Q&A: Adjustable Rate Reset

Q. We re-financed our home 2 years ago so the payment would be more affordable. At the time we did not understand exactly what an adjustable rate mortgage meant. The broker told us the rate might go up later but that was not likely to happen since the rates were so low and that if they did we could always re-finance again so we would not have to worry about it. Our adjustable rate mortgage is scheduled to reset within the next few months. We feel sure the house is worth less than we owe so re-financing again is not likely to work for us. What happens at that time with the present mortgage holder?

A: Adjustable rate mortgages are set for certain periods of time and then the rate changes. Your rate will adjust based on the terms in the mortgage you signed at the inception of the loan.

Your present note holder or servicer is required to make the adjustments in strict adherence to the terms in your original documents. The frequency of the change as well as changes to the interest rate and caps should all adhere to the terms set forth in your note. You might pull out the original document and check to verify that they have, in fact, followed the guidelines there. If a mistake has been made you should bring it to the lender’s attention as soon as possible.

In the event the change in your interest rate will create a hardship in your ability to continue making scheduled payments, then consider the possibility of requesting a modification to the terms of the loan. There is a possibility that you might qualify for a reduction in the rate, or perhaps be able to have the loan converted to a fixed rate in order to keep from falling into default.

You should expect the lender to take a close look at your finances and have you to complete numerous forms and provide information on your finances to document your current situation and project your ability to maintain the payments with a new, adjusted rate. It is not a given that you will be able to get the rate changed, but it is certainly worth looking into.

Most lenders will at least consider a modification if you can demonstrate funds sufficient to make a reduced payment but cannot keep payments current at the higher interest rate. Check with the loss mitigation department of your financial institution if you are currently in default. Otherwise, you may talk to someone in customer service, but the reality is that seldom will you be offered any help unless you have already missed a mortgage payment.

I didn’t tell you to miss a payment; I said “seldom will they help you unless you have already missed a payment." Point of clarity: Loss mitigation is the correct department for someone who is already in default on their loan and customer service helps folks, or answers questions, when you are still current. The new stimulus package has a provision for banks to consider a modification “if default is likely”. We’ll have to wait and see whether banks actually do that.


Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Myth: Modification vs Refinance

Myth: There is a widespread myth that a modification is just a re-financing of the loan. The two options have some things in common, but they are worlds apart. Let’s get some clarity.

Fact: Modification is usually a much better option for a borrower, especially if you are behind on the mortgage and want to use this option to get a loan which you can afford.

Both a modification and a re-finance will result in the old loan being paid off and a new loan being created. However, almost everything else about the two are dramatically different.

A modification:

a. Will be handled by the lender/servicer currently holding the loan (a big plus)
b. Will NOT require a new appraisal or upfront fees to be paid (a significant financial blessing)
c. MAY be used even when a person’s credit score has already been lowered by late or unpaid payments
d. Should definitely be considered if your interest rate is scheduled to reset

Under the terms of a modification:

1. the term of the loan can be stretched out (which reduces your monthly payment)
2. the interest rate can be changed from a variable to a fixed rate
3. the interest rate may be lowered
4. the principal balance on the loan (the amount you owe) can be reduced with documentation that the actual value of the home has declined (almost a given in today’s market)

A re-finance has major differences which are not as consumer friendly.

1. You probably won’t qualify for a re-finance if your credit has been dinged.
2. You must go to an outside source (different lender) apply, and pay fees for processing a new loan
3. There will be fees associated with the process such as an appraisal and possibly a lender’s inspection
4. Closing the transaction will cost another substantial fee
5. Strong possibility of a higher, rather than a lower, payment

When it’s all said and done, the climate is right for your lender or servicer to be willing to consider a modification of your loan if you are struggling to make payments. It is definitely in their best interests to help you resume making regular payments even if those are at a reduced amount.

There will be paperwork required for either of these options. You will need to demonstrate your ability to make payments and fill out the hardship documents which are required, but it is well worth the effort to get a PERMANENT change to your loan which makes it a workable situation for you as well as the lender.

Call your lender today. Best of luck.

Copyright © 2009, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: Adjustable Rate Mortgage (ARM)

And the WORD for Today is:

Adjustable Rate Mortgage (ARM) – is a mortgage loan that gives the lender the right to adjust its interest rate at regularly scheduled intervals on the basis of changes in a specified index. The borrower’s mortgage must state how often the rate can changed as well as set a cap for how high the rate may be increased. You should avoid an adjustable rate mortgage unless you feel certain your income is going to increase sufficiently to allow you to make higher mortgage payments at a later date.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: Lifetime Cap

And the WORD for Today Is...

