him so excited. He told me all about the house itself, how excited he and his family were and then finally, about the deal. To his credit, he had really done his homework. He had established a family budget, investigated the current real estate market, determined exactly what his family could afford, and then and only then gone shopping for a home. As a result, he made a fabulous purchase. His new home is just what they need as a family, exactly what they can afford and best of all, they own it. It doesn’t own them. Many other folks cannot say the same.
As I write this column, Realtors, attorneys and credit experts all around the country are working to help thousands and thousands of families who are upside-down on their homes. How did so many people end up in such a mess? I submit that it is a result of never having learned the simple lesson my mother used to preach, “Only take what you can eat, Son. Remember, your eyes are often bigger than your stomach.”
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