NEW YORK (CNNMoney.com) -- The housing market is only getting worse, according to the latest report from S&P Case/Shiller released Tuesday.
Home prices were down 8.4 percent in November compared with last year in its 10-city index, a record low. The 20-city index also fell 7.7 percent.
The Case/Shiller report compares same-home sale prices. The industry considers it to be one of the most accurate snapshots of housing prices.
Previously, the largest year-over-year decline on record was 6.3 percent in April 1991. The November report marked the 11th consecutive month of negative returns for the index, and twenty-four months of decelerating returns.
"We reached another grim milestone in the housing market in November," said Robert Shiller, Chief Economist at MacroMarkets LLC and co-creator the index in a statement.
"Not only did the 10-city composite index post another record low in its annual growth rate, but 13 of the 20 metro areas, each with data back to 1991, did the same."
The worst hit market of the 20 metro areas covered was Miami, where the median home fell a whopping 15.1 percent in value. San Diego prices also fell steeply, down 13.4 percent. Las Vegas was off 13.2 percent and Detroit by 13 percent.
Three cities did emerge with higher prices compared with 12 months ago: Prices rose 2.9 percent in Charlotte, N.C., 1.8 percent in Seattle and 1.3 percent in Portland, Ore. But even these markets have turned down over the last three months. Indeed, every city in the index recorded at least three consecutive months of falling prices through November.
The three biggest U.S. cities also recorded year-over-year declines; New York was down 4.8 percent, Los Angeles 11.9 percent and Chicago 3.9 percent. The losses in Los Angeles accelerated in November; that city recorded the largest month-over-month drop of any index city, 3.6 percent.
Tuesday's report came in the wake of many other surveys indicating that the housing market is getting worse. Foreclosure filings and the risks of future foreclosures were both up sharply; the number of new homes sold plunged more steeply than any year on record; and the pace of existing home sales fell to their lowest level in 27 years.
www.guaranteedloanhelp.com
Tuesday, January 29, 2008
Monday, January 28, 2008
Foreclosures spike - and will get much worse
NEW YORK (CNNMoney.com) -- The risk of foreclosure is on a rapid rise nationally and, with a possible recession at hand, this spike in mortgage-defaults could last for years.
A report released Monday by First American Core Logic rates foreclosure risk for 381 metropolitan areas, and found that the risk of foreclosure has jumped 22 percent from January, 2007, and 9 percent from three months ago.
The risk scores are calculated based on economic factors such as job growth or loss, as well as incidences of fraud and other collateral risks. Home price trends are specially important.
"Before, it was all about the economy. Now, price drops are overcoming economic conditions [in driving up foreclosures]," said Mark Fleming, Core Logic's chief economist.
The Core Logic report speculated that foreclosure risks may get a lot worse, and stay that way for a long time.
In the wake of recent speculation that the United States economy may be entering a recession -- or is already in one - the report stressed that defaults continued rising for almost 2 years after the end of the last recession in 2001.
Based on that history, Core Logic expects that foreclosure risk will continue to increase over the next 18 months, at least.
Key to that finding is the added risk caused by the recent up-tick in job losses. Low unemployment had been a big factor in keeping foreclosure risk in check the past few years, according to Fleming.
The price declines are biting hardest in California, especially the Central Valley cities that had recorded outsized price gains during the boom. Of the top 10 large cities facing the highest risk of foreclosure over the next six months, five are in California. Of the 36 markets nationwide undergoing double-digit price declines, 22 are in California.
Bakersfield, Calif., was rated the highest risk market among the 100 largest metro areas. Home prices there are in steep decline, falling 16.9 percent during the past year, according to First American Loan Performance. Fleming pointed out that Bakersfield is a good example of a trend that is playing out in many markets.
Bakersfield acts like a satellite city for Los Angeles, where population density makes further housing development expensive. Supply of developable land in Los Angeles is scarce, which props up prices there, even in down years.
During the boom, home buyers priced out of L.A. purchased in far-flung markets like Bakersfield, where plentiful agricultural land was cheaply converted to housing. Many of the new residents continued to work in the Los Angeles area, a long but doable commute.
When demand slackened and prices slumped in Los Angeles, more people could afford to buy closer to the city, and demand dropped disproportionately in Bakersfield as well as in other nearby cities like Riverside and San Bernardino, sending prices plunging.
"Volatility in these places is high, especially on the down side," said Fleming.
And that goes a long way in explaining why foreclosure prospects are on the rise in Bakersfield, Stockton, Calif. (number 2 on the Core Logic list), Fresno, Calif. (number 3) and Riverside-San Bernardino (number 6).
Home sales way off
Monday, the government reported the steepest drop in new single-family home sales ever recorded. It was the first year on record that existing home prices posted declines. That followed last weeks announcement from the National Association of Realtors that home prices had recorded their first yearly decline ever.
After price drops, many mortgage borrowers find themselves underwater, owing more on their mortgages than their homes are worth. That makes it difficult for them to maintain their house payments if they run into any problems; they have one less asset (their home) to borrow against
The other main factor causing the heightened foreclosure risk is systemic economic problems. Cities such as Detroit (number 8 on the top 10 list), Warren, Mich. (number 4) and Youngstown, Ohio (number 10) are dependent on the auto and other heavy industry for jobs, and these industries have been laying off workers.
Midwestern markets ranked even higher up on the list in the recent past. Their present rankings don't represent any improvement on their part, but instead the rapid deterioration in the Sun Belt.
A report released Monday by First American Core Logic rates foreclosure risk for 381 metropolitan areas, and found that the risk of foreclosure has jumped 22 percent from January, 2007, and 9 percent from three months ago.
The risk scores are calculated based on economic factors such as job growth or loss, as well as incidences of fraud and other collateral risks. Home price trends are specially important.
"Before, it was all about the economy. Now, price drops are overcoming economic conditions [in driving up foreclosures]," said Mark Fleming, Core Logic's chief economist.
The Core Logic report speculated that foreclosure risks may get a lot worse, and stay that way for a long time.