Lifetime Cap – most often refers to the ceiling placed on how high the interest rate may climb on an adjustable rate mortgage. It will be expressed in relationship to the incremental adjustments. I.e., no more than a 1½% annual increase with a lifetime cap of no more than 8% increase. It FREEZES the interest rate at a predetermined amount.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased atwww.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: Mortgage

And the WORDS for Today are:

Mortgagor-is the owner of real property who grants a mortgage to a lender in exchange for the money to purchase the property. The mortgagor pledges to repay the loan under specific terms and conditions and are subject to foreclosure if they fail to do so.

Mortgagee-Is the lender in a mortgage agreement.

Usually refers to the party who lends money and receives a mortgage. In some states the lender is treated as the “legal owner” (deed of trust) and may be entitled to rents from the property if it is abandoned by the homeowner. Other states treat the mortgagee as a “secured creditor” with the mortgagor considered to be the owner.

Adjustable Rate Mortgage (ARM)-is a mortgage loan, which gives the lender the right to adjust it interest rate at regularly scheduled intervals on the basis of changes in a specified index. The borrower mortgage must state how often the rate can change as well as set a cap for how high the rate may be increased. You should avoid an adjustable rate mortgage unless you feel certain your income is going to increase sufficiently to allow you to make higher mortgage payments at a later date.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: Loan Commitment Letter

And the WORD for Today is:

Loan Commitment Letter—a legally binding mortgage loan commitment. It must be in writing and will not be issued until the lender has completed the underwriting and loan approval process. It is dramatically different from a pre-approval or a pre-qualification letter. Once a lender has verified all the documentation needed to make a loan, they will issue a commitment letter, which is their commitment to make a loan to the borrower. The commitment letter will state specific terms such as the mortgage loan amount, the interest rate, the date the commitment will expire (usually 60 days after it is issued).  Also special terms such as: a) the appraisal on the home must be acceptable; b) the closing must be with a bona-fide title company. It will detail what kind of loan, under what terms, state the interest rate and state the length of time for which the commitment is valid, frequently 60-90 days. Basically it states that the lender will make the loan once you find your house as long as you do not change you job or any other important details related to your finances.   

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: Buy-Down

The WORD for Today is:

Buy-Down—a sum of money paid to the lender at closing to reduce the borrower’s out-of-pocket monthly mortgage payment. Buy-downs are usually temporary. In the last several years it has been common for the amount of the buy-down to be added to the purchase price for the house so that in effect the buyer is borrowing the reduction. This is a dangerous practice for several reasons: it adds to the indebtedness by inflating the mortgage/appraisal and causes the borrower to be upside down.

Buy-Down is also an inducement to a lender to reduce the interest rate on a loan during the early years of a loan. The buy-down payment to the lender may come from the seller, buyer, a third-party or a combination of these. The buy-down may be for the first 1-5 years of the loan; most common is the 2-1 buy-down. Buy-down sounds good but in a practical way it is seldom helpful to the borrower. If the borrower is not very strong financially and able to pay the buy-down totally out of pocket then it will be financed into the loan, which hurts them over the long haul. An artificially reduced rate now only means you have to catch up later. The lender is entitled to, and must receive, a certain rate of return. There really is NO FREE LUNCH.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: 2-1 Buydown

And the WORD for Today is:

2-1 Buydown—means the interest rate is reduced by 2% points for the 1st year of the mortgage and reduced by 1% point for the 2nd year of the mortgage. After that the mortgage levels out for the remaining 28 years of the note. The initial lower rate helps to qualify consumers for a mortgage higher than they might otherwise qualify for and is especially helpful to builders as a financing tool to help to move homes.

The definition of buy-down is here.

