Joel Dameral's South Lake Tahoe Real Estate Blog (530-545-8827) » Loan

Good News on Short Sales

Joel Dameral — Mon, 01 Aug 2011 19:52:17 +0000

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July 15^th, 2011 was another big day for anyone in financial distress on their primary residence in California. Along with Senate Bill 931, signed in January, which prohibits a deficiency judgment against a homeowner after an approved short sale on their first mortgage, Governor Jerry Brown signed Senate Bill 458, which prohibits a deficiency after a short sale for one-to-four residential units, regardless of whether the lender is a senior or junior lien-holder. In short if you have an approved short sale on the first mortgage the lien holder cannot pursue you for any difference between the short sale price and that loan balance. The same goes for the second mortgage. This is for any short sale closing after July 15^th 2011.

FHA To Raise Some Premiums This Spring

Joel Dameral — Fri, 22 Jan 2010 05:07:22 +0000

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The Federal Housing Administration won’t raise the 3.5 percent minimum downpayment requirement for mortgages it guarantees as long as borrowers have FICO scores of 580 or better.

Beginning early this summer, however, borrowers with credit scores below 580 will be required to make downpayments of at least 10 percent in order to participate in FHA’s mortgage insurance program.

This spring, the Obama administration also plans to raise the upfront mortgage insurance premiums paid by all FHA borrowers to 2.25 percent, up from 1.75 percent now.

Possible Home Loan Modification Problems

Joel Dameral — Wed, 20 Jan 2010 04:37:24 +0000

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RISMEDIA, January 19, 2010—(MCT)-The last thing many troubled homeowners want to hear is that they could be denied a car loan after they get a chance to modify their home loan. But credit scores can get dinged after a home loan modification, making it more costly or tougher to get a loan or credit card.

Hundreds of thousands of homeowners find themselves in a financial squeeze, thanks to the recession and the meltdown in the housing market. Lenders have offered trial loan modifications to more than 700,000 eligible borrowers. As of late November 2009, about 31,000 trial loans have been made permanent, which requires at least three on-time payments under the trial program and proof of income.

What these troubled homeowners don’t realize is that these attempts to avoid foreclosure may result in their credit scores taking a hit. A potentially damaged credit score is one of those hidden costs of home loan modification—and it varies significantly depending on your lender, as well as when you received your loan modification, your credit history and how your loan was altered.

“They need to tell people up front that this could happen,” said James Sperr, of Belleville, Mich. Sperr and his wife, Carol, received a trial modification that cut their house payment, including taxes and insurance to $957 a month from $1,140 a month. But it came with a hit to their credit score. “Our credit rating has gone from the 800s to 750,” Carol Sperr said. “It’s punitive to a consumer who is already scared, frustrated, mad,” said John Ulzheimer, president of consumer education for Credit.com. The Sperrs said they had never been late or missed a mortgage payment, but their bank had reported them as being behind on payments. Their credit score took a hit, falling from the 800s to 750. “They tell us that once the paperwork ‘catches up’ and the new loan is finalized, they will correct the credit reporting agencies,” Carol Sperr said.

No one saw this coming. “I didn’t find out about our credit until they did a check on this van we bought,” James Sperr said. He said his wife was able to provide more documentation that their mortgage was in compliance so they did not have to pay a higher rate or get shut out of a loan. Others aren’t so lucky.

Loan modifications remain a good thing, but they often come with that consequence. Homeowners who face hardships but cannot traditionally refinance their mortgages can try to get a loan modification. A modification temporarily reduces the monthly payment, which can be helpful if someone’s dealing with a pay cut. Typically, the principal amount owed on the loan is not reduced or changed and the amount of debt owed is not forgiven. The federal government has programs, and banks and credit unions have proprietary programs as well.

Yet many homeowners feel blindsided when they discover that their credit score has dropped by 50 to 100 points or even more after they entered a trial modification. “What’s the point of the additional credit damage? What have they just accomplished by doing that to the borrower?” asked John Ulzheimer, president of consumer education for Credit.com.

In the first few months after receiving a trial modification, Ulzheimer said, it is possible that the initial payments would show up as a “partial payment plan” on a credit report, which turns into a negative hit to a credit score. This can be a problem even for homeowners who never have missed a mortgage payment. “It really depends on how the mortgage company decides to report this to a credit agency,” said Julie Bos, group manager and certified credit counselor for GreenPath Inc. in Grand Rapids, Mich. A homeowner who is behind on payments will see credit score damage, and that won’t change from a modification. “If you’re already delinquent, your credit is already impacted,” said John Snyder, manager of foreclosure programs for NeighborWorks America. But consumers who are making their mortgage payments are getting modifications, too, perhaps because wages were cut or jobs were lost. They may be struggling to stay current, but their credit may not be bad when they start a modification.

Some might argue that it’s not a wise move to take on more debt, such as a car loan, if a person saw a cut in pay and needed a home loan modification. But many consumers often cannot control when their car breaks down. On top of that, lenders benefit from home loan modifications because potential foreclosures can be avoided.