In the wake of recent speculation that the United States economy may be entering a recession -- or is already in one - the report stressed that defaults continued rising for almost 2 years after the end of the last recession in 2001.
Based on that history, Core Logic expects that foreclosure risk will continue to increase over the next 18 months, at least.
Key to that finding is the added risk caused by the recent up-tick in job losses. Low unemployment had been a big factor in keeping foreclosure risk in check the past few years, according to Fleming.
The price declines are biting hardest in California, especially the Central Valley cities that had recorded outsized price gains during the boom. Of the top 10 large cities facing the highest risk of foreclosure over the next six months, five are in California. Of the 36 markets nationwide undergoing double-digit price declines, 22 are in California.
Bakersfield, Calif., was rated the highest risk market among the 100 largest metro areas. Home prices there are in steep decline, falling 16.9 percent during the past year, according to First American Loan Performance. Fleming pointed out that Bakersfield is a good example of a trend that is playing out in many markets.
Bakersfield acts like a satellite city for Los Angeles, where population density makes further housing development expensive. Supply of developable land in Los Angeles is scarce, which props up prices there, even in down years.
During the boom, home buyers priced out of L.A. purchased in far-flung markets like Bakersfield, where plentiful agricultural land was cheaply converted to housing. Many of the new residents continued to work in the Los Angeles area, a long but doable commute.
When demand slackened and prices slumped in Los Angeles, more people could afford to buy closer to the city, and demand dropped disproportionately in Bakersfield as well as in other nearby cities like Riverside and San Bernardino, sending prices plunging.
"Volatility in these places is high, especially on the down side," said Fleming.
And that goes a long way in explaining why foreclosure prospects are on the rise in Bakersfield, Stockton, Calif. (number 2 on the Core Logic list), Fresno, Calif. (number 3) and Riverside-San Bernardino (number 6).
Home sales way off
Monday, the government reported the steepest drop in new single-family home sales ever recorded. It was the first year on record that existing home prices posted declines. That followed last weeks announcement from the National Association of Realtors that home prices had recorded their first yearly decline ever.
After price drops, many mortgage borrowers find themselves underwater, owing more on their mortgages than their homes are worth. That makes it difficult for them to maintain their house payments if they run into any problems; they have one less asset (their home) to borrow against
The other main factor causing the heightened foreclosure risk is systemic economic problems. Cities such as Detroit (number 8 on the top 10 list), Warren, Mich. (number 4) and Youngstown, Ohio (number 10) are dependent on the auto and other heavy industry for jobs, and these industries have been laying off workers.
Midwestern markets ranked even higher up on the list in the recent past. Their present rankings don't represent any improvement on their part, but instead the rapid deterioration in the Sun Belt.
New home sales: Biggest drop ever
New home sales: Biggest drop ever
Weak December sales caps 2007's record slide, with prices for the month off sharply from a year earlier.
NEW YORK (CNNMoney.com) -- New home sales posted the biggest drop on record in 2007, according to the government's latest look at the battered housing market, as a year that saw a meltdown in the mortgage market and a drop in home values ended with yet more signs of weakness.
December sales came in at an annual rate of 604,000, the Census Bureau report showed, down from 634,000 in November, which was also revised lower.
The reading was well below the consensus forecast of 645,000, according to economists surveyed by Briefing.com.
The weak December sales left full-year new home sales at 774,000, down 26 percent from the 1.05 million sales in 2006. That was the biggest drop since the government started tracking new home sales in 1963, surpassing the 23 percent decline posted in 1980.
No bottom yet Adam York, an economist with Wachovia, said the report confirms fears that the housing market won't bounce back anytime soon.
"We're expecting sales to decline into at least mid-2008," he said. "We think housing still has a long way to go."
The mortgage market woes were a major part of the problem for new home sales in 2007. Homes financed by conventional mortgages fell 27 percent, the biggest drop since the government started tracking financing in 1988.
But the weakness in prices made buyers reluctant to jump into the market, even if the availability of financing was not an issue. The number of new homes bought with cash fell nearly 24 percent, while mortgages guaranteed by federal agencies such as the Federal Housing Administration or the Veterans Administration fell 16 percent.
Weak December sales caps 2007's record slide, with prices for the month off sharply from a year earlier.
NEW YORK (CNNMoney.com) -- New home sales posted the biggest drop on record in 2007, according to the government's latest look at the battered housing market, as a year that saw a meltdown in the mortgage market and a drop in home values ended with yet more signs of weakness.
December sales came in at an annual rate of 604,000, the Census Bureau report showed, down from 634,000 in November, which was also revised lower.
The reading was well below the consensus forecast of 645,000, according to economists surveyed by Briefing.com.
The weak December sales left full-year new home sales at 774,000, down 26 percent from the 1.05 million sales in 2006. That was the biggest drop since the government started tracking new home sales in 1963, surpassing the 23 percent decline posted in 1980.
No bottom yet Adam York, an economist with Wachovia, said the report confirms fears that the housing market won't bounce back anytime soon.
"We're expecting sales to decline into at least mid-2008," he said. "We think housing still has a long way to go."
The mortgage market woes were a major part of the problem for new home sales in 2007. Homes financed by conventional mortgages fell 27 percent, the biggest drop since the government started tracking financing in 1988.
But the weakness in prices made buyers reluctant to jump into the market, even if the availability of financing was not an issue. The number of new homes bought with cash fell nearly 24 percent, while mortgages guaranteed by federal agencies such as the Federal Housing Administration or the Veterans Administration fell 16 percent.
Saturday, January 26, 2008
Lasting Housing Woes Paint a Grim Economic Picture
The light at the end of the housing-market tunnel keeps receding. More price declines are coming.
Don't hold your breath for an upturn in the housing market. Improvement seems just as distant today as it did a year ago. That's bad news for the economy as a whole. As long as housing prices, sales and construction continue to flag, gross domestic product growth can't make much headway. Too much of the economy rests on consumer spending, and too much of that is tied to consumers' sense of wealth and well-being. With home values still sinking and job growth dwindling, their confidence is shaky and spending will be less than robust.