You might also want to read this article, where Mildred was quoted on 2-1 Buydowns:
http://www.homeownershipmatters.com/news_articles/perfectstorm%5B1%5D.pdf

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: Pre-payment Risk

And the WORD for Today is:

Pre-payment Risk – refers to the possibility of receiving full or partial payment from the borrower before the principal is due. A full pre-payment typically results from the sale or refinancing of a mortgaged property. A partial pre-payment typically occurs when a borrower applies additional money toward the reduction of the principal owed on a mortgage. While such a pre-payment is not a common practice, it is an excellent way for a borrower to significantly reduce the amount of interest they pay over the term of the loan. Pre-payments reduce the value of the mortgage servicing right asset, as the anticipated servicing cash flows are effectively reduced. Many lenders in the sub-prime market strongly inhibit pre-payment activity my imposing harsh pre-payment penalties on a borrower who wishes to pay the entire loan off early. Reinvesting the money from pre-paid principal could be very costly to an investor since they would then need to reinvest and are most likely going to receive a lower interest rate (yield) than the mortgage was paying. Borrowers should be aware that pre-payment penalties can be high enough to effectively lock you into a mortgage you would prefer to pay off early. The solution: be sure your loan does not include such a penalty for repaying the principal early.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Q&A: Affordable Housing

What is “Affordable Housing”?

Q. With so many people losing their homes to foreclosure and the loud discussions about whether or not they should be ‘rescued’ being raised all over the country by folks from all walks of life, perhaps we need to try to figure out what makes a house affordable.  Is ‘affordable’ a term which means a certain price point?  Is affordable different in different parts of the country?  How can person know if a house is affordable? It is all so confusing.

A.  Oh what a difference a few bank closings and a little recession make. Back in the olden days, say 2007, even then the term was elusive, referring to an elusive, unidentified house that the average middle class American could afford. Now we can’t even figure out who is a middle class American much less what is or is not affordable. All our bench marks have shifted. The value of a home today changes almost as frequently as you need to change sheets. Nonetheless, we need to get a handle on this whole affordable thing.

Let’s take the first question: Is affordable a term which means a certain price point?

It is more helpful to look at a home as being affordable in relationship to your overall income rather than a certain dollar amount. All houses are affordable to SOMEBODY. But maybe not affordable to you. Back in the very conservative, distant past, lenders used the guideline for loan approval as 28% of your gross monthly income (amount you earned before taxes) to be allocated for housing expenses. More than that and you could easily fall on hard times if your income shifted a bit. 

Our current crisis was caused in large part by a shift in practice which allowed many homebuyers to commit as much as 50% or more of their income to their housing payment. If you had a healthy savings account, property values remained stable, the creek didn’t rise and your dog didn’t die, then you MIGHT have been okay. But life happens. Your money got ‘funny’ (that’s what Aunt Carolyn calls it when it doesn’t stretch as much as it used to), property values started going down like elevators (every day) and interest rate resets have taken their toll. Now not only can many folk not afford the home where they currently live, they are unsure what is “affordable” for them. Hopefully, this guideline will help you decide. Very simply, if you make enough in 1 week to pay for your housing that should leave you with a comfortable amount to manage the other expenses of your life.

Conservative, traditional lenders have found that as long as the consumer’s total long term debt is no more than 36% of their total gross income then there is enough wiggle room to afford other items which constitute a “reasonable” lifestyle. This rule has proven over the years to help people to have medical coverage, some degree of entertainment as well as build a small savings account.  Rarely would such a consumer end up in default on their mortgage unless there was a total loss of income.  

This then would represent an affordable house payment. Each individual has a unique affordable housing expense amount which would determine what is affordable for this family. I strongly believe it is important to keep home prices as low as possible, to offer a wide range of homes at different price points so that more consumers are able to comfortably afford to own a house and spend less than the  50%+ that many families currently spend to have a roof over their heads. What I have just described is “an affordable house payment” which is the goal for all us.  

The American Dream has almost universally been described as the desire to own a home. Politicians, housing professionals and the general public are encouraged to take a fresh look at our current concept of what achieving that dream means. Are we being successful if we provide the dream to people who can acquire but not retain the home for more than a few years? Are we achieving  our goal if many of the people we get into new homes are paying so much for that home after interest increases and a full tax assessment that 50%-60% of their income is required for basic housing expenses leaving precious little for any of the other necessities of life? Are we really providing affordable housing or housing which appears to be affordable at the beginning because of creative financing ploys which reduce the initial payments by hundreds of dollars per month deluding consumers into believing it is “affordable”? Why are foreclosure rates so high in the FHA arena with many first time buyers? Are the down payment assistance programs leading to more people being home owners (retaining a home for several years) or just  a revolving door of more people who build/buy but are back in the rental market within a couple of years? 