Unknowingly though, many consumers discover themselves boxed in later when they try to get approved for credit. “They’re concerned about the damage to their credit. They’re not happy about it,” said Bos. “If you go out and try to purchase a car in two months, you could be denied,” she said. Or you might have to get a co-signer or put down a bigger down payment or accept a higher interest rate to get a loan.

What’s even stranger is that not all home loan modifications will hit consumers in the same way on their credit reports. Consumers who modify their mortgages under federal programs, such as the Making Home Affordable and the Home Affordable Modification Program, now can do so without hurting their credit scores since those modifications are listed as a “loan modified under a federal plan” as of Nov. 1. Here’s the sticking point: If you are able to modify your loan through an individual bank or credit union’s program and not a government plan, it’s likely your credit score will be hurt. To complicate matters further, eventually a “loan modified under a federal plan” on your credit report could hurt your score, too.

Ulzheimer noted that the only reason the new reporting guidelines do not damage your credit scores is because FICO, the company that created the FICO credit score, hasn’t had a chance to study the long-term predictive value of loan modifications to credit risk.

Still, homeowners who are in trouble must realize that a foreclosure or a short sale would be listed as a charge-off or settlement on a credit report and last seven years, Ulzheimer said, while a modification would typically last a few years.

If you do receive a loan modification, ask questions and be more careful about how you handle your credit elsewhere to try to combat any potential damage.

Before making any moves, talk to a nonprofit housing counselor.

REO and Foreclosure a Bargain or Not?

Joel Dameral — Tue, 15 Dec 2009 18:05:59 +0000

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The buying public seems to think that “great deal” equals foreclosure, short sale or bank-owned property. The truth is that these properties may appear to be bargains, but in many cases you could be buying someone else’s problems. If you’re looking for a bargain property, here are some key issues to consider:

1. What is your time line for purchasing?
You may find the perfect short-sale property, and the seller may accept your offer. The challenge is that you don’t have a deal until the bank approves the short sale. At many large lenders a single processor may have up to 500 files on his or her desk at one time. Realtors are reporting that it can take six or more months to get an offer approved. The wait can be extremely frustrating. It can also be costly.

For example, if prices are still declining in your area and price range, the offer you made six months ago may be too high. Also, if you qualify for a loan now, will you still qualify six to eight months from now if mortgage interest rates have increased? More importantly, can you afford to make a higher monthly payment? If possible, search for a short sale or an REO where the bank has preapproved the sales price. It still may take a long time to close, but not as long as it would if the price was not preapproved.

2. Are you prepared to be in a multiple-offer situation?
Since so many buyers are searching for distressed properties and the approval process takes so long, multiple offers are common. The lender will not tell you about other offers. They may, in fact, tell you that your offer will “probably” be approved — but you cannot rely on this representation.

If another offer comes in at a higher price and at better terms, the bank is obligated to take the best offer. If the property is a short sale, the seller’s signature on the document merely opens the negotiation — it does not finalize it. Furthermore, the seller/lender may continue to market the property even after they have signed a contract with you. This is simply smart business, as so many borrowers are having trouble closing transactions due to appraisal issues.

3. Ask the agent if the seller participated in the “Cash for Keys” program
The best candidates for good bargains are those properties where the sellers are still occupying them. Many banks have a program called “Cash for Keys.” This program pays the owners of foreclosure and short-sale properties money to keep the owner from trashing the property when they move out. I have seen copper piping ripped out of properties, concrete poured down the plumbing, and appliances stolen or destroyed. Cash for Keys is designed to minimize these behaviors.

4. Beware of vacant properties
Never purchase any property without doing a physical inspection. Also, if it takes more than 90 days to negotiate the transaction or if the house has been vacant, have the property re-inspected prior to signing off on the final deal. The reason for this is that the longer a house stays vacant, the more likely it is to have problems.

For example, pack rats and mice are more likely to move into vacant properties. They can chew through the wiring and generally wreak havoc with the home’s electrical systems. Also, if the dishwasher is not run at least once a week, the seals can dry out. If you live in an area where the pipes are not winterized and there are freezing temperatures, a pipe may burst. You may not discover the problem until you turn the water back on after closing.

5. Is the deal more important than your lifestyle?
A property can be a great deal in terms of the price, but is it worth it if it’s in a poorly rated school district or if the commute is an hour from your workplace? What if the property has a terrible floor plan, is in the flight path for a major airport, or occasionally gets a whiff of the sewage treatment plant? When you purchase, it’s important that you take all of these issues into consideration rather than focusing exclusively on the price. A property with any of these types of problems will be harder to sell in the future.

It’s important to consider the price in conjunction with the quality and the convenience of your lifestyle once you move in. For example, an extra 30-minute commute over a number of years can easily chew through thousands of dollars in terms of your vehicle costs, not to mention the wear and tear from the additional stress of commuting.

There are good distressed property deals out there. Nevertheless, don’t limit your search. Have your agent show you seller-occupied homes that are not distressed properties. Thirty-five percent of all properties are owned free and clear. These properties are often lovingly maintained, in top-notch condition, and in more desirable locations. In the long run, they may be a much better bargain.

Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, trainer and author of “Real Estate Dough: Your Recipe for Real Estate Success” and other books.