The housing market won't hit bottom for months yet. The industry won't turn the corner until midyear at the earliest and probably not until closer to the end of the year. And when the bottom does finally appear, it's likely to stay for a while. An actual upturn will be painfully slow to manifest. Mark Vitner, senior economist with Wachovia Corp., says, "Economists are talking about a bottom late this year, but most people will say things don't feel much better. It will be 2011 or 2012 before we return to conditions that people think are strong."
For housing to return to good health -- with the solid housing starts and sales of new and existing homes near the rates seen in the late 1990s, if not the red-hot figures of 2004 and 2005 -- it's likely to take at least three more years.
For now, the housing sector is caught in a sickening downward spiral. New construction is still much too high. At 2.5%, the ratio of vacant unsold homes to total homeownership is 50% greater now than it had been for 20 years. There's an excess inventory of up to a million homes. To work that off, housing starts must drop by an additional 25%, to about a million a year. But we expect starts of 1.2 million or so this year, down just 11% from last year's figure of 1.35 million.
One reason: Too much of builders' money is tied up in development -- the cost of buying finished lots, impact fees and permits, building roads, installing water and sewer lines and so on. To keep cash flowing and minimize losses, they keep building homes and hoping to sell them. Mario Ricchio, housing industry analyst with Zach's Investment Research, says, "If builders could shut down for two years, they would eliminate all the overhang. Of course, that's not going to happen. They have to generate cash flow."
More foreclosures will worsen the problem in the short term. Two million homeowners face a reset of adjustable mortgages both this year and next. The pressure from that, plus a weak job market, will keep 2008 foreclosure filings high.
Still, there are glimmers of hope: More-aggressive price cutting is taking hold. Builders are now routinely trimming prices by 10% and throwing in upgrades -- high-end appliances, granite kitchen counters, hardwood floors and so on -- worth an additional 10%. Sellers of existing homes are finally becoming more realistic and lowering their asking prices. A Las Vegas home, for example, listed at $910,000 a few months ago is now listed at $750,000. A home in suburban Washington, D.C., originally listed at $750,000 is now on the market for $100,000 less.
Nationwide, prices have about 5% more to fall, and two to three times that much in once-hot metro markets such as Miami, Tampa, San Diego and Las Vegas. Areas that escape the downward pressure altogether will be rare.
Bargain-hunting hedge funds are beginning to sniff around. They're not yet ready to plunge into the market. But some smell a turnaround coming and are preparing to jump in.
And Federal Reserve interest rate cuts will provide a bit of support, easing home-buying and helping to keep the job market lubricated.
Don't hold your breath for an upturn in the housing market. Improvement seems just as distant today as it did a year ago. That's bad news for the economy as a whole. As long as housing prices, sales and construction continue to flag, gross domestic product growth can't make much headway. Too much of the economy rests on consumer spending, and too much of that is tied to consumers' sense of wealth and well-being. With home values still sinking and job growth dwindling, their confidence is shaky and spending will be less than robust.
The housing market won't hit bottom for months yet. The industry won't turn the corner until midyear at the earliest and probably not until closer to the end of the year. And when the bottom does finally appear, it's likely to stay for a while. An actual upturn will be painfully slow to manifest. Mark Vitner, senior economist with Wachovia Corp., says, "Economists are talking about a bottom late this year, but most people will say things don't feel much better. It will be 2011 or 2012 before we return to conditions that people think are strong."
For housing to return to good health -- with the solid housing starts and sales of new and existing homes near the rates seen in the late 1990s, if not the red-hot figures of 2004 and 2005 -- it's likely to take at least three more years.
For now, the housing sector is caught in a sickening downward spiral. New construction is still much too high. At 2.5%, the ratio of vacant unsold homes to total homeownership is 50% greater now than it had been for 20 years. There's an excess inventory of up to a million homes. To work that off, housing starts must drop by an additional 25%, to about a million a year. But we expect starts of 1.2 million or so this year, down just 11% from last year's figure of 1.35 million.
One reason: Too much of builders' money is tied up in development -- the cost of buying finished lots, impact fees and permits, building roads, installing water and sewer lines and so on. To keep cash flowing and minimize losses, they keep building homes and hoping to sell them. Mario Ricchio, housing industry analyst with Zach's Investment Research, says, "If builders could shut down for two years, they would eliminate all the overhang. Of course, that's not going to happen. They have to generate cash flow."
More foreclosures will worsen the problem in the short term. Two million homeowners face a reset of adjustable mortgages both this year and next. The pressure from that, plus a weak job market, will keep 2008 foreclosure filings high.
Still, there are glimmers of hope: More-aggressive price cutting is taking hold. Builders are now routinely trimming prices by 10% and throwing in upgrades -- high-end appliances, granite kitchen counters, hardwood floors and so on -- worth an additional 10%. Sellers of existing homes are finally becoming more realistic and lowering their asking prices. A Las Vegas home, for example, listed at $910,000 a few months ago is now listed at $750,000. A home in suburban Washington, D.C., originally listed at $750,000 is now on the market for $100,000 less.
Nationwide, prices have about 5% more to fall, and two to three times that much in once-hot metro markets such as Miami, Tampa, San Diego and Las Vegas. Areas that escape the downward pressure altogether will be rare.
Bargain-hunting hedge funds are beginning to sniff around. They're not yet ready to plunge into the market. But some smell a turnaround coming and are preparing to jump in.
And Federal Reserve interest rate cuts will provide a bit of support, easing home-buying and helping to keep the job market lubricated.
Friday, January 25, 2008
Stimulus plan also sparks housing market
Stimulus plan also sparks housing market
The measures would make mortgages easier to get and reduce borrowing costs -- especially in hard-hit, high-cost housing markets.
NEW YORK (CNNMoney.com) -- The economic stimulus plan announced Thursday by Congress and the Bush administration includes provisions that specifically address the mortgage crisis. It aims to make getting a mortgage easier and cheaper in high-cost markets, to facilitate refinancing and to prevent foreclosures.