It is time to raise the difficult questions and look for some honest answers in trying to shape what will be done to improve our housing market. It is important to offer “affordable” housing to help stabilize our communities, to allow more consumers to enjoy both the emotional and financial benefits of home ownership. It is a dream worth working toward and saving to achieve. It should be more than a fleeting illusion which disappears and leaves in its wake a disillusioned, frustrated consumer who barely comprehends that the beautiful home and future they envisioned was doomed from the beginning.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Reflections on the Home Affordable Loan Modification Program

The Obama Administration announced the H A M P program with great fanfare on March 4, 2009. It was a bold step to address the foreclosure problem which was clearly swirling out of control. $75 Billion committed to reducing loan payments. Projected to help more than 4 million homeowners.

It Began With a Premise

Foreclosures in the country were occurring at break neck speed and something had to be done. The plan was conceived based on the premise that homeowners would pay their mortgages—IF they could. Despite being upside-down, borrowers are committed to retaining their home. Warren Buffet has been quoted as saying “Commentary on the current housing crises often ignores the crucial fact that most foreclosures do not occur because a house is worth less than it’s mortgage (upside down). Rather, foreclosure takes place because borrowers can’t pay the monthly payment they agreed to pay.” It is a premise with which I agree and an honorable premise on which to craft a resolution.

A Look At the Program

H A M P or Home Affordable Loan Modification Program was launched with the specific and ambitious goal of making sure that millions of Americans would have the opportunity to remain in their homes even though market dynamics and other factors beyond their control meant the value of the property had declined AND they were struggling with payments but they wanted to keep their home. The goals were clear, the mandate receiving strong support. It seemed a good thing—for all the right reasons.

Reduction in Payment

To address the ‘ability to pay’ the H A M P plan provided guidelines for getting those payments under control. Conservative banking guidelines for many years had shown that mortgage payments at no more than 31% of a borrower’s income usually prove to be sustainable so that OLD underwriting guideline was used as a benchmark for what should be the new goal to help us get out of this mess.

To accomplish this, lenders and their servicing partners were provided with guidelines to make this happen:

a. First, Reduce the payment amount so that it was no more than 31% of the borrower’s monthly income

b. Reduce the interest rate to as low as 2% as a way to get the payment down farther

c. Extend the term of the loan—up to 40 years—further reducing the monthly payment

d. If the payment amount was still more than 31% of the borrower’s monthly income, THEN funds from the H A M P fund would be used to pay whatever was needed to get the payment down to 31% of monthly income

Adjusting the principle balance was not an option addressed by this plan even though it was a logical step (in the opinion of this writer) and had been the objective of the ‘cram down’ component of the bankruptcy reform legislation defeated late in 2008.

Criteria for Participation

H A M P was created as an option for owner-occupied properties with outstanding balances of $729,750 or less. The homeowner was required to demonstrate a hardship caused by a factor or factors beyond their control. It applied to loans originated prior to January 1, 2009. Modified payments were set up for 3 months, as a test to see if the borrower could afford the new payment.

If they made that threshold, then the loan modification became permanent (for 5 years, so let’s say, semi-permanent).

Investors or speculators were exempted from participations. So if you had bought into the hype that building a piece of America was the way to financial security, you were on your own. Consequently, it was expected by a number of observers that the number of foreclosures in this segment would rise dramatically, and RISE they have.

Incentives

In order to facilitate this voluntary program, the H A M P initiative provided for financial inducement to all parties to participate. Servicers (and/or the lenders whom they represented) were to receive $1,000 for each completed modification. The plan called for an additional $1,000 for each year the modification remained in place with a cap after 3 years. The borrower could get $1,000 off their principal balance for each year, up to five years.

“Net Present Value” Test

In order to determine which loans should be modified, lenders/servicers were to conduct a ‘net present value’ test. The test was supposed to compare the expected cash flow which would be generated under the program (with a modified, performing loan) as compared with the expected cash flow if the loan were not modified (and continued non-performing if the borrower were already in default). Let’s see, some $ paid, versus $0 paid. Not a hard test really. Seems like a no-brainer to me.

