Home ownership rates have slipped according to the Census Bureau.  In 2004, 69.4 percent of Americans owned their own homes.  Today, the home ownership rate is 66.9 percent and it’s expected to drop to 62 percent by 2012, the lowest its been since 1960.

According to USA Today, between six and eight million people could lose their homes in the next two years because they are now behind on the mortgage payments.

The push to own rather than rent now is being questioned. “A large percentage of households are not responsible enough to handle a mortgage payment,” [John] Burns [of John Burns Real Estate Consulting] says. “Growing homeownership is a great goal but you have to grow the percentage of households that are responsible.”

More stringent financing requirements may prevent some from buying.

I somewhat disagree with this.  While there are some homeowners who are just not responsible, it must be taken into consideration that there has been considerable job loss in the last two years.  I have heard a lot of people say the unemployed can always work flipping burgers or greeting customers at a big discount store, but a minimum wage job will not be enough to pay $1000 p/month mortgage (and that’s a cheap mortgage).

Figure $7.25 p/hour x 40 hours p/week = $290
$290 x 52 weeks p/year = $15,080
$15,080 / 12 months p/year = $1256.66 p/month

After paying the mortgage, you have $256 left to pay utilities, car payment, gas, insurance, food, etc.  Sorry, but the argument that anyone can flip burgers doesn’t cut it when it comes to saving your house from foreclosure.

Mortgage lenders have been foreclosing on a lot of homes these past couple of years.  Some flip the houses immediately - putting them back on the market as a foreclosure or REO (or real estate owned aka bank owned).  However, others are holding on to the inventory they’ve acquired through foreclosures, jingle mail, or deed in lieu of foreclosures.

Why would they hold?  To not flood the market with a huge wave of foreclosures is one theory.  However, Les Jones and his bouquet of weeds links to this story from the real estate channel that emphasizes another possible reason,

With the expiration of the first-time buyer tax credit on April 30, there are now two main props keeping the housing market afloat.  One is the growing percentage of home sales financed by Federal Housing Administration (FHA) loan guarantees.  The other is the refusal of banks to put on the market foreclosed homes over $300,000.

… Even more crucial is that selling substantial numbers of expensive homes at discounts of 50% or more would compel the lenders to take substantial losses which have been avoided by keeping them off the market.

The theory Les proclaims is worth reading all the way through, but here’s part:

If a bank holds a $500,000 mortgage they can pretend it’s still worth it, even if it would sell on the market today for $300,000. If all those mortgages were marked to market (value), the banks would be declared insolvent. The FDIC would march in, close the bank, and either sell it to another bank or shut it down and pay the depositors.

I suspect we’ll see more bank implosions if banks continue their marked to market strategies.  I can’t get a $300,000 loan on a home worth only $175,000 in today’s market.  The lenders are holding out so their accounts balance, but for how long?

Thanks for the heads up, Les.

The New York Times is reporting that some homeowners have stopped making mortgage payments in order to recover financially.  They know they either owe more than the real estate is worth or are already behind on their payments, so they opt to stop making monthly payments in order to save what they would’ve paid to get ahead once foreclosed.

A growing number of the people whose homes are in foreclosure are refusing to slink away in shame. They are fashioning a sort of homemade mortgage modification, one that brings their payments all the way down to zero. They use the money they save to get back on their feet or just get by.

This type of modification does not beg for a lender’s permission but is delivered as an ultimatum: Force me out if you can. Any moral qualms are overshadowed by a conviction that the banks created the crisis by snookering homeowners with loans that got them in over their heads.

In judicial foreclosure states, foreclosures are processed through the courts.  The process can take month upon month to work its way through the system.  This is what homeowners are counting on as they take this time to save the money they would have been paying for future deposits or business recovery.

Where are the judicial foreclosure states?

Arkansas, Connecticut, Delaware, Florida, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Montana, Nebraska, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, Utah, Vermont, and Wisconsin.

If you live in any other state, it will take a lot less time for the bank to kick you out.

A house sits empty on a street, alone and forsaken by the voices that used to fill it’s walls with laughter, shouts, and conversation.  My friend No More Empty Fortune Cookies wrote about that house on her street and her words are almost haunting,

There’s another empty house on our street. For such a small cul-de-sack, the occupied home to empty home ratio is precariously teetering in unfavorable ways these days.  I would just shrug my shoulders and say meh, but I want our house to sell.

We live in a town with a very high foreclosure and distressed sale rate - it wavers between 30 and 40 percent.  People in our community have talked about how to stop what had been a slow spiral down into a ghetto-like area, but we are starting to feel like we’re spinning out of control.  And our officials won’t raise our property taxes or place a moratorium to stop the continued building of inexpensive, not always sturdy homes.

I fear that one day, our only choice will be to leave this town.

This could be a classic case of the right arm not knowing what the left arm is doing.  A woman had her house repossessed and her parrot taken by a bank contractor who was there to padlock her pad.

The home owner said all her mortgage payments were current and because she - and her parrot - have been traumatized, a lawsuit has been filed.  From MSNBC.com,

…  she suffered irreparable emotional damage and is afraid to set foot in the house. The lawsuit says she eventually regained possession of the bird, named Luke, after repeated phone calls to the bank.