The package proposes lifting the dollar amount of loans that are eligible for purchase by Freddie Mac and Fannie Mae and that can be insured by the Federal Housing Administration (FHA). The cap limits for FHA loans, which offer protection to lenders against losses that result from defaults by borrowers, would be raised to $725,000 and would be permanent.
These government sponsored enterprises currently guarantee a secondary market for loans of less than $417,000, which makes lenders more willing to issue them. The stimulus package proposes raising that cap to $625,000 for twelve months in order to make it easier for buyers to get or refinance mortgages - especially in high-cost regions like California.
"It's about time," said Richard DeKaser, chief economist for banking giant National City Corp. "The idea has rattled around Congress for a year. Most analysts agree the market for "jumbo" loans [which exceed the cap limits] has been hurt by lender flight."
The increased cap should give a boost to some of the most sluggish markets in the nation, like Florida, where high home prices typically mean that mortgages exceed the $417,000 loan limits. When credit markets contracted last summer, jumbo loans over that amount became much harder to get and, as a result, home sales in pricey markets took a hit.
"This will have a big, immediate impact, especially in California where sales have been down most significantly," said Lawrence Yun, chief economist for the National Association of Realtors.
Homeowners with jumbo mortgages also pay higher interest rates because, with no guaranteed secondary market for the loans, lenders take on more risk, and charge borrowers more for doing so.
For instance, the interest rate difference between loans that fall within the cap limit and jumbo loans was more than 1 percent on Thursday -- 6.39 percent compared with 5.30 percent, according to Bankrate.com. On a $500,000 mortgage, the difference is about $350 a month.
If you are facing any type of mortgage, refinance, reset, loan or credit problems, visit:
www.guaranteedloanhelp.com
www.guaranteedloanhelp.com
The measures would make mortgages easier to get and reduce borrowing costs -- especially in hard-hit, high-cost housing markets.
NEW YORK (CNNMoney.com) -- The economic stimulus plan announced Thursday by Congress and the Bush administration includes provisions that specifically address the mortgage crisis. It aims to make getting a mortgage easier and cheaper in high-cost markets, to facilitate refinancing and to prevent foreclosures.
The package proposes lifting the dollar amount of loans that are eligible for purchase by Freddie Mac and Fannie Mae and that can be insured by the Federal Housing Administration (FHA). The cap limits for FHA loans, which offer protection to lenders against losses that result from defaults by borrowers, would be raised to $725,000 and would be permanent.
These government sponsored enterprises currently guarantee a secondary market for loans of less than $417,000, which makes lenders more willing to issue them. The stimulus package proposes raising that cap to $625,000 for twelve months in order to make it easier for buyers to get or refinance mortgages - especially in high-cost regions like California.
"It's about time," said Richard DeKaser, chief economist for banking giant National City Corp. "The idea has rattled around Congress for a year. Most analysts agree the market for "jumbo" loans [which exceed the cap limits] has been hurt by lender flight."
The increased cap should give a boost to some of the most sluggish markets in the nation, like Florida, where high home prices typically mean that mortgages exceed the $417,000 loan limits. When credit markets contracted last summer, jumbo loans over that amount became much harder to get and, as a result, home sales in pricey markets took a hit.
"This will have a big, immediate impact, especially in California where sales have been down most significantly," said Lawrence Yun, chief economist for the National Association of Realtors.
Homeowners with jumbo mortgages also pay higher interest rates because, with no guaranteed secondary market for the loans, lenders take on more risk, and charge borrowers more for doing so.
For instance, the interest rate difference between loans that fall within the cap limit and jumbo loans was more than 1 percent on Thursday -- 6.39 percent compared with 5.30 percent, according to Bankrate.com. On a $500,000 mortgage, the difference is about $350 a month.
If you are facing any type of mortgage, refinance, reset, loan or credit problems, visit:
www.guaranteedloanhelp.com
www.guaranteedloanhelp.com
New mortgage deals: 'Offset' loans
(Money Magazine) -- Question: I've heard that American lenders are now offering something called an offset mortgage, which is popular in the U.K. Do you think this is a good deal? - Jeffrey S. Kallas, Columbus, Ohio
Answer: It depends. Here's how it works in Britain. You get a mortgage linked to a non-interest-bearing savings account whose deposits "offset" your loan balance.
So if you owe $200,000 on your home but have $50,000 on deposit, the bank calculates your monthly interest as if you borrowed only $150,000.
The bank gets its back scratched by getting to use your deposit interest-free. You pay off your mortgage faster because more of your monthly payment is applied to principal - and you can get your hands on your savings any old time.
Because this deal would give you an extra weensy tax break under U.S. law, however, no offset mortgages are allowed here.
But two U.S. companies - CMG Financial Services and Macquarie Mortgages USA - have introduced a version that passes muster with the IRS.
You take out an adjustable-rate mortgage and deposit your paycheck into the mortgage account. Doing that gives you an offset on the principal, which lowers your interest.
The arrangement could be useful if you receive big bonuses; you'll be reducing your interest until you use the money. But here's the real benefit: If you manage not to spend all your pay, you cut your costs.
Say you save 5 percent of take-home pay of a gross income of $150,000 - about $460 a month. On a $300,000 7 percent mortgage, you'd slash your interest by $197,300 and be paid off in only 18 years - and you'd still have the money you saved.
But if you spend more than you put in, the difference adds to your loan balance.
For more help: www.guaranteedloanhelp.com
Answer: It depends. Here's how it works in Britain. You get a mortgage linked to a non-interest-bearing savings account whose deposits "offset" your loan balance.
So if you owe $200,000 on your home but have $50,000 on deposit, the bank calculates your monthly interest as if you borrowed only $150,000.
The bank gets its back scratched by getting to use your deposit interest-free. You pay off your mortgage faster because more of your monthly payment is applied to principal - and you can get your hands on your savings any old time.
Because this deal would give you an extra weensy tax break under U.S. law, however, no offset mortgages are allowed here.
