When you are in deep financial trouble, bankruptcy is not the only option. You should carefully weigh bankruptcy...both the pro's and con's. Bankruptcy can absolve you of your debt or put you in a position to repay your debt within a framework that will work for you, however your credit will be damaged for seven years.
An "out of court settlement" is a possibility to consider for your unsecured debt. Instead of going through the tedious process of bankruptcy, a settlement at a reduced amount is a possibility. This is still a challenging process and it is highly advisable to engage a professional who is qualified and experienced to assist you, otherwise you may be stuck with derogatory marks on your credit rating.
"Debt counseling services" can provide a viable alternative. Through this process, debts may be consolidated, as well as more favorable repayment terms can be negotiated. This may include a reduction in interest as well as a reduction in the outstanding balance. Use caution when enlisting these types of services, as they likely will have an affect on your credit rating.
"Debt consolidation loans" is another alternative, especially if you do have equity in your home. Borrowing against your equity is a viable and simple option, however you want to make sure that your increased payments from a second loan will be manageable, and not put your situation in a more precarious position. You do not want to default on a home mortgage of any type as the consequences are much worse than other types of credit.
Keeping your options open and being creative with your financial picture has both its risks and rewards. Know your options...it is Empowering!
Wednesday, June 10, 2009
Wednesday, May 27, 2009
Chapter 7 Bankruptcy...Is This A Viable Option?
When you file for bankruptcy, you are given the change to rise out of a financial crisis with a clean slate. The Chapter 7 Bankruptcy Code is the quickest and easiest way to achieve these results. How does it differ from Chapter 13? What are the negative aspects to Chapter 7 Bankruptcy?
Under the Chapter 7 Bankruptcy Code all non-exempt property is sold and the proceeds are distributed to the creditors to pay off the debt. Most of the time, the borrower has little or no assets to liquidate, so the "cleansing period" takes place quickly.
This process is often referred to as "liquidation" or a "straight bankruptcy". With this type of bankruptcy, the borrower can start anew. In the process, most debts are discharged within months of filing the bankruptcy petition.
When an individual files Chapter 7 Bankruptcy, a trustee is appointed to administer all non-exempt property, sell what assets are available, and distribute the proceeds to the appropriate creditors. There are no payments made from the debtor to the creditors...a major difference from Chapter 13 Bankruptcy.
Under a Chapter 7 filing, the debtor receives a discharge on all debts that can be discharged, such as child support, most taxes, student loans, etc...One good thing is that the debtor is usually allowed to keep their primary residence and their car.
Whenever you have chosen bankruptcy as your best option, engage the services of a competent attorney who specializes in bankruptcy. Bankruptcy has clear, defined rules that must be adhered to. Once you have chosen your attorney, allow them to do their job and follow their advice...never be a micro manager. Delegate to your attorney...it is Empowering!
Under the Chapter 7 Bankruptcy Code all non-exempt property is sold and the proceeds are distributed to the creditors to pay off the debt. Most of the time, the borrower has little or no assets to liquidate, so the "cleansing period" takes place quickly.
This process is often referred to as "liquidation" or a "straight bankruptcy". With this type of bankruptcy, the borrower can start anew. In the process, most debts are discharged within months of filing the bankruptcy petition.
When an individual files Chapter 7 Bankruptcy, a trustee is appointed to administer all non-exempt property, sell what assets are available, and distribute the proceeds to the appropriate creditors. There are no payments made from the debtor to the creditors...a major difference from Chapter 13 Bankruptcy.
Under a Chapter 7 filing, the debtor receives a discharge on all debts that can be discharged, such as child support, most taxes, student loans, etc...One good thing is that the debtor is usually allowed to keep their primary residence and their car.
Whenever you have chosen bankruptcy as your best option, engage the services of a competent attorney who specializes in bankruptcy. Bankruptcy has clear, defined rules that must be adhered to. Once you have chosen your attorney, allow them to do their job and follow their advice...never be a micro manager. Delegate to your attorney...it is Empowering!
Wednesday, May 20, 2009
Chapter 13 Bankruptcy...Your Options...
Filing for Chapter 13 Bankruptcy is for individuals who intend to continue to pay off their debts. This usually incorporates better terms and little to no interest charges. Unlike Chapter 7 Bankruptcy where all the debts are liquidated, Chapter 13 will utilize the debtor's regular income to pay off the creditors.
