My Mom proudly announced to me about 10 years ago that her house was officially paid in full.  She sent extra money to the bank whenever she could - practically every month - all the while also scrimping so she could build a savings account for emergencies. She would grow her own vegetables and together she and Dad would can and freeze corn, tomatoes, green beans, and whatever else the garden produced that year.

Ironically even when she was paying off the mortgage, she never looked at the house as an investment.  It was 1) a home, but also 2) a debt burden that had to be rid of. I think she had the right idea,

Financial experts and authors, such as Jane Bryant Quinn advise homeowners to stop considering their home as an investment vehicle and instead see it as a place to live. This is especially true if you are buying a starter home or just starting out with a mortgage, where you’re payments in the first few years are almost all interest anyhow.

A home is not an investment.  It’s a comfort.  It’s safety.  It’s security.

Paying it one way or another (whether pay down or pay off) should be a priority. Like it was 50 years, 30 years, 10 years ago for the generations that preceded us.

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.

April 30th this year has jumped to being a much more important date than the infamous April 15th Tax Day, for home buyers and sellers at least.  That’s the last day a buyer can be in a “binding” contract on the purchase of a home to qualify for the federal tax credit of either $8,000 or $6,500, depending on your status and eligibility.

Who are the first-time homebuyers today?  According to the National Association of Realtors, the average age is 30 and their income is about $61,000.  They are looking for homes in the $150,000 range and now seek fixed-rate mortgages and over half (55 percent) are using FHA financing.

Tick Tock.  If you’re in the market it’s decision time!

Years ago I worked with an organization of state treasurers and the chief financial officer of Pennsylvania went on a tear about how horrible and awful reverse mortgages were.  Her main gripe was that when using a reverse mortgage, people lost their homes period.

However, given today’s ruined retirement portfolios, maybe reverse mortgages deserve a second look.  A popular real estate news site, RIS Media, provides that second look through its article on the Top 9 Reverse Mortgage Myths.  Included is the top worry that most people have,

Myth: If I take out a reverse mortgage the lender will own my home.
Fact: False. Homeowners still retain title and ownership to their homes during the life of the loan, and can choose to sell the home at any time. As long as the house is maintained and property taxes and homeowners insurance are paid, the loan cannot be called due.

There has also been concern about whether a senior can be evicted from the home, but the article states that as long as the borrower adheres to the guidelines, they still retain ownership of thehome.  Another concern was that heirs are cheated from their inheritence, but honestly… wouldn’t you rather your elderly family member live in comfort than hand-to-mouth as they age?  And if the home is something they MUST have, the heirs do have the ability to keep it by paying the balance of the loan.

Photo from Consumer Action.

In what appears to be a delayed reaction to the subprime mortgage meltdown (it’s the government so of course it took some time), the HUD settlement statements have changed so buyers will have more clarity on their closing costs.

The Good Faith Estimate is the first major document affected.  The lender must have on the first page how long the locked-in interest rate is available, the loan amount, the term of the loan, the initial interest rate, and monthly mortgage amount.  Lenders must also disclose whether an interest rate can rise, if the cash loan balance can rise, whether the monthly payment can increase, if there is a prepayment penalty, and if there is a balloon payment.  Also on the first page are whether or not there will be an escrow account for insurance and taxes and how much that will be.  Finally, the lender must show the total estimated settlement charges (closing costs).

The second page of the new good faith estimate details expenses including origination fee, required services (appraisal, credit report, flood certification, etc.), cost of title services, government recording charges, transfer taxes, escrow, daily interest charges, initial escrow amount (which will be insurance and taxes), and the cost of homeowners insurance.

Finally, the back page includes a “shopping cart” section where the buyer can shop the loan.  Lenders are not crazy about this because FROM THEM the buyers get that they can look around for better loan options.  However this should keep a lender honest because it eliminates junk fees (they all must be included with the loan origination fee).

How are they kept honest?  If there is more than a 10 percent increase between the good faith estimate and the HUD settlement statement, the lender has 30 days to cure the discrepancy.  If the overage is the fault of the lender, they must refund the buyer the amount of the overage.  However, there is a caveat.  If the buyer picks someone not on the lender’s list to provide the survey, credit report, flood certification, or other items required by the lender, then the lender is not at fault if the HUD is more than 10 percent of the GFE.

I feel more protected now, how about you?

Six months to a year after homeowners have been helped out on the mortgage payment - either through loan modificiations, forebearance, or other grace periods - they are still falling behind on their mortgage payments.  According to MSNBC.com, nearly 40 percent of homeowners fall behind again.