But two U.S. companies - CMG Financial Services and Macquarie Mortgages USA - have introduced a version that passes muster with the IRS.
You take out an adjustable-rate mortgage and deposit your paycheck into the mortgage account. Doing that gives you an offset on the principal, which lowers your interest.
The arrangement could be useful if you receive big bonuses; you'll be reducing your interest until you use the money. But here's the real benefit: If you manage not to spend all your pay, you cut your costs.
Say you save 5 percent of take-home pay of a gross income of $150,000 - about $460 a month. On a $300,000 7 percent mortgage, you'd slash your interest by $197,300 and be paid off in only 18 years - and you'd still have the money you saved.
But if you spend more than you put in, the difference adds to your loan balance.
For more help: www.guaranteedloanhelp.com
Government "Bail-outs" usually fail !
Debt forgiveness a rarityFew bankers will willingly do that, attests Michelle Lewis, president of Northwest Counseling Service, an agency in Philadelphia that helps homeowners who are in danger of foreclosure. She says she's all for negotiating debt forgiveness. "And that's been something we've been working on for years -- but we have had no success," Lewis says.
She adds that, "occasionally, on a case-by-case basis," clients have had debt forgiven, but only after filing lawsuits.
There's no incentive for mortgage servicers to approve short refis, she says, because servicers believe they lose less money by foreclosing than by forgiving debt. And they fear that debt forgiveness would bring out the scammers.
Debt forgiveness isn't scary, but foreclosure is, and the threat of it keeps homeowners in line. "While we're seeing mass foreclosures, many (borrowers) are paying under these terms that some would call onerous," Lewis says.
Government plan benefits fewIn December, the Treasury Department and HUD announced a plan to help homeowners with onerous loans, but not with debt forgiveness. The plan would aid the small number of people who could afford the introductory rates on their subprime adjustable-rate mortgages, but couldn't afford the higher payments after the rate jumped. Those people would have their introductory rates frozen for up to five years. A homeowner taking advantage of the rate-freeze plan will end up making payments on a house that's worth less than the loan amount. That's not necessarily in the homeowner's best interest. A borrower would pay less every month if some of the debt was forgiven and the loan balance (and monthly payment) reflected the home's market value.
When you look at it that way, mortgage investors fared quite well in the plan brokered by the secretaries of Treasury and Housing. The rate freeze is friendlier to Wall Street than it is to Elm Street.
"We've really got no bailout for consumers, except through individual litigation, which is costly, but the market gets all kinds of bailouts," Lewis says. "Every effort to correct this leaves the loan whole. All the measures to figure out what to do with the people who got these loans still pay the lender for the bad behavior. It's crazy."
In December, even as the Treasury and Housing secretaries pushed a rate freeze instead of debt forgiveness, the president signed a law, called the Mortgage Forgiveness Debt Relief Act, that cuts taxes on homeowners whose debt is forgiven.
"So this bill will create a three-year window for homeowners to refinance their mortgage and pay no taxes on any debt forgiveness that they receive. And it's a really good piece of legislation," President Bush said. "The provision will increase the incentive for borrowers and lenders to work together to refinance loans -- and it will allow American families to secure lower mortgage payments without facing higher taxes."
Short refi in lieu of foreclosureThe law might give borrowers a tax break, but contrary to what the president says, it doesn't provide incentives for lenders to refinance with debt forgiveness instead of foreclosing. The law doesn't give lenders and mortgage servicers tax breaks or subsidies for approving short refis.
It's hard enough to get a short refi as it is. A homeowner has to be past due for demonstrable reasons, with few prospects for catching up by reducing expenses or increasing income. A foreclosure is the outcome of most such cases. Or the homeowner can surrender title and move out voluntarily in what is called a deed in lieu of foreclosure.
In other cases, the servicer might approve a short sale -- a sale of the house for less than the loan balance, with the remaining debt forgiven. Or, if the homeowner is persistent and lucky, a short refi might be arranged.
A short refi won't happen unless the homeowner is willing to undergo a financial review and permit an appraisal with inspections inside and out. All stakeholders -- the servicer, borrower, mortgage insurer and any lender extending a second mortgage -- would have to approve a deal, agreeing that a short refi would lose less money than other options.
For debt forgivenessLazerson believes there would be many instances in which a short refi could be demonstrated to be the best choice. He would commission two appraisals -- one for the home's fair market value and another for the home's "REO value," or real estate owned value -- what it could be expected to fetch in a quick sale after foreclosure. In neighborhoods with a lot of empty and foreclosed homes for sale, the REO value might be so much lower than the fair market value that the servicer would be willing to approve a short refi rather than foreclose.
He cites the work of Dan Immergluck, an associate professor of city and regional planning at Georgia Tech, who wrote a study concluding that each foreclosure knocks about 1 percent off the value of every house within an eighth of a mile. By that reckoning, a cluster of foreclosures can reduce surrounding home values enough to trigger more foreclosures.
Elizabeth Warren, a professor at Harvard Law School who is an expert on bankruptcy and consumer credit issues, says debt forgiveness "is our best shot for getting out of the mortgage crisis without destroying value through foreclosures. More foreclosures will only hurt the lenders and homeowners involved, they will also depress the real estate market for everyone else."
To Lazerson, it's a no-brainer: If foreclosures lead to more foreclosures, lenders should halt the snowball before it gains momentum by approving short refis.
"They just take the hit on the debt forgiveness, because they're going to take a hit anyway," Lazerson says. "In either case (foreclosure or short refi), they're going to take a loss."
Against debt forgivenessFrom a mortgage servicer's perspective, a request for a short refi might sound like extortion, as if the borrower were saying, "Forgive some of the debt that I willingly took on, or I'll stop making payments altogether."
"It almost encourages everyone to say, 'Hey, maybe I'll stop making payments for a few months and the lender will refinance me,'" says Neil Garfinkel, partner in charge of real estate services for the New York-based law firm Abrams Garfinkel Margolis Bergson. "How do you prove that someone's just not gaming the system?"