Under the U.S. Bankruptcy Code, the debtor is given up to 5 years to repay the creditors in the filing. While the debtors property is not liquidated, the court administers a new interest free plan for the repayment of the debts. A written plan is drafted to provide details of the repayment. The repayment usually begins within 30-45 days after the case has started. Sometimes the debtor will disburse to a trustee who will take charge of disbursing money to the creditors as per the plan. Other times, the debtor can pay the creditors directly. Regardless of how the plan is set up, the debtor and the creditors must strictly adhere to the terms of the plan. The creditors are prohibited from trying to collect excess sums from the debtor.
Under a Chapter 13 filing, a debtor who manages to complete all necessary payments in the plan is given a full discharge. The repayment plan is set up by the court irregardless of requests by the creditors. To be able to file for a Chapter 13, the debtor must have a regular and continuing income.
When a Chapter 13 Bankruptcy is filed, the following happens:
A.] Determine whether Chapter 13 is the best solution for the debtor.
B.] Prepare a budget.
C.] Examine individual cases to figure out whether Chapter 13 is appropriate or
or whether other alternatives can be explored.
D.] Determine and implement methods of dealing with secured creditors.
E.] Devise a Chapter 13 plan and fill out the forms.
F.] Pay the filing fee and complete the process of filing the forms and pleadings.
G.] Attend whatever meetings you maybe required to attend...i.e. creditors, court
hearings, etc...
H.] Obtain a discharge once the payments have all been made, and the plan terminated.
While this may seem like a simple procedure, in fact it is a rather complicated legal proceeding, and you are best advised to retain an qualified bankruptcy attorney to assist and guide you through this process to ensure that your best interests are protected...this is Empowering...
Under the U.S. Bankruptcy Code, the debtor is given up to 5 years to repay the creditors in the filing. While the debtors property is not liquidated, the court administers a new interest free plan for the repayment of the debts. A written plan is drafted to provide details of the repayment. The repayment usually begins within 30-45 days after the case has started. Sometimes the debtor will disburse to a trustee who will take charge of disbursing money to the creditors as per the plan. Other times, the debtor can pay the creditors directly. Regardless of how the plan is set up, the debtor and the creditors must strictly adhere to the terms of the plan. The creditors are prohibited from trying to collect excess sums from the debtor.
Under a Chapter 13 filing, a debtor who manages to complete all necessary payments in the plan is given a full discharge. The repayment plan is set up by the court irregardless of requests by the creditors. To be able to file for a Chapter 13, the debtor must have a regular and continuing income.
When a Chapter 13 Bankruptcy is filed, the following happens:
A.] Determine whether Chapter 13 is the best solution for the debtor.
B.] Prepare a budget.
C.] Examine individual cases to figure out whether Chapter 13 is appropriate or
or whether other alternatives can be explored.
D.] Determine and implement methods of dealing with secured creditors.
E.] Devise a Chapter 13 plan and fill out the forms.
F.] Pay the filing fee and complete the process of filing the forms and pleadings.
G.] Attend whatever meetings you maybe required to attend...i.e. creditors, court
hearings, etc...
H.] Obtain a discharge once the payments have all been made, and the plan terminated.
While this may seem like a simple procedure, in fact it is a rather complicated legal proceeding, and you are best advised to retain an qualified bankruptcy attorney to assist and guide you through this process to ensure that your best interests are protected...this is Empowering...
Thursday, May 14, 2009
Empower Yourself By Knowing The Basics Of Bankruptcy
Making the decision to file bankruptcy is not an easy one. You have to balance the potential damage to your credit, loss of assets, and any attached stigma against the rising hassle of late fees, penalties, phone calls from creditors, and soaring interest charges.
Any decision to file bankruptcy requires careful consideration of a lot of factors. If your bankruptcy is successful, an enormous amount of your existing debt and pressure will be lifted off your shoulders. Your credit will be damaged, but this can be re-built over time. Shedding this debt and the associate pressure might just be what you need to start rebuilding your financial future. It is important to explore all the options. Bankruptcy might not be right for your situation...however exploring this option will give you the knowledge to make the right decision...an Empowering one.
You need to make a critical assessment of your financial condition. Creating an accurate picture of your assets, liabilities, and cash flow will be a start in the right direction. There are numerous services on the internet as well as locally, to educate yourself on the bankruptcy procedure. These are all good, but you should take the time to consult with a qualified bankruptcy attorney to ensure that you have a clear, unbiased, view of how you should proceed.
