Archive for the ‘Credit Crunch’ Category

If you are having trouble paying your mortgage and trying to stop foreclosure, you probably know that things are very tough for many borrowers. At Lender Rate Match we have been monitoring thousands of loan programs over several years, and we’ve seen extraordinary changes in mortgage loan programs and what it takes to qualify.

If you have decent credit, equity in your home or a good sized down payment, and a job that pays you a steady W-2′d salaried (meaning taxes are withheld), then plenty of good loan programs still exist and we encourage you to compare mortgage rates.

But if you are someone who is self-employed, you owe more than your house is worth or your credit is bad (maybe you’ve missed payments), then your options are more limited.

In particular, it’s the homeowners who are “under water” - meaning they owe more than their house is worth - that are really in a tough bind.

The new housing legislation is supposed to help that with an FHA option that allows lenders to write off some of the balance of the loan now in exchange for a share of the appreciation of the home later.

But it’s a voluntary program, and that’s the big problem.

Many lenders simply are not working with borrowers on long-term solutions. They are only plugging the leaks temporarily, and they need someone with some authority to help right the ship. That person could - and in my opinion should - be a bankruptcy judge with the authority to direct a lender to restructure a bad loan to give the consumer the opportunity to pay off a loan based on the current value.

The New York Times agrees. In a recent editorial, they called for the same reform that many consumer advocacy groups have been pushing for:

…lawmakers should be ready to reform the bankruptcy law so that homeowners can have their mortgages modified under court protection. That is arguably the best way to prevent foreclosures, but it is also the policy most reviled by the mortgage industry

It’s a solution that costs taxpayers nothing, yet can save millions of homes from foreclosure and halt the downward spiral that vacant homes are causing, even for homeowners with no trouble making their payments.

In 2000, before the housing market took off like a rocket here in Florida, my husband and I bought our first house together. It happened to be a foreclosed home that had been sitting empty for months. The price was a bargain — or so we thought!

My hubby happens to be pretty handy with a hammer and paintbrush but it still took him about six weeks of full-time repairs to get the house to the condition where we were ready to move in. (The glossy black wet bar and spiral staircase with orange carpet in the living room were just a few things that had to go!)

That was just the beginning. Since moving in we’ve replaced just about everything in the home including the central heating and a/c unit, roof, pool pump and more. And we’re still not completely finished.

I’m describing this because today HUD announced it is going to help “bring stability to home values and accelerate the sale of vacant properties” by waiving the normal 90-day waiting period required for FHA financing on vacant foreclosed properties.

“A glut of foreclosed and abandoned homes harms neighborhoods, frustrates homebuyers and delays a community’s recovery,” said Brian D. Montgomery, Assistant Secretary of Housing-Federal Housing Commissioner. “The action we take today will allow homebuyers to purchase these homes in much greater numbers and ease the excess supply of unsold homes in neighborhoods across the country.”

Here’s why I don’t buy this spin:

1. These vacant foreclosed properties must be purchased by owner-occupants who can qualify for FHA financing. But since many current homeowners cannot sell the homes they live in (which is one reason why so many have been foreclosed upon), the prospective borrowers by and large will have to be first-time homeowners. How many first-time homeowners who couldn’t buy over the past five years are now in a position to buy a foreclosed home with all the headaches of deferred maintenance and unforeseen problems? Experienced investors are usually in a much better position to deal with the reality of foreclosure sales, and this proposal isn’t aimed at them.

2. How does selling a home at a bargain basement foreclosure price help stabilize prices? Wouldn’t preventing more foreclosures do a better job at that? There are still plenty of would-be buyers waiting to see “how low they will go” before they will buy.

Sure, this may be a great time for some first-time homeowners to find affordable homes, but I hope HUD doesn’t believe its spin here. And I hope this isn’t touted as another way the government is “helping homeowners in this time of housing crisis.”

But I didn’t use FHA financing to buy my foreclosed home, so what do I know?