Good intentions for a worthy cause. So how did it go wrong. Why have consumers across the country been yelling fowl by the hundreds of thousands? Why has the Administration acknowledged that the program has not reached nearly the scope that they projected? We’ll provide those assessments in tomorrow’s blog. Don’t miss it.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Fast Fact: Modification of Loans

FACT: A modification of your loan is possible for all loan types. However, that possibility can be complicated by:

1. Whether or not you still reside in the home
2. The lender has sold the loan into a loan pool
3. The insurer/investor is willing to allow a modification

To modify a loan means that the old loan is permanently changed and new loan terms exist. It can be a powerful option for a borrower who is in default. The things which can be altered or modified on a loan include:

1. The interest rate being charged (usually lowered by the modification)
2. The term (or length of the loan) (can be reset for another 30 years)
3. The principal balance (can be lowered if the value of the property has decreased)

Either one of these can be modified or a combination of them. The goal is to create a NEW loan which is reasonable and sustainable based on the borrower’s current circumstances including income and the current value of the real estate.

New legislation is slated to allow bankruptcy courts to force lenders to agree to a reduction in the outstanding balance (the so-called cram-down) when a borrower can demonstrate that the value of the home is less than the mortgage payoff.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: Pre-payment Penalty

And the WORD for Today is:

Pre-payment Penalty – means that you must pay extra money in order to repay the loan early. If your circumstances changed or you discovered that you could have qualified for a lower interest rate or you needed to move and sell the home you would find it cost prohibitive because this penalty means you have to pay a high cost in order to repay early. The penalty might be equal to 6 months’ mortgage payments or a flat fee of several thousand dollars. This practice is now prohibited in many states and/or on what is described as high-costs loans. Until 2000 most sub-prime loans included this as another source of income for the lender with no benefit to the consumer.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: Loan Modification

And the WORD for Today is...

Loan Modification – is a loss mitigation tool which involves a permanent change in one or more of the terms of the loans, which results in a loan payment the consumer is able to afford. It might accurately be called an ‘in-house refinance’ meaning that the consumer’s current lender (NOT A NEW LENDER) would be the entity to provide such a modification. A loan modification is a permanent change in one or more of the loan factors, which might include term, interest rate or loan type. If the loan is an FHA loan, it must first be purchased out of the Ginnie Mae pool and then re-pooled after it has been modified.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Q&A: Getting a Loan

Q: It is hard to meet the criteria to borrow money from a bank these days. Our credit score is not bad but we do not have the 20-30% being requested as a down payment by the 3 banks we have talked to so far. Where do you go to borrow money when banks won't loan?

A: Banks are not the only sources for financing. The question does not specify what you wish to borrow money for, but if it is for a car or a house then considering your local credit union is the first thing I would recommend.

Credit unions have always been a good resource for financing large ticket items like cars or homes or home repairs. While credit unions started out as a resource for employees of a particular company or industry, many credit unions have expanded their memberships so that almost anyone can join a credit union if they choose to. Most of us have either a family member or friend who is a member of a credit union we would qualify to join. Additionally, there are credit unions which you can join just because you live in a specific geographic area.

While it is frequently not a good idea, borrowing from family may be a solution as well.

Lastly, I would be remiss if I did not address the fact that banks are, in fact, still loaning money.

It is true that loans are harder to come by. They have raised the credit score to qualify as well as increased the amount of paperwork and the down payment required to get a loan in most cases. Those are good guidelines which would have prevented the mortgage mess we are experiencing had they been in place during the past 4-6 years. While it is true that conservative lending will reduce the number of loans which are made, it will also decrease the number of defaults which occur.

If your credit needs some repair, get a copy of your credit report from all three credit reporting agencies and work on getting yourself ready for a good loan at a reasonable interest rate.

Log onto: www.freeannualcreditreport.com. Why not get started today? It will be time well spent.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

WORD: Crisis Budget

And the WORD for Today is:

Crisis Budget—refers to a temporary budget which a consumer needs to create in the event they are struggling with house payments. Particularly in current times when many are facing a default on their mortgage devising a crisis budget could be helpful both in trying to get some relief as well as having a sense of making headway in getting control of your finances again. On their own or with the help of a foreclosure prevention counselor the consumer needs to first take an honest and realistic look at their current income and ability to make payment for any and all expenses. Then choose which debts they can pay. A way to determine that is to consider which creditors can take quick action against their home, utilities, car and other essentials. Then establishing a priority of whom you will pay (perhaps being realistic that even necessities must be reduced). So:

• Household necessities-food and medicine: cook at home, switch brands, minimize food purchases as best you can. Look into "Angel Food Ministries" for help with food prices.
  