If at any time you have seriously considered bankruptcy, you need to educate yourself on all aspects of bankruptcy. Bankruptcy is not for everyone, however do not wait until your car is being repossessed, or your wages are being garnished before you act. Be proactive and assertive with proper planning...an Empowering move.
There are two types of bankruptcy...Chapter 7 and Chapter 13.
Chapter 13 evolves around debt reorganization and a repayment plan typically over 3-5 years. During this time, provided you are making you payments in a timely fashion, your creditors cannot take any action against you. Chapter 7 is associated with shedding all debt. Your nonexempt assets are liquidated to mitigate your debts. Exempt debts...debts that cannot be liquidated...include your primary residence, your vehicle, certain items of personal property, tools and work equipment, as well as numerous other categories of property.
After you case is finished and all debts that were discharged are forgiven, the bankruptcy proceeding is closed. You may not file again for seven years. Bankruptcy is a viable options, but not for all cases. You must carefully weigh the positive and negative points prior to making a decision. When you are faced with these types of financial challenges, be proactive. Put together a plan, be assertive...be Empowered.
Any decision to file bankruptcy requires careful consideration of a lot of factors. If your bankruptcy is successful, an enormous amount of your existing debt and pressure will be lifted off your shoulders. Your credit will be damaged, but this can be re-built over time. Shedding this debt and the associate pressure might just be what you need to start rebuilding your financial future. It is important to explore all the options. Bankruptcy might not be right for your situation...however exploring this option will give you the knowledge to make the right decision...an Empowering one.
You need to make a critical assessment of your financial condition. Creating an accurate picture of your assets, liabilities, and cash flow will be a start in the right direction. There are numerous services on the internet as well as locally, to educate yourself on the bankruptcy procedure. These are all good, but you should take the time to consult with a qualified bankruptcy attorney to ensure that you have a clear, unbiased, view of how you should proceed.
If at any time you have seriously considered bankruptcy, you need to educate yourself on all aspects of bankruptcy. Bankruptcy is not for everyone, however do not wait until your car is being repossessed, or your wages are being garnished before you act. Be proactive and assertive with proper planning...an Empowering move.
There are two types of bankruptcy...Chapter 7 and Chapter 13.
Chapter 13 evolves around debt reorganization and a repayment plan typically over 3-5 years. During this time, provided you are making you payments in a timely fashion, your creditors cannot take any action against you. Chapter 7 is associated with shedding all debt. Your nonexempt assets are liquidated to mitigate your debts. Exempt debts...debts that cannot be liquidated...include your primary residence, your vehicle, certain items of personal property, tools and work equipment, as well as numerous other categories of property.
After you case is finished and all debts that were discharged are forgiven, the bankruptcy proceeding is closed. You may not file again for seven years. Bankruptcy is a viable options, but not for all cases. You must carefully weigh the positive and negative points prior to making a decision. When you are faced with these types of financial challenges, be proactive. Put together a plan, be assertive...be Empowered.
Wednesday, May 13, 2009
Short Sales And Tax Implications
If you are considering a real estate short sale of your home, be prepared to receive a form 1099-C for the amount of the lender's losses. In the eyes of the IRS, this is considered "loan forgiveness". You may be responsible to pay ordinary taxes on the amount of the 1099-C.
If you settle a debt with a creditor for less than the full amount owed, you may be required to report this forgiven debt as regular income, with certain important exceptions. The forgiven debts include money owed after foreclosure, property repossession, or credit accounts that you don't pay.
If a lender writes off a debt of $600 or more principal balance, they must send you and the IRS a Form 1099-C at the end of the year. When you file your taxes on that respective year, the IRS will require that you include the amount as income.
While you may not receive this form from the creditor, the creditor may have submitted one to the IRS. If you do not list the income on your tax return and the IRS has the information of the transaction on file, you could get a tax bill or a request for an audit.
There are several exceptions to this as stated in the IRS tax code. For example, you do not have to report the income if the write off of the debt is intended as a gift, your debts are discharged in a bankruptcy proceedings, or you were insolvent prior to the settlement with the creditor. Always consult a qualified tax professional when contemplating your situation. Remember, information is power. It is Empowering.
This information is not intended as legal or tax advice. Always consult your tax professional or attorney prior to making any decision regarding these types of situations.
If you settle a debt with a creditor for less than the full amount owed, you may be required to report this forgiven debt as regular income, with certain important exceptions. The forgiven debts include money owed after foreclosure, property repossession, or credit accounts that you don't pay.