Yesterday I happened to hear the NPR story describing how a Countrywide loan officer coached a prospective borrower to lie on her mortgage loan application. It’s a must-listen if you haven’t heard it.

If you think mortgage fraud problems — misrepresenting loan details, credit score manipulation, and overcharging — are a think of the past, this will remind you that you can’t be too careful when shopping for a home loan. Think about it. You have some loan officers who made a lot of money — a lot of money — over the past few years, who are now hurting for income. Do you think they all have just seen the light?

Honest loan officers had it more difficult during the heydey because they wouldn’t recommend inappropriate loans, or help their clients fudge facts. Now they find themselves telling some borrowers what they definitely don’t want to hear, “I can’t help you.” But that’s a lot better than telling someone to take out a loan that a couple of years down the line will only mean much bigger problems.

I recently read this article by Gary Foreman and thought it was excellent.

The other night I watched a movie called “Flags of Our Fathers.” It was the story of the men who raised the flag on Iwo Jima in World War II. The main theme of the film (heroism) isn’t relevant to us here, but something did strike me while watching it. As soon as someone was wounded and went down they called for a corpsman or medic. If the wounded was injured too badly, a buddy called out for them. The many battle scenes were filled with cries for corpsmen.

With a little research, I found out the corpsman was a Navy enlisted medical specialist and a medic was from the Army. I still know only a little about the subject, but it seemed clear that it was important to get help to the wounded as soon as possible. That’s why the brave medic or corpsman was willing to risk his own life to help save a friend.

It occurred to me that there are similarities in the world of personal finance. At some point or another, we’ll probably all get wounded in the money wars. And we’ll likely fall bleeding to the ground. How quickly we stop the bleeding and dress the wound will make a big difference in our survival rate. Let’s learn the lesson of the corpsman. It’s important for borrowers to call for help as soon as they’re wounded.

Right now many people are having trouble with their home loans. If you think you’re about to fall behind in your mortgage, talk to your bank. Don’t wait until you have missed a payment. Most lenders are glad when a borrower faces trouble squarely and comes to them seeking a solution. It’s much harder for the lender if you run and hide.

The bank doesn’t want to foreclose on you. They’ll probably lose money selling your house. The best situation for them is for you to continue to make payments on your home — even if those payments are less than the original mortgage called for.

Find a way to help the lender “win” if you stay in your home. Contact your mortgage company and tell them that you’re having a problem and want to work with them to find a solution. They’re in business to make money by loaning it out. Reducing your payments and lengthening your mortgage is better for everyone than foreclosure and resale.

The same thing is true if you’re struggling with your auto loan. The lender would rather work with you. That’s easier than repossessing the car, selling it and then chasing you for the difference between what you owed on the car and what it sold for.

Now, that doesn’t mean you should call the lender anytime that your payments are a little uncomfortable. It’s up to you to eliminate the extras in your budget before you approach your
lender. If you haven’t done that, don’t expect help.

And, don’t call your lender and tell them you want reduced payments so you can buy something else. They won’t be receptive. Not because they don’t like you, but because their job is to protect their loan and make money on their investment. Helping you to borrow more money isn’t good business.

Back in the movie, one advantage that the corpsman had was that they could pretty easily tell when someone was wounded.
But, financial wounds aren’t like war wounds. There’s no blood. They’re not that visible to others and we can easily conceal them if we wish.

Often that’s exactly what we do. We try to hide our problems. We won’t address them while the wound is still fresh and can be healed.

Why don’t we ask for help? Sometimes we’re afraid to face the problem. We hope that it will go away on it’s own. Or maybe we
don’t want our friends, neighbors, and co-workers to think we’re not doing as well as we think they are. Usually pride is involved.

The funny thing is that your co-workers or neighbors don’t need to know that you have a problem or that you’re looking for a solution. You don’t need to publicize that you’re asking for help. Only you and your lender need to know.