That's the same question that Bitton has. It's why she has reservations about the rate-freeze plan, too.
"It's almost encouraged people to be late on their mortgages," she says.
Garfinkel's and Bitton's reservations are about moral hazard: The idea that people act recklessly if they are insulated from the consequences of their actions. Lazerson replies that moral hazard applies not only to borrowers, but to lenders, too.
"What about the moral hazard that they caused in the first place, by offering these loans for people who had no business being homeowners?" he says. "The lenders were just counting their money and they really created this whole thing. Had they not offered these loans, you wouldn't have to be choosing which borrowers are deserving or not deserving."
Waiting on Congress
However, I’m not sure anything will be done soon enough to help your situation. As you probably know, to a large extent the president’s hands are tied because, while he can make recommendations, it’s up to Congress to make the changes happen by passing new laws.
Although the House of Representatives overwhelmingly passed Bush’s “FHA Modernization” more than a year ago, the bill was loaded down with so many other “add-ons” (read: spending for unrelated special projects in various Congressional districts) that it was never signed into law.
When "Loss" = "Income"
The president is also asking Congress to temporarily change the tax code to provide relief to homeowners forced to sell homes at a loss — due to the fact that real estate values have gone down, even though their mortgage payments have gone up.
As the law stands today, if a lender cancels a debt you owe for less than the outstanding loan balance, the forgiven amount is considered “income.” Even though the borrower doesn’t receive any money, he/she still has to pay income tax on this amount.
For instance, let’s say you paid $200,000 for your house and have a loan for $180,000. If you live in one of the areas where the decline in residential real estate has been especially severe, similar homes in your area might now be selling for $160,000.
Assume that in order to avoid foreclosure, your lender agrees to release you of your mortgage for less than the current balance of $178,000. You sell the home, netting $158,000, which goes straight to your lender.
That additional $20,000 you owed the lender has been “forgiven,” and under the “cancellation of indebtedness” provision, this cancelled debt is now considered income. So when you file your income tax return next year, you would have to declare this $20,000 and, naturally, pay income tax on it.
Congress members have introduced several bills that would temporarily protect individuals from owing income tax on cancelled mortgage debt. Because President Bush also supports this idea, there’s a good chance legislation will eventually be enacted.
RE-financing Fairness
Over the coming months the Treasury Department will be reaching out to the FHA and private lenders, as well as community-based organizations such as Neighbor Works and 4divestdebt , a national nonprofit created by Congress to provide financial and hands-on support for community revitalization projects.
According to the White House, the goal of the collaboration is “to expand mortgage financing options, identify homeowners before they face hardships, help them understand their financing options, and allow them to find a mortgage that works for them.”
Federal banking regulators are also considering ways to strengthen the disclosure requirements that lenders must provide to borrowers. One problem here is that in recent years, more and more mortgages are issued by private lenders, (Countrywide Mortgage, for instance) and the laws that govern banks and saving and loans do not cover private firms.
Deciphering Loan Documents
As you unfortunately discovered, mortgage documents are dauntingly complex. They are filled with terminology laced with legal and financial jargon that is difficult for the average person to understand. To combat this, there are also initiatives that would require clearer language and better explanations in loan documents so that borrowers fully understand the consequences of what they’re getting into.
The fact of the matter is: While perhaps the vast majority of mortgage brokers are honest, well-meaning individuals, we’re only now beginning to learn how many crooks were also operating during the recent housing boom. Investigations are underway at both federal and state levels, especially in formerly “hot” mortgage markets such as California, Florida, Nevada and Colorado.
Megan Burns, a former bank loan officer, points out that there’s an inherent conflict of interest: Mortgage brokers get paid based on the number of loans they write. This means officers have an incentive to approve borderline borrowers for larger loans than they might realistically be able to afford and to omit inconvenient details, such as the fact that the interest rate could rise significantly.
“People rely on loan officers” to explain the terms of their mortgage agreement,” says Burns. “But how can you when their income depends on them closing a loan?”
Sure, all of the details are disclosed in the obtusely-worded, 30+ page, loan document and may be explained verbally at the closing, but by then she says, “people feel pressured to sign because they could lose the house.”
Did I Hear Someone Say "Fraud"?
“Toxic mortgages,” that’s what Randy Johnson, a 27-year veteran of the mortgage business, calls these loans. From his location in Southern California, Johnson has seen some of the most egregious cases of mortgage brokers approving any loan they can just to make a buck.
“They put people in a $1,000/month mortgage with re-set characteristics that increase it down the road to $2,000 and don’t help borrowers understand that. It’s a prescription for disaster.”
Moreover, mortgage brokers receive a bigger payout based on the size of the loan and the terms. Johnson alleges that even “A-rated” borrowers who could have qualified for “a 30-year fixed at 6 percent” were sold subprime loans, the kind that “start at 6 percent for 2-3 years, then jump to 9 percent and bite you in the butt down the road.”
The sole reason, according to Johnson, is that mortgage brokers “made more than twice as much money for making a subprime loan than an A-paper loan.” He thinks the government “ought to devote a lot of energy to help people who have taken a great leap; to get good citizens to stay in their homes.”
He says the proposals to temporarily bail out these borrowers will “give people breathing room, allowing them to build up some equity.”
Borrowing Smarts
Johnson has written books to try and educate consumers about being smarter when shopping for a mortgage. Burns, who got “frustrated” with the mortgage business because she refused to adopt the deceptive tactics of many of her competitors, quit to launch a Web: www.guaranteedloanhelp.com
According to Burns, “most of the site is free for consumers.” After you’ve received a loan proposal, you can go to the site and set up an account based on your email address. Don’t worry, you’re not required to provide any sensitive information such as Social Security numbers or income.
The site then e-mails a questionnaire to your loan officer or mortgage broker. “We ask them more than what’s required to be disclosed by federal law,” says Burns. “It’s everything borrowers should know, but aren’t being told.”