If a lender writes off a debt of $600 or more principal balance, they must send you and the IRS a Form 1099-C at the end of the year. When you file your taxes on that respective year, the IRS will require that you include the amount as income.
While you may not receive this form from the creditor, the creditor may have submitted one to the IRS. If you do not list the income on your tax return and the IRS has the information of the transaction on file, you could get a tax bill or a request for an audit.
There are several exceptions to this as stated in the IRS tax code. For example, you do not have to report the income if the write off of the debt is intended as a gift, your debts are discharged in a bankruptcy proceedings, or you were insolvent prior to the settlement with the creditor. Always consult a qualified tax professional when contemplating your situation. Remember, information is power. It is Empowering.
This information is not intended as legal or tax advice. Always consult your tax professional or attorney prior to making any decision regarding these types of situations.
Monday, May 11, 2009
Short Sale...Is There An Upside?
In this day of real estate market crashes and you owe more than what your home is valued at, you might qualify for a legal, lender approved solution known as a Short Sale. This can be accomplished by negotiating with your lender to accept a sale of your property to a third party for less than the current balance of your mortgage.
The Short Sale transaction, in today's soft real estate market, is a viable and sometimes necessary option. It is a legal way of moving outside an "upside down" situation. It is much better than foreclosure or bankruptcy, as typically the credit is preserved or minimally damaged. Lenders are becoming more motivated to accept short sales for a number of good reasons. It can be a "win-win" for all parties...even the lender.
You as the homeowner "win" by getting out of a financial predicament via a clean transaction and a salvaged credit score. Allowing the property to go to foreclosure will typically damage your credit for up to seven years.
The lender "wins" by avoiding timely and costly foreclosure proceedings which could lead to an even more costly expense of being owned by the bank.
The buyer "wins" by purchasing a property at good market value...one that typically has not gotten trashed at this point. Often times, short sale properties are in very good condition, with minimal damage...a "win-win" for all parties!
But with every "silver lining", there is a dark side...a down side...stay tuned...
The Short Sale transaction, in today's soft real estate market, is a viable and sometimes necessary option. It is a legal way of moving outside an "upside down" situation. It is much better than foreclosure or bankruptcy, as typically the credit is preserved or minimally damaged. Lenders are becoming more motivated to accept short sales for a number of good reasons. It can be a "win-win" for all parties...even the lender.
You as the homeowner "win" by getting out of a financial predicament via a clean transaction and a salvaged credit score. Allowing the property to go to foreclosure will typically damage your credit for up to seven years.
The lender "wins" by avoiding timely and costly foreclosure proceedings which could lead to an even more costly expense of being owned by the bank.
The buyer "wins" by purchasing a property at good market value...one that typically has not gotten trashed at this point. Often times, short sale properties are in very good condition, with minimal damage...a "win-win" for all parties!
But with every "silver lining", there is a dark side...a down side...stay tuned...
Friday, May 1, 2009
New Help For Individuals With 2nd mortgages...
This week, the Obama Administration unveiled a fresh set of incentives for mortgage servicers to help strapped U.S. homeowners. The U.S. Treasury will tap into a $50 billion housing rescue fund (TARP) to pay off mortgage investors and reduce monthly payments for millions of borrowers.
Under this new program, the government will pay mortgage servicers $500 up front and $250 a year for three years for successfully modifying or erasing a second mortgage, such as a home equity loan. According to a senior administration official, "It will be a shared effort with lenders, investors, borrowers and the government to ease or extinguish second-lien mortgage payments." It is expected that a significant amount of big banks will sign up for the updated federal program to bring relief to troubled homeowners. Once those firms sign necessary contracts, they'll generally be obligated to modify second liens when they've initiated a modification on the first.
Second liens typically have a higher interest rate than primary mortgages but those second liens will have a lower rate under the modification plan. The interest rate will go at least as low as the interest rate on the first and it will fall much further to get there.
The administration also announced a set of incentives for servicers and lenders participating in the Hope for Homeowners Program, which aims to restore homeowners' lost equity by encouraging lenders to write down loan principal. The administration said it will take steps to incorporate Hope for Homeowners into its loan modification program. Servicers will be required to determine eligibility for a Hope for Homeowners refinancing. Where it proves viable, the servicer would need to offer this option to the borrower.