Can we guarantee that you’ll save your home or car? No, but the sooner you clean and dress the financial wound the better your chances of a recovery.

This advice comes from Gary Foreman, the editor of The Dollar Stretcher.com website and newsletters. You’ll find hundreds of ways to stretch your dollar and your day. I love the site & recommend you visit today for more great time and money-saving ideas!

The New York Times warns that foreclosure fees are often wrong. These improper fees can be a few hundred dollars to a few thousand (or worse!). If you are falling behind on your mortgage or facing foreclosure, I highly recommend you read the article.

Borrowers Face Dubious Charges in Foreclosures
By GRETCHEN MORGENSON
Published: November 6, 2007
As record numbers of homeowners default on their mortgages, questionable practices among lenders are coming to light in bankruptcy courts across the nation.

A New York Times article this week discussed research that shows African Americans and Hispanics are more likely to get higher cost loans. Though the conclusions are somewhat controversial (is it discrimination, redlining, a function of aggressive marketing, or something else?) it’s not the first time this disparity has been raised. In fact, you’ll find a variety of studies here that show that women, African Americans, and Hispanics are more likely to get a higher cost loan, when better loans are available.

Our data, gathered from hundreds of subprime programs monitored over the past three years, go even further: we have found that most consumers who got adjustable rate subprime loans (ARMs) could have qualified for a comparable or even better fixed rate loan. However, either they or their loan officer did not know a less risky loan was available. This means that a significant part of the current subprime mess could have been avoided, had the search tool we make available at FreeRateSearch.com been available to consumers then.

We wish it could have been rolled out sooner. But even now, we find that home loan shoppers are sometimes skeptical of our system, having had poor online mortgage shopping experiences in the past. The fact is, though, if you know the best par loan rates available for you, it puts you in an excellent position to avoid being misled and overcharged.

You can read a good post on the New York Times article at Creditbloggers.com.

In response to the credit crisis, The Center for Responsible Lending is urging citizens to ask their elected officials in Washington to support support legislation aimed at giving homeowners with predatory loans a fair chance to avoid foreclosure.

Rep. Brad Miller (D-NC), a member of the House Financial Services Committee and Rep. Linda Sánchez (D-CA), Judiciary Subcommittee Chairwoman on Commercial and Administrative Law have introduced HR 3609-Emergency Home Ownership and Mortgage Equity Protection Act to prevent hundreds of thousands of Americans from losing their homes by allowing them access to bankruptcy relief.

Currently, when a homeowner enters bankruptcy, the bankruptcy judge can allow them to restructure and catch up on delinquent mortgage payments. But the judge cannot order modification of the terms of the mortgage itself to keep the homeowner in their home, even if the loan was a predatory one with a huge jump in the interest rate or payments. No one wins, though, when lenders must foreclose.

Other types of debts can be restructured or reduced in bankruptcy, and in the past restructuring of mortgage debt was allowed.

According to the Center for Responsible Lending, the benefits of this legislation are:

* No cost to the US Treasury. This is not a bailout program.

* Narrowly targets families who would otherwise lose their homes but can repay at least some of their debt in a Chapter 13 program.

* Saves American families not facing foreclosure $72.5 billion in wealth by avoiding 600,000 foreclosures by their neighbors.

* No negative effect on home credit. When bankruptcy laws permitted loan modifications on a family’s primary residence between 1978 and 1993, there was no evidence of market impact. Similarly, loan modifications permitted from 1978 through the present for loans secured by family farms, commercial real estate, investment properties and vacation homes have produced no negative effects. All these types of secured debt, plus credit card receivables and car loans, are readily securitizable, notwithstanding the ability of judges to modify loans in chapter 13.

* This solution is better for lenders. Guarantees lenders at least the value they would obtain through foreclosure, since a foreclosure sale can only recover the market value of the home. In addition, saves lenders the high cost and significant delays of foreclosures.

My personal view is there is an urgent need to pass this kind of legislation. What do you think?