When the questionnaire comes back, you’ll know, for instance, whether there is a pre-payment penalty, if your interest rate can increase and whether it’s capped at a certain amount. In addition, there are clear explanations of what the various terms mean.
By submitting a questionnaire for several different loan proposals, you can do an “apples-to-apples” comparison. You may find out that the loan with the lowest interest rate isn’t such a good deal, after all.
Don't Delay... Start by contacting your mortgage company as soon as possible and explain your situation. They might be willing to give you a new loan with more manageable terms.
But don’t stop there. You’ll also want to get at least one or two re-financing proposals from others lenders. Also visit the link below for more news.
www.guaranteedloanhelp.com
She adds that, "occasionally, on a case-by-case basis," clients have had debt forgiven, but only after filing lawsuits.
There's no incentive for mortgage servicers to approve short refis, she says, because servicers believe they lose less money by foreclosing than by forgiving debt. And they fear that debt forgiveness would bring out the scammers.
Debt forgiveness isn't scary, but foreclosure is, and the threat of it keeps homeowners in line. "While we're seeing mass foreclosures, many (borrowers) are paying under these terms that some would call onerous," Lewis says.
Government plan benefits fewIn December, the Treasury Department and HUD announced a plan to help homeowners with onerous loans, but not with debt forgiveness. The plan would aid the small number of people who could afford the introductory rates on their subprime adjustable-rate mortgages, but couldn't afford the higher payments after the rate jumped. Those people would have their introductory rates frozen for up to five years. A homeowner taking advantage of the rate-freeze plan will end up making payments on a house that's worth less than the loan amount. That's not necessarily in the homeowner's best interest. A borrower would pay less every month if some of the debt was forgiven and the loan balance (and monthly payment) reflected the home's market value.
When you look at it that way, mortgage investors fared quite well in the plan brokered by the secretaries of Treasury and Housing. The rate freeze is friendlier to Wall Street than it is to Elm Street.
"We've really got no bailout for consumers, except through individual litigation, which is costly, but the market gets all kinds of bailouts," Lewis says. "Every effort to correct this leaves the loan whole. All the measures to figure out what to do with the people who got these loans still pay the lender for the bad behavior. It's crazy."
In December, even as the Treasury and Housing secretaries pushed a rate freeze instead of debt forgiveness, the president signed a law, called the Mortgage Forgiveness Debt Relief Act, that cuts taxes on homeowners whose debt is forgiven.
"So this bill will create a three-year window for homeowners to refinance their mortgage and pay no taxes on any debt forgiveness that they receive. And it's a really good piece of legislation," President Bush said. "The provision will increase the incentive for borrowers and lenders to work together to refinance loans -- and it will allow American families to secure lower mortgage payments without facing higher taxes."
Short refi in lieu of foreclosureThe law might give borrowers a tax break, but contrary to what the president says, it doesn't provide incentives for lenders to refinance with debt forgiveness instead of foreclosing. The law doesn't give lenders and mortgage servicers tax breaks or subsidies for approving short refis.
It's hard enough to get a short refi as it is. A homeowner has to be past due for demonstrable reasons, with few prospects for catching up by reducing expenses or increasing income. A foreclosure is the outcome of most such cases. Or the homeowner can surrender title and move out voluntarily in what is called a deed in lieu of foreclosure.
In other cases, the servicer might approve a short sale -- a sale of the house for less than the loan balance, with the remaining debt forgiven. Or, if the homeowner is persistent and lucky, a short refi might be arranged.
A short refi won't happen unless the homeowner is willing to undergo a financial review and permit an appraisal with inspections inside and out. All stakeholders -- the servicer, borrower, mortgage insurer and any lender extending a second mortgage -- would have to approve a deal, agreeing that a short refi would lose less money than other options.
For debt forgivenessLazerson believes there would be many instances in which a short refi could be demonstrated to be the best choice. He would commission two appraisals -- one for the home's fair market value and another for the home's "REO value," or real estate owned value -- what it could be expected to fetch in a quick sale after foreclosure. In neighborhoods with a lot of empty and foreclosed homes for sale, the REO value might be so much lower than the fair market value that the servicer would be willing to approve a short refi rather than foreclose.
He cites the work of Dan Immergluck, an associate professor of city and regional planning at Georgia Tech, who wrote a study concluding that each foreclosure knocks about 1 percent off the value of every house within an eighth of a mile. By that reckoning, a cluster of foreclosures can reduce surrounding home values enough to trigger more foreclosures.
Elizabeth Warren, a professor at Harvard Law School who is an expert on bankruptcy and consumer credit issues, says debt forgiveness "is our best shot for getting out of the mortgage crisis without destroying value through foreclosures. More foreclosures will only hurt the lenders and homeowners involved, they will also depress the real estate market for everyone else."
To Lazerson, it's a no-brainer: If foreclosures lead to more foreclosures, lenders should halt the snowball before it gains momentum by approving short refis.
"They just take the hit on the debt forgiveness, because they're going to take a hit anyway," Lazerson says. "In either case (foreclosure or short refi), they're going to take a loss."
Against debt forgivenessFrom a mortgage servicer's perspective, a request for a short refi might sound like extortion, as if the borrower were saying, "Forgive some of the debt that I willingly took on, or I'll stop making payments altogether."
"It almost encourages everyone to say, 'Hey, maybe I'll stop making payments for a few months and the lender will refinance me,'" says Neil Garfinkel, partner in charge of real estate services for the New York-based law firm Abrams Garfinkel Margolis Bergson. "How do you prove that someone's just not gaming the system?"
That's the same question that Bitton has. It's why she has reservations about the rate-freeze plan, too.
"It's almost encouraged people to be late on their mortgages," she says.
Garfinkel's and Bitton's reservations are about moral hazard: The idea that people act recklessly if they are insulated from the consequences of their actions. Lazerson replies that moral hazard applies not only to borrowers, but to lenders, too.
"What about the moral hazard that they caused in the first place, by offering these loans for people who had no business being homeowners?" he says. "The lenders were just counting their money and they really created this whole thing. Had they not offered these loans, you wouldn't have to be choosing which borrowers are deserving or not deserving."