Under the program, servicers must agree to modify all second mortgages where the first mortgage has already been modified. To qualify for payment, servicers must extend the term of the second mortgage and reduce the interest rate to match the first mortgage. Then, the government will share the cost with the servicer of reducing the rate down to 1% for amortizing loans and 2% for interest-only loans.
Borrowers will receive payments of up to $250 per year for as many as five years if they stay current on the loan. The payments will be applied to pay down principal on the first mortgage.
Changes to the Hope for Homeowners program are designed to place it in line with the taxpayer-assisted loan modifications. Launched last fall to help troubled borrowers refinance into more affordable government-backed loans, it has failed to gain traction due to onerous borrower requirements and the nagging problem of second liens. The administration announced a $2500 up-front payment to servicers that refinance borrowers into the program. Meanwhile, lenders that originate the new loans will receive $1000 a year for three years, as long as the loans stay current.
Officials also say that they will continue to remove other bureaucratic encumbrances and expand incentives where needed to steer more homeowner away from default...a very "Empowering" move...
Under this new program, the government will pay mortgage servicers $500 up front and $250 a year for three years for successfully modifying or erasing a second mortgage, such as a home equity loan. According to a senior administration official, "It will be a shared effort with lenders, investors, borrowers and the government to ease or extinguish second-lien mortgage payments." It is expected that a significant amount of big banks will sign up for the updated federal program to bring relief to troubled homeowners. Once those firms sign necessary contracts, they'll generally be obligated to modify second liens when they've initiated a modification on the first.
Second liens typically have a higher interest rate than primary mortgages but those second liens will have a lower rate under the modification plan. The interest rate will go at least as low as the interest rate on the first and it will fall much further to get there.
The administration also announced a set of incentives for servicers and lenders participating in the Hope for Homeowners Program, which aims to restore homeowners' lost equity by encouraging lenders to write down loan principal. The administration said it will take steps to incorporate Hope for Homeowners into its loan modification program. Servicers will be required to determine eligibility for a Hope for Homeowners refinancing. Where it proves viable, the servicer would need to offer this option to the borrower.
Under the program, servicers must agree to modify all second mortgages where the first mortgage has already been modified. To qualify for payment, servicers must extend the term of the second mortgage and reduce the interest rate to match the first mortgage. Then, the government will share the cost with the servicer of reducing the rate down to 1% for amortizing loans and 2% for interest-only loans.
Borrowers will receive payments of up to $250 per year for as many as five years if they stay current on the loan. The payments will be applied to pay down principal on the first mortgage.
Changes to the Hope for Homeowners program are designed to place it in line with the taxpayer-assisted loan modifications. Launched last fall to help troubled borrowers refinance into more affordable government-backed loans, it has failed to gain traction due to onerous borrower requirements and the nagging problem of second liens. The administration announced a $2500 up-front payment to servicers that refinance borrowers into the program. Meanwhile, lenders that originate the new loans will receive $1000 a year for three years, as long as the loans stay current.
Officials also say that they will continue to remove other bureaucratic encumbrances and expand incentives where needed to steer more homeowner away from default...a very "Empowering" move...
Wednesday, April 29, 2009
Do You Understand Financing?
According to the "Loanable Funds" theory, interest is the price paid for the use of "Loanable Funds". It believes that the rate of interest is determined by the equilibrium between supply and demand of "Loanable Funds" in the credit markets. Supplies of "Loanable Funds" are derived from four basic sources...savings, dishoarding, bank credit, and disinvestment.
Savings by individuals or households constitute the most important source of "Loanable Funds". In the "Loanable funds" theory, savings are looked at in one of two ways. One concept is for savings planned by individuals at the beginning of a period in the hope of expected incomes and projected expenditures on consumption, or secondly, consumption of the present period coupled with savings from the preceding period.
Like individuals, businesses also save. A higher rate of interest return is likely to encourage business savings as a substitute for borrowing from the credit markets. This type of savings from business is often used for investment purposes by the firms themselves. This type of savings often Empowers them so they do not enter the market for "Loanable funds".
Dishoarding is another source of "Loanable Funds". Individuals may dishoard money from the hoarded stock of the previous period. Cash balances, lying idle in a previous period become active balances in the present period and are available as "Loanable Funds". At a higher rate of interest return, more cash will be dishoarded. At a lower rate of interest return, the investor tends to hold on to their cash.