• Housing-mortgage, insurance Contact the lender for help with loss mitigation.
• Utilities-can you get help with these?
• Car loan-is the car necessary for work? Can you switch to a lower car payment? Get rid of a second car? Use public transportation?
• Child support debts can bring prosecution if you do not pay them. Try to maintain these.
• Income tax-file and make payment arrangements.
• Student loans-have a low interest rate and should be a low priority on a crisis budget.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Q&A: Stay or Go?

Stay or go? How do I know?

Q: I am behind on my mortgage and while I would like to keep my home I can’t possibly see any way for me to make the payments since my interest rate jumped and my payments skyrocketed. The person at the bank “implied” I should just go ahead and move if I can’t make my payments. A couple of friends are also encouraging me to move now. I am not sure who to listen to. When is the best time to move if you are facing foreclosure?

A: Listen to me. First, please understand that you have the ‘Right of Possession” of your home until either, you voluntarily relinquish it (see abandonment—Jan 24) or that right has been severed. Depending on the foreclosure statues in your states usually you have the right of possession until the sheriff’s sale. Even though you are not making payments, the lender must still adhere to the guidelines in your mortgage note or deed of trust—in compliance with applicable state laws—before you can be forced from your home. Don’t speed the process up by vacating when you are not required to. You still need to use common sense—if the foreclosure has already occurred and you expect the sheriff’s auction, followed for forceful eviction to occur in February in Connecticut you might want to move in November.

In my personal situation back in 1991, I moved out on a Monday in March–BEFORE the sheriff’s sale, which was scheduled for that Saturday. My now ex-husband did some fancy lying and got the sheriff’s sale postponed—until July. There are two ways to look at this: I avoided the humiliation of being there at the time of the sale for myself and my kids but I also incurred housing expenses several months before I would have HAD to do so. You will have to make a judgment call, based on your personal situation.

Perhaps your situation will change—prior to the actual auction. The new administration may implement some guidelines which make your situation workable, there could be a moratorium of either foreclosures or auctions in your area—any number of things could change the situation for the better. Make an informed decision about what works best for you. I’m rooting for you.

Bottom line is, you have the right of possession until the fat lady sings. In foreclosure issues the FAT LADY is the sheriff’s sale.

© Copyright 2009, Home Ownership Matters, LLC. All rights Reserved. "Answer Book in a Foreclosure Climate" by Mildred Wilkins, available in 2009 from www.DovePublishingHouse.com.

(Please e-mail Heather at homeownershipmatters@gmail.com with any questions, comments, or concerns you might have. We appreciate all feedback, comments, and especially your questions. Don't be shy!)

WORD: Debt Management Plan and Debtor

And the WORD for Today is: 

Debt Management Plan—are offered by many credit counseling agencies. A consumer who is struggling to make their payments will typically make a monthly payment to a debt management company which then distributes payments to the consumer’s creditors. Debt management companies usually negotiate for an agreement which may lower the total amount owed or the interest rate to be reduced as a way to help the consumer get out of debt.

Debtor—means one party who owes money to another party. The debtor is the party who files the initial action in bankruptcy court. In a foreclosure action it is the debtor who is the defendant in the legal action looking to foreclose on the property.

Copyright © 2008, Home Ownership Matters, LLC. All Rights Reserved.

You can find more helpful definitions of WORDS like these in Your Real Estate Advisor which can be purchased at www.DovePublishingHouse.com.

(Please E-mail Heather at homeownershipmatters@gmail.com with any questions, comments or concerns you might have! We appreciate all comments and feedback, so please don't be shy.)

Q&A: Short Sale Dickering

Q: The phone call was from an acquaintance, who had her friend on the line to discuss what to do about a proposed short sale which was stalled. The REALTOR seemed unsure what to do and both women felt he was looking out for the bank’s interest. Her problem: the lender wanted her to sign a promissory note for the deficiency—$25,000 on a $120, 000 loan in order for them to approve the short sale and let her go to closing. They agreed, after some haggling, to accept $6,000. She was frustrated because she felt they should just approve the short sale; further, if they didn’t she was considering just letting them foreclose. She had already moved out of the house and quite frankly, just wanted this to be over with. The question: What is a short sale suppose to do anyway? I thought it was to wipe out what I owed and the bank wrote that off as a loss.

