Other Voices: There still is hope for those facing possible foreclosure
Trillions of dollars and still counting. That’s what’s been lost by the crashing real estate market.
Notices of default filings, which signal beginning of the foreclosure process, are up 18 percent this year. And 1 trillion dollars of adjustable rate mortgages are coming due within the next 12 months, expecting to keep foreclosures on the rise.
In a lot of cases, especially in California and Florida, homes purchased three years ago are now worth just 60 to 70 percent of what buyers paid for them. Those two states account for 39 percent of national foreclosures.
Nevada County real estate is bucking those trends a little. While our market is stronger and more stable than most other areas in California, local homeowners are still experiencing many of the same problems, just not in the same degree. One major reason, the homes hit hardest are those in new subdivisions that were sold out in the last few years to buyers primarily with sub-prime mortgages. Western Nevada County has not had any major subdivisions built in the past five years, like in some neighboring counties where several 300- and 400-home tracts were developed.
In an attempt to head off the housing crises, in July Congress passed and the president signed a massive $300 billion housing market rescue bill and just days ago the government announced it will take control of Fannie Mae and Freddie Mac. Will these actions help the average Nevada County homeowner? Indirectly, yes. We will continue to have a housing market and a source for loans, but it will not directly help troubled homeowners.
Direct help is available for homeowners because the huge losses are putting tremendous pressure on America’s lending institutions. If they can’t find a way to reduce the number of foreclosures and delinquencies, then they’re not going to survive. It’s a simple premise … you “can’t squeeze blood from a turnip.”
Out of this horribly bad news comes a ray of real hope. Many homeowners today are upside down – meaning they owe more than their home is worth. For example, how do you sell your home you bought in 2005 for $500,000 that’s now only worth $400,000 with a mortgage of $420,000? Enter short sales and loan modifications.
The one fundamental that homeowners can count on is that lenders do not want – and cannot afford – more foreclosures. Taking back a small home can eventually cost the lender thousand and thousands of dollars – much more than they would lose in working out a deal. Therefore almost every lender is willing to work out a short sale or loan modification with a representative of the seller. Don’t try yourself, however; they are too busy to walk amateurs through the steps and will only deal with specially trained attorneys.
In the previous example, the lender might agree to let the homeowner sell the property for $400,000 including a commission for the agents involved. Including the commissions and loss on the loan, the lender will be out about $45,000, which is a bargain compared to the expenses a foreclosure would have cost the lender.
Short sales can be a blessing – yet what can help the homeowner who is upside down, struggling to make ends meet, but doesn’t want to give up his property nor have a foreclosure or short sale on his record? The answer can be a loan modification.
Loan modifications aren’t for the well-to-do just because it makes sense to get a lower house payment. The best candidates are those that owe more on their home than it is worth, who can prove they are having a hard time keeping up with their house payments, and can show they could make their payments if they were reduced by 25 to 30 percent.
If someone is unemployed and behind in all payments, and there is “no light at the end of the tunnel,” then this person will not get a loan modification. A short sale may be his only option.
If Mr. and Mrs. Home-owner are slowly sinking into a financial abyss but can straighten their life out with serious help which can include forgiveness of back payments and/or reduction in the loan balance and/or a lower interest rate, then they are prime candidates for a loan modification. The cost is minimal, but current average savings of $700 per month justify the costs. There are no up-front fees for those already in foreclosure.
There are consequences, however. If you go the foreclosure route, you will not be able to get a Fannie Mae loan for five years. With a short sale you will be banned for four years but with a loan modification there is no restriction on re-entering the housing market.
A leading loan modification company is eCapital, which claims 99 percent of pre-qualified clients are getting modifications from their lenders, averaging a savings of about $700 per month. They can be reached locally at (530) 271-5909.
Dave Glubetich lives in Grass Valley.
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