The banking system provides a source of "Loanable Funds". By creating credit, banks can advance loans to the businessman. Banks can also reduce the amount of loanable money by contracting their lending. We have seen this dramatically over the last year with the housing market. Banks raised the ante on credit with respect to lending practices, as they were not getting the rate of return they needed to see due to more defaults and contraction within the housing markets. This ante was noticeable in different ways...higher fees, increased interest rates to borrowers, tightening up the guidelines to extend credit, to name just a few. New money created by banks in a period adds greatly to the supply of loan funds. The supply curve of funds provided by banks is directly proportional to the rates of interest return, as has been further noted within the current housing crisis.
"Loanable Funds" and the "Loanable Funds" theory encompass the different scenarios we have discussed. Having a basic understanding of this concept makes it easier to encapsulate concepts surrounding the mortgage industry and how it operates. Education gives you Knowledge...Knowledge is Empowering...
Savings by individuals or households constitute the most important source of "Loanable Funds". In the "Loanable funds" theory, savings are looked at in one of two ways. One concept is for savings planned by individuals at the beginning of a period in the hope of expected incomes and projected expenditures on consumption, or secondly, consumption of the present period coupled with savings from the preceding period.
Like individuals, businesses also save. A higher rate of interest return is likely to encourage business savings as a substitute for borrowing from the credit markets. This type of savings from business is often used for investment purposes by the firms themselves. This type of savings often Empowers them so they do not enter the market for "Loanable funds".
Dishoarding is another source of "Loanable Funds". Individuals may dishoard money from the hoarded stock of the previous period. Cash balances, lying idle in a previous period become active balances in the present period and are available as "Loanable Funds". At a higher rate of interest return, more cash will be dishoarded. At a lower rate of interest return, the investor tends to hold on to their cash.
The banking system provides a source of "Loanable Funds". By creating credit, banks can advance loans to the businessman. Banks can also reduce the amount of loanable money by contracting their lending. We have seen this dramatically over the last year with the housing market. Banks raised the ante on credit with respect to lending practices, as they were not getting the rate of return they needed to see due to more defaults and contraction within the housing markets. This ante was noticeable in different ways...higher fees, increased interest rates to borrowers, tightening up the guidelines to extend credit, to name just a few. New money created by banks in a period adds greatly to the supply of loan funds. The supply curve of funds provided by banks is directly proportional to the rates of interest return, as has been further noted within the current housing crisis.
"Loanable Funds" and the "Loanable Funds" theory encompass the different scenarios we have discussed. Having a basic understanding of this concept makes it easier to encapsulate concepts surrounding the mortgage industry and how it operates. Education gives you Knowledge...Knowledge is Empowering...
Tuesday, April 28, 2009
Do You Really Understand Loan Terminology?
You know what a mortgage is...how it works, and what to watch out for. However, when you go to ask for assistance with your loan modification, the language you hear from your mortgage broker might as well have come from R2D2 in Star Wars. That is what makes the loan modification process so confusing for many homeowners...why many of them simply give up...a hint to those of us in the business...we should operate on the KISS principal..."Keep It Simple Simon".
You do not have to be a financial expert to make sound decisions. A working knowledge of the lending and loan modification industry can help you better understand your situation , especially knowing what your lenders are talking about. I have listed a number of terms that you will likely come across and what they mean.
Amortization: The repayment of a loan through regular installments. The payments are determined by the term of the loan, the principal balance, and the interest rate.
Annual Percentage Rate (APR): The total cost of the loan, including the interest, mortgage insurance, points, and associated fees.
Adjustable Rate Mortgage (ARM): A type of mortgage in which the interest rate changes according to market conditions. This means your payments may increase or decrease from month to month. Most ARM's have a payment cap that keeps the amount from rising beyond certain levels.
Debt-To-Income Ratio (DTI): The ratio of the amount you pay on the loan to your total income. Lenders use this to determine whether or not you can comfortably pay the loan. According to the Federal Housing Administration (FHA), the mortgage payments should not exceed 29% of your monthly income before taxes, and your total debt including credit cards and other loans should not exceed 41%.
Deed-In-Lieu: A deed that passes interest in your property to your lender as settlement for your debt. It doesn't let you keep your home, but it helps you avoid the foreclosure proceedings and associated costs.
Equity: The amount of financial interest you have in your own property. This is calculated by subtracting the amount you still owe from your home's Fair Market Value.
Fair Market Value (FMV): A theoretical price given to your home considering the current market conditions. The FMV assumes that the buyer and seller are acting freely and have all the pertinent information for the deal.