But nearly 40 percent of homeowners who had their monthly payments cut by 20 percent or more last year were delinquent again within a year, according to a report Monday from the Office of the Comptroller of the Currency and the Office of Thrift Supervision.

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With the economy still weak and employers continuing to cut jobs, “even if you’ve gone through a modification, your situation may deteriorate,” said Fred Phillips-Patrick, director for credit policy at the thrift office.

Still, the economic recovery depends upon job growth.  Without consumer confidence in the ability to hold on to a job and without solid employment prospects, the real estate market along with the financial health of the country remains in limbo.

Getting your home loan may have just gotten harder thanks to some new rules by Fannie Mae and the FHA.  Make no mistake the rules are very much needed and should keep unqualified buyers out of the housing market until they CAN qualify.

FHA loans may be requiring a higher credit score.  Fannie Mae has raised its minimum credit score from 580 to 620, effective December 12, 2009.  If your score falls below 620, you would have to pony up a 20 percent down payment to qualify for the Fannie Mae guarantee.

Tucson Arizona Homes for Sale goes into some detail about additional Fannie Mae changes.

A third change concerns maximum debt-to-income ratio. Fannie Mae will no longer approve loans with debt ratios exceeding 45 percent except with very strong assets and very high credit scores.

In no case whatsoever may debt-to-income exceed 50 percent.

Today’s interest rates remain low, though we expect them to rise in 2010 (but not more than up to 6 percent).

Today’s 30 year rates with 30 day lock 12/15/09
FHA 4.875
VA 4.875
Conforming 4.875*
USDA 4.875
Jumbo 3.875* with LTV to 90%

*rates assume credit score of 660 with  no lender fee on government loans and 1 pt zero pt program available and loan amount of 150,000>,jumbo loans have limited ltv up to 2,000,000 rate is for 5/1 arm. conforming, loan amounts and credit score restrictions may apply credit income property requirements may vary. Rates and fees vary by lender.

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.

My task this weekend - in addition to chauffeuring my daughter to several parades so she can fulfill her duties as a baton twirling queen - is to look into the mortgage loan modification process.  One of my friends was telling me last night how she was able to obtain a modification which has provided her family with enough relief (her next home loan payment isn’t due until February 2010) that they are getting caught up on bills and will survive Christmas.

We’re not behind on our mortgage payment, thankfully.  However our income this year has drastically changed because of the real estate market.  Though many agents continue to do very well, I looked up the performance by some of the super agents and found they too are earning significantly less.  This told me I’m not the only agent who is working twice as hard for less income.  It’s hard for everyone out there and I eagerly look forward to when it gets better.

Meanwhile to get through the leaner times, the loan modification programs may be the relief so many of us need until the economy stabilizes more.  Over at Bible Money Matters, an article about modifications provides some great links to see if your home is backed by Fannie Mae or Freddie Mac and - if not - how to qualify,

To be eligible for the loan modification you must meet these criteria:

• Your loan must have been obtained on or before January 1, 2009.
• First-lien loans on owner-occupied properties with an unpaid principle balance up to $729,750
• Document income with signed IRS 4506-T, two most recent pay stubs, and most recent tax return.
• Sign an affidavit of financial hardship.
• Modify by December 31, 2012.
• Have a mortgage payment that is no longer affordable, examples include significant change in income or expenses.

I’ll be looking into this to see and sharing the options with my friends and clients.  Fantastic fantastic information here!

Photo of 2803 Surrey Road in Nashville.

Call me bitter if you will, but the grilling servicers in the loan industry are receiving on Capitol Hill today are what I call “Just Desserts.”  From Business Week:

Far too few homeowners are getting modification help either in debt forgiveness or reduction in interest rates. Even when loans are modified, the adjustments aren’t sticking and the loan goes bad anyway.

Time and time again I’ve heard people begging for help.  They don’t get the help.  I had one buyer who made a full price offer on a short-sale - it would’ve been short about $5000 for the lender.  The lender refused because they’d prefer a foreclosure and losing $60,000 than an immediate out for a $5000 hit.

And lenders know it!

Deloitte’s David Sisko, who leads the firm’s default management/loss mitigation service business, points out that some servicers are exacerbating the problem by cutting corners. At some point, he says, they’re just going to have to suck up and take a hit on their own profits to help the rest of us get through this deluge of problem loans. “

Let us hope the 25 mortgage servicers in Washington this week speaking with officials from Treasury and Housing and Urban Development can come to a fair solution.  We need one.