A: There is NOT a simple answer to the issues raised in the above phone call. I will address what a short sale is (and isn’t) and then address a couple of other issues from the query above. First, short sale means that the lender permits a defaulted borrower (under certain circumstances) to close on the sale of the mortgaged property for less than the full amount allowed. There is a broad misconception that a short sale will be without conditions. Nothing could be further from the truth. The lender has the right, under the terms of the mortgage note (or the deed of trust), to pursue the consumer for the deficiency when less than the full amount due is received from a new buyer. The lender has several options to cover the deficiency: a. submit a claim to the insurer (when applicable, subject to certain restrictions) go for a deficiency judgment against the borrower (can be used to get a wage assignment) ask the borrower to sign an unsecured note for all or a portion of the shortage some other alternative I have not heard of yet

If the borrower does not agree to the ‘conditions’ for the approval then the lender has the sole right to reject the proposed offer and move forward with foreclosure.

Foreclosure is an option the borrower should try to avoid in almost all situations. Pretty much the only time foreclosure has limited power to hurt you is: if you are much older (say 70) never plan to buy a house again, you have NO ASSETS (no savings, no retirement, nothing) and you are judgment proof. Otherwise, you need to work something out. Try to negotiate a lower amount on the promissory note ($6,000 is an excellent compromise). She should take it, run get it signed and notarized and thank the Lord for helping her avoid the full impact of the deficiency. It is important that the document state that the payment of the note “satisfies the indebtedness in full” and is signed by someone of authority at the lender’s shop.

The ‘friend’ from this phone call has several other extenuating circumstances which made the decision to advise her to negotiate and agree to the lowered amount very easy. She is younger (early 50’s), wishes to purchase again, is currently employed, already vacated the house (abandonment, which was discussed on Jan 23-24—here and here) has a significant retirement account and for all those reasons she is not in a strong position to refuse to cooperate with a lender whom she owes $120,00 with an offer of $90,000 on the table. She agreed to repay the full amount, with interest. Circumstances such as her escalating variable rate do not alter the terms of the initial contract. Please understand that I empathize with the situation but must still give you the best answer I can, based on your overall situation. Look to save yourself to fight another day by protecting your financial future with each choice that you make.

Copyright © 2009, Home Ownership Matters, LLC. All rights Reserved. "Answer Book in a Foreclosure Climate" by Mildred Wilkins, available in 2009 from www.DovePublishingHouse.com.

(Please e-mail Heather at homeownershipmatters@gmail.com with any questions, comments, or concerns you might have. We appreciate all feedback, comments, and especially your questions. Don't be shy!)

Welcome!

Welcome to Home Ownership Matters’ Blog!

Why write this blog? Quite simply because the time is right. Because I understand where you’re coming from. I have been urged by many students in my training sessions to start a blog for several years. It seemed like a daunting task until I hired my current Marketing Assistant, Heather Meade. Her training and expertise has made this possible at a time when the housing crisis has made it more important than ever that consumers be given basic information to help them make informed choices about so many of the challenges associated with real estate today.
Who is Mildred Wilkins?

I am a foreclosure intervention and loss mitigation trainer, a speaker. I am a consumer advocate who also happens to write. Most importantly, I’m a person, just like you, who has had hopes and dreams and inspirations blow up in my face. I have grown and survived DESPITE those blow-ups. I have lived—therefore I teach.

Writing is our most basic and clearest form of communication. The internet, via such tools as this blog (and website; www.HomeOwnershipMatters.com) has made it possible to reach thousands of folks in real time. I invite you to share my real estate lessons. I love to tell my students; “I’ve already taken the class and paid the price for this lesson. You can listen and avoid having to take it yourself.” I have benefited in other areas of my life from listening to the folks who already did it the wrong way so I could avoid their pitfall. I had no such teachers in real estate, so I had to learn the hard way—MYSELF.

I’ve gone from being born Black and poor to uneducated parents in southern Alabama, to graduating with honors from college, to middle income with a position at Purdue University, to a stay-at-home mom, to a divorcee with two children. I did my 6 months on welfare.

I’ve done most of the wrong things related to home ownership—and survived to tell the story. I’ve purchased several homes. I’ve built a new home ---and walked away at closing leaving thousands in a deposit on the table. I’ve bought without an inspection—leading to disastrous problems being uncovered a few months later. I’ve gone through foreclosure—and ended up with the deficiency judgment to prove I was there. Miraculously, I had not filed bankruptcy until AFTER the judgment for the deficiency on the car ($8 K and the house $28 K were recorded). I filed bankruptcy, started over and rebuilt my credit. I’ve lost a child, gone into depression and destroyed my credit again.