Fixed Rate Mortgage: A type of mortgage that uses a fixed interest rate throughout the term of the loan. This gives you more stability as a borrower, as your payments will remain the same regardless of the market figures.
Foreclosure: A process wherein your property is sold off and the proceeds go to your tender, allowing them to recover their losses when you default on the the loan.
Forbearance: An agreement in which your lender revises your payment plan to help you get current and avoid foreclosure. This may involve lowering your monthly payments or suspending them for a given period. Unlink loan modification, this is usually temporary and is often used as a loss mitigation option.
Good Faith Estimate (GFE): An estimate of the total cost of the loan, including all the closing fees, lender charges, and insurance costs. All lenders are required to give you a GFE within three days after you apply for a loan.
Interest: A percentage of the principal added to your monthly fees, as a way of paying your lender for the use of money.
Interest Only: A loan structure in which you only pay interest for the life of the loan, and pay the principal only after a given period.
Lien: A claim held by your lender against your property as a form of security in case you default on the loan.
Loan-To-Value Ratio (LTV): The ratio of the total amount you pay on the loan to the actual price of your home. The higher the LTV, the less you have to put out as down payment.
Loss Mitigation: A process that helps borrowers to avoid foreclosure and lenders to minimize their losses on delinquent borrowers. When you fall behind or apply for a loan modification, you lender's loss mitigation department will handle your case and make the decisions.
Mortgage Banker: A firm that resells loans to secondary lenders, such as Fannie Mae and Freddie Mac.
Mortgage Broker: A person or company that serves as a mediator between agents, buyers, sellers, and mortgage lenders. Brokers are paid a percentage of the amount earned by the lender or seller. Lenders are required by law to disclose all fees paid to brokers and other parties. This allows you to be sure they are not making kickbacks at your expense.
Mortgage Insurance: An insurance policy that helps minimize for your lender in case you fail to keep up with payments. This is usually required for borrowers who make a down payment lower than 20% of the purchase price.
Principal Balance Reduction: A type of loan modification in which your lender reduces your principal balance to lower your monthly payments. Lenders usually grant this only to people from heavily depreciated areas, or when the amount they write off is still lower than the cost of foreclosing on your home.
Refinancing: A process wherein you take out one loan to pay off another. this allows you to enjoy better loan terms, such as a lower interest rate or a more stable structure.
Real Estate Settlement Procedures Act (RESPA): This is a law that requires all lenders to give you a GFE of the loan and disclose all the fees involved. It also gives you the right to dispute any fees or even cancel the loan within a reasonable time frame.
Short Sale: A common alternative to foreclosure. In a short sale, you sell the home for less than its fair market value, and give the proceeds to your lender as payment for the home. Although it won't let you keep your home, it's less damaging to your credit than a foreclosure.
Teaser Rate: An introductory interest rate offered on many mortgages to draw in borrowers. After the introductory period, the interest reverts to normal rates, increasing your monthly payments for the rest of the loan.
Truth In Lending Act (TILA): Sometimes this is referred to as the National Consumer Credit Protection Act. This law requires lenders to give you complete information about the terms and total cost of the loan.
It is important for the public to understand these confusing terms. Often we have gone through the loan process never really understanding all the terminology that is thrown at us. Lenders and their agents will speak in this "foreign Language" and it goes right over our heads. When the client gets into a challenging situation financially, they really need to have an understanding of the typical terms used in the industry as they decide upon the best course of action to mitigate their problem...Knowledge is power. Knowledge is "Empowering".
You do not have to be a financial expert to make sound decisions. A working knowledge of the lending and loan modification industry can help you better understand your situation , especially knowing what your lenders are talking about. I have listed a number of terms that you will likely come across and what they mean.
Amortization: The repayment of a loan through regular installments. The payments are determined by the term of the loan, the principal balance, and the interest rate.
Annual Percentage Rate (APR): The total cost of the loan, including the interest, mortgage insurance, points, and associated fees.
Adjustable Rate Mortgage (ARM): A type of mortgage in which the interest rate changes according to market conditions. This means your payments may increase or decrease from month to month. Most ARM's have a payment cap that keeps the amount from rising beyond certain levels.
Debt-To-Income Ratio (DTI): The ratio of the amount you pay on the loan to your total income. Lenders use this to determine whether or not you can comfortably pay the loan. According to the Federal Housing Administration (FHA), the mortgage payments should not exceed 29% of your monthly income before taxes, and your total debt including credit cards and other loans should not exceed 41%.