Waiting on Congress
However, I’m not sure anything will be done soon enough to help your situation. As you probably know, to a large extent the president’s hands are tied because, while he can make recommendations, it’s up to Congress to make the changes happen by passing new laws.
Although the House of Representatives overwhelmingly passed Bush’s “FHA Modernization” more than a year ago, the bill was loaded down with so many other “add-ons” (read: spending for unrelated special projects in various Congressional districts) that it was never signed into law.
When "Loss" = "Income"
The president is also asking Congress to temporarily change the tax code to provide relief to homeowners forced to sell homes at a loss — due to the fact that real estate values have gone down, even though their mortgage payments have gone up.
As the law stands today, if a lender cancels a debt you owe for less than the outstanding loan balance, the forgiven amount is considered “income.” Even though the borrower doesn’t receive any money, he/she still has to pay income tax on this amount.
For instance, let’s say you paid $200,000 for your house and have a loan for $180,000. If you live in one of the areas where the decline in residential real estate has been especially severe, similar homes in your area might now be selling for $160,000.
Assume that in order to avoid foreclosure, your lender agrees to release you of your mortgage for less than the current balance of $178,000. You sell the home, netting $158,000, which goes straight to your lender.
That additional $20,000 you owed the lender has been “forgiven,” and under the “cancellation of indebtedness” provision, this cancelled debt is now considered income. So when you file your income tax return next year, you would have to declare this $20,000 and, naturally, pay income tax on it.
Congress members have introduced several bills that would temporarily protect individuals from owing income tax on cancelled mortgage debt. Because President Bush also supports this idea, there’s a good chance legislation will eventually be enacted.
RE-financing Fairness
Over the coming months the Treasury Department will be reaching out to the FHA and private lenders, as well as community-based organizations such as Neighbor Works and 4divestdebt , a national nonprofit created by Congress to provide financial and hands-on support for community revitalization projects.
According to the White House, the goal of the collaboration is “to expand mortgage financing options, identify homeowners before they face hardships, help them understand their financing options, and allow them to find a mortgage that works for them.”
Federal banking regulators are also considering ways to strengthen the disclosure requirements that lenders must provide to borrowers. One problem here is that in recent years, more and more mortgages are issued by private lenders, (Countrywide Mortgage, for instance) and the laws that govern banks and saving and loans do not cover private firms.
Deciphering Loan Documents
As you unfortunately discovered, mortgage documents are dauntingly complex. They are filled with terminology laced with legal and financial jargon that is difficult for the average person to understand. To combat this, there are also initiatives that would require clearer language and better explanations in loan documents so that borrowers fully understand the consequences of what they’re getting into.
The fact of the matter is: While perhaps the vast majority of mortgage brokers are honest, well-meaning individuals, we’re only now beginning to learn how many crooks were also operating during the recent housing boom. Investigations are underway at both federal and state levels, especially in formerly “hot” mortgage markets such as California, Florida, Nevada and Colorado.
Megan Burns, a former bank loan officer, points out that there’s an inherent conflict of interest: Mortgage brokers get paid based on the number of loans they write. This means officers have an incentive to approve borderline borrowers for larger loans than they might realistically be able to afford and to omit inconvenient details, such as the fact that the interest rate could rise significantly.
“People rely on loan officers” to explain the terms of their mortgage agreement,” says Burns. “But how can you when their income depends on them closing a loan?”
Sure, all of the details are disclosed in the obtusely-worded, 30+ page, loan document and may be explained verbally at the closing, but by then she says, “people feel pressured to sign because they could lose the house.”
Did I Hear Someone Say "Fraud"?
“Toxic mortgages,” that’s what Randy Johnson, a 27-year veteran of the mortgage business, calls these loans. From his location in Southern California, Johnson has seen some of the most egregious cases of mortgage brokers approving any loan they can just to make a buck.
“They put people in a $1,000/month mortgage with re-set characteristics that increase it down the road to $2,000 and don’t help borrowers understand that. It’s a prescription for disaster.”
Moreover, mortgage brokers receive a bigger payout based on the size of the loan and the terms. Johnson alleges that even “A-rated” borrowers who could have qualified for “a 30-year fixed at 6 percent” were sold subprime loans, the kind that “start at 6 percent for 2-3 years, then jump to 9 percent and bite you in the butt down the road.”
The sole reason, according to Johnson, is that mortgage brokers “made more than twice as much money for making a subprime loan than an A-paper loan.” He thinks the government “ought to devote a lot of energy to help people who have taken a great leap; to get good citizens to stay in their homes.”
He says the proposals to temporarily bail out these borrowers will “give people breathing room, allowing them to build up some equity.”
Borrowing Smarts
Johnson has written books to try and educate consumers about being smarter when shopping for a mortgage. Burns, who got “frustrated” with the mortgage business because she refused to adopt the deceptive tactics of many of her competitors, quit to launch a Web: www.guaranteedloanhelp.com
According to Burns, “most of the site is free for consumers.” After you’ve received a loan proposal, you can go to the site and set up an account based on your email address. Don’t worry, you’re not required to provide any sensitive information such as Social Security numbers or income.
The site then e-mails a questionnaire to your loan officer or mortgage broker. “We ask them more than what’s required to be disclosed by federal law,” says Burns. “It’s everything borrowers should know, but aren’t being told.”
When the questionnaire comes back, you’ll know, for instance, whether there is a pre-payment penalty, if your interest rate can increase and whether it’s capped at a certain amount. In addition, there are clear explanations of what the various terms mean.
By submitting a questionnaire for several different loan proposals, you can do an “apples-to-apples” comparison. You may find out that the loan with the lowest interest rate isn’t such a good deal, after all.
Don't Delay... Start by contacting your mortgage company as soon as possible and explain your situation. They might be willing to give you a new loan with more manageable terms.
But don’t stop there. You’ll also want to get at least one or two re-financing proposals from others lenders. Also visit the link below for more news.
www.guaranteedloanhelp.com
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