I’m glad Luke has been returned and can definitely understand her nervousness when it comes to returning to the house.  Good luck!

Photo by crispin swan via flickr creative commons.

I’ve been terribly worried about one of my friends who just received notice of foreclosure.  What has troubled me is where does someone go after foreclosure?  Forced loss of a house has a terrible impact on your credit score and with most landlords now requiring a credit check, how can you find a place to rent?

Key is to find a landlord that only has one or two rental properties rather than a giant apartment complex.  The local paper, craigslist, and family or friends are the best options for where to search.  In addition, you can offer to put down a higher deposit  or prepay several months rent.  If this isn’t an option, find a rental BEFORE the foreclosure hits your credit score.

The challenge is if you’re being foreclosed upon, your credit score likely already has some negative hits from missed mortgage payments.  If you keep paying your other bills, however, it could be viewed positively by a landlord - especially if your mortgage payment was double (or much higher at least) than what the rent payment would be.

Don’t give up hope. It may take a few years, but things will look better.

I proposed at work a couple of years ago that as a fundraiser, we contact a bank or mortgage company to donate a foreclosed property that we would then auction or raffle to raise money to pay for a holiday program for our local needy children.  I suggested that so the bank wouldn’t lose everything, we put a reserve on the property and the bank would get their reserve amount. Anything in excess would go to the charity work.

Unfortunately, I was never able to rally adequate support to make the auction happen, but when I read about the sometimes success, sometimes failure of other house “giveaways” via raffles, it reminded me of the almost effort we made.  The raffles are a great way to raise money for a good charity when they work.

Home raffles, once a novelty, seem to have proliferated around the country in recent years. In California, for example, at least eight charitable groups held raffles for existing or to-be-built homes in 2009, with varying degrees of success, according to local media reports.

For example, an arts group in San Francisco netted just over $1 million after covering its raffle expenses. But ticket sales fell short for a raffle conducted by a group that fights poverty in San Jose, and the charity just broke even. Yet another group announced that it has postponed its raffle and plans to reschedule, but it promises on its Web site that it will refund ticket costs if requested.

More problems can arise when the tax man cometh. To operate a charity fundraiser like this, you’d definitely need the support of a strong management company to oversee that everything is being done correctly.  I still think it’s a great idea.  I’d love to win a house using a raffle, but the idea of an auction could also potentially be a real winner for charities, for the banks, and for any real estate company sponsoring this type of event.  Plus someone would get a new home at an auction price!

Good things often happen in fours:  the Final Four, the Fantastic Four, four seasons, quartets.  An article published today by CNN Money.com points the finger at another four… four states that account for  HALF the foreclosure filings in the United States for 2009.  The states are Arizona, California, Florida, and Illinois and this surprised me because I thought Nevada and Michigan would be on the list before Illinois.

Reading further the filings aren’t the same as actual foreclosures.  The actual number of foreclosures is up by only 1 percent from the previous year.  “Nevada recorded the highest rate of foreclosures, at 10%, followed by Arizona, at 6.1%; Florida, 5.9%; and California, 4.75%.”  The article further states,

RealtyTrac, the online marketer of foreclosed homes, reported that one in 45 households — or 2,824,674 properties nationwide — were in default last year. That’s 21% more than in 2008, and more than double 2007’s total.

We are starting to see falling rates of foreclosures in some states, so this gives me hope that the housing market could start a more solid recovery with fewer distress sales on the market.

Anytime you are behind or think you might get behind on your mortgage, communication is key with your mortgage company, your insurer, your utility companies, your Realtor… everyone.

“In our society as a whole, people should realize they should communicate when they have a problem rather than sticking their head in the sand and hoping it’ll go away or fix itself,” my friend Robert Carroll said after taking the short sale and foreclosure class yesterday.

It’s so true - communication is key.  Your mortgage company understands that people sometimes face financial difficulties and they definitely would rather work with you than go through the trouble and expense of foreclosing.  It’s estimated that it costs about $60,000 to foreclose, so a period of forebearance, loan modification, short sale, or deed in lieu is a better option.

Banks are getting better about working with homeowners - possibly because the Obama administration and U.S. Treasury Department is now cranking up the pressure for them to do so.   In fairness, some companies were already doing a better job than others (Wells Fargo has a good reputation for working with homeowners). According to CNN.com,

Responding to complaints that too many borrowers are stuck in trial adjustments, administration officials said they will now focus more heavily on getting borrowers into permanent modifications. Government swat teams will go to the institutions to see what the holdup is and banks will have to submit progress reports twice a day during December.

Trial modifications are occurring because homeowners and lenders have negotiated a lower interest rate, but they have to then wait three to six months at this lower payment plan to see if they make payments on time before it becomes permanent.  To get a loan modification, you still must have the ability to pay.  If you don’t have the ability to pay, a short sale could be an option as long as you communicate with your lender.  Failing that, a foreclosure will be in your future.

Photo by Deman through Flickr Creative Commons.

Originally valued at $185,000, the land became a victim of bankruptcy.  My friend negotiated directly with the bankruptcy court and is closing tomorrow on 2.5 acres on top of a mountain … for significantly less.  Significantly.  $110,000 less.  That’s what I call negotiation skills!

He and his wife plan to build their retirement home overlooking this marvelous vista.  I am envious!