Professionally, I worked as a full-time REALTOR for 10 years in Indianapolis; I’ve helped others to buy their dream home. As a Broker-Specialist for 2½ years for Fannie Mae I sold their foreclosed properties. I was required to participate in the forceful eviction process as a representative for Fannie Mae. I was in charge of clearing out the remains of homes abandoned by folks in desperation when time ran out and the sheriff’s sale was imminent. I’ve written a weekly newspaper column on real estate to address the common concerns and complaints of consumers who don’t know where to turn. I’ve received professional training on Loss Mitigation. I’ve spent hundreds of hours studying laws, regulations, guidelines, pending legislation—all relating to predatory lending, mortgage fraud, foreclosure, bankruptcy, fair housing, appropriate disclosure and other subjects which directly impact our housing issues.

What will be included in this blog?

Each day we will share with you information we consider relevant to home ownership. For the first month or so most of the entries will be related to today’s more urgent housing issues—all those components connected to struggling to make your mortgage payment. We will eventually move on to home maintenance, taxes, insurance, and all sorts of other things, so continue to log on. Read and share. You could be just the answer someone needed today.

Contents:

• Today’s WORD—Will be an attempt to help you learn how to ‘talk bank’. Regular folks seldom know what the bank people are talking about. You hear the words, you may even know the words, but what the words MEAN is a whole other thing. It’s hard to communicate when you don’t know the lingo—Hence, Today’s WORD. Read it, learn it, share it.
• Fast FACTS—It is a basic fact that when you are making decisions, not just when you are purchasing a home, but ALL decisions relating to your finances become housing decisions. For instance, filing for bankruptcy impacts your future housing options. We’ll share some pearls of wisdom related to housing. We’ll make a diligent effort to give you FACTS which are relevant for most of the country. We encourage you to hold them close; treat them like the pearls they are.
• Myths and Misunderstandings—One of life’s cruel realities is that it does not matter how sincere you are—IF YOU ARE MISTAKEN. Too many folks across the country today honestly believed they could refinance out of a variable rate loan before the rate increased. They believed because they were ASSURED by a broker that they could. They believed that the broker was: working in their best interest and regulated by the banking industry. They were wrong on both counts and now they can’t afford the home they love. They misunderstood how brokers and banking work. They did not know the meaning of the word—prepayment penalty. We’ll shed some light on some common myths—clear up a few misunderstandings and prepare you to make better choices. Pass it on!
• Articles from the desk of . . .—will be included about once each week. These articles are slanted toward real estate professionals and many have appeared in REALTOR magazines or Broker-Agent somewhere in the country. Taking a course on the subjects discussed is the best way to become more competent in dealing with today’s transactions but reading any or all of these articles will certainly have a positive impact on your business. There is an ARCHIVE of articles available, FREE, upon request. For the complete list, please e-mail Heather at homeownershipmatters@gmail.com.
• Did You Know?—I didn’t think so. Well, anyway, I thought should share. There are tidbits—mere tidbits—of information which can dramatically change how we operate and therefore, dramatically change our outcomes. I am ecstatic when someone shares such a tidbit with me. Whether ordinary or extraordinary, if I didn’t know then I could not incorporate it into my life. Even if they say “Millie, every body knows that” I will happily say, “I didn’t, until now”. Knowledge is truly a powerful thing–I have always had an immense respect for knowledge. I revel in trying to attain more. I humbly share any I have. Embrace knowledge–whatever the source. Use it—Share it. Benefit from it.
• “Your Real Estate Advisor”—will be resurrected and added to the mix within the next two months. That was the name of the real estate advice column I wrote in Indianapolis for 5 years back in the 90’s. (It is also the name of my second book). We’ll talk about EVERYTHING housing: buying, selling renovating, building, maintaining, remodeling, and losing. Don’t be selfish—share the info—with family, friends, maybe even somebody you don’t particularly like. Make them wonder.
• Give me a “Q”—we’ll take a commonly asked question and provide an answer. Please keep in mind that the answer will be MY answer. By that I mean that what you will get is my opinion. That’s because it’s my blog. I expect you to have different opinions and encourage you to share those. Unlike the “FACTS” section we can have lots of answers to a single question. I am promising neither a rose garden nor THE answer. I promised you AN answer. You mustn’t yell at me. I’m sensitive.

Enjoy the blog. It is intended to educate while keeping your attention. The words are all mine. Heather is responsible for everything else. You may reach her by commenting on this blog, or e-mailing homeownershipmatters@gmail.com