Deed-In-Lieu: A deed that passes interest in your property to your lender as settlement for your debt. It doesn't let you keep your home, but it helps you avoid the foreclosure proceedings and associated costs.
Equity: The amount of financial interest you have in your own property. This is calculated by subtracting the amount you still owe from your home's Fair Market Value.
Fair Market Value (FMV): A theoretical price given to your home considering the current market conditions. The FMV assumes that the buyer and seller are acting freely and have all the pertinent information for the deal.
Fixed Rate Mortgage: A type of mortgage that uses a fixed interest rate throughout the term of the loan. This gives you more stability as a borrower, as your payments will remain the same regardless of the market figures.
Foreclosure: A process wherein your property is sold off and the proceeds go to your tender, allowing them to recover their losses when you default on the the loan.
Forbearance: An agreement in which your lender revises your payment plan to help you get current and avoid foreclosure. This may involve lowering your monthly payments or suspending them for a given period. Unlink loan modification, this is usually temporary and is often used as a loss mitigation option.
Good Faith Estimate (GFE): An estimate of the total cost of the loan, including all the closing fees, lender charges, and insurance costs. All lenders are required to give you a GFE within three days after you apply for a loan.
Interest: A percentage of the principal added to your monthly fees, as a way of paying your lender for the use of money.
Interest Only: A loan structure in which you only pay interest for the life of the loan, and pay the principal only after a given period.
Lien: A claim held by your lender against your property as a form of security in case you default on the loan.
Loan-To-Value Ratio (LTV): The ratio of the total amount you pay on the loan to the actual price of your home. The higher the LTV, the less you have to put out as down payment.
Loss Mitigation: A process that helps borrowers to avoid foreclosure and lenders to minimize their losses on delinquent borrowers. When you fall behind or apply for a loan modification, you lender's loss mitigation department will handle your case and make the decisions.
Mortgage Banker: A firm that resells loans to secondary lenders, such as Fannie Mae and Freddie Mac.
Mortgage Broker: A person or company that serves as a mediator between agents, buyers, sellers, and mortgage lenders. Brokers are paid a percentage of the amount earned by the lender or seller. Lenders are required by law to disclose all fees paid to brokers and other parties. This allows you to be sure they are not making kickbacks at your expense.
Mortgage Insurance: An insurance policy that helps minimize for your lender in case you fail to keep up with payments. This is usually required for borrowers who make a down payment lower than 20% of the purchase price.
Principal Balance Reduction: A type of loan modification in which your lender reduces your principal balance to lower your monthly payments. Lenders usually grant this only to people from heavily depreciated areas, or when the amount they write off is still lower than the cost of foreclosing on your home.
Refinancing: A process wherein you take out one loan to pay off another. this allows you to enjoy better loan terms, such as a lower interest rate or a more stable structure.
Real Estate Settlement Procedures Act (RESPA): This is a law that requires all lenders to give you a GFE of the loan and disclose all the fees involved. It also gives you the right to dispute any fees or even cancel the loan within a reasonable time frame.
Short Sale: A common alternative to foreclosure. In a short sale, you sell the home for less than its fair market value, and give the proceeds to your lender as payment for the home. Although it won't let you keep your home, it's less damaging to your credit than a foreclosure.
Teaser Rate: An introductory interest rate offered on many mortgages to draw in borrowers. After the introductory period, the interest reverts to normal rates, increasing your monthly payments for the rest of the loan.
Truth In Lending Act (TILA): Sometimes this is referred to as the National Consumer Credit Protection Act. This law requires lenders to give you complete information about the terms and total cost of the loan.
It is important for the public to understand these confusing terms. Often we have gone through the loan process never really understanding all the terminology that is thrown at us. Lenders and their agents will speak in this "foreign Language" and it goes right over our heads. When the client gets into a challenging situation financially, they really need to have an understanding of the typical terms used in the industry as they decide upon the best course of action to mitigate their problem...Knowledge is power. Knowledge is "Empowering".
Monday, April 27, 2009
How Long Will It Take To Complete My Loan Modification...
I hear this question all the time. When an individual contacts me about loan modification, I always get this question posed to me. Understandably so, when homeowners are going through the loan modification process, they are antsy and stressed out from financial challenges. Sometimes they are even a little hostile.
Not only do homeowners wonder "how long will it be before I hear something?", but they often wonder "what should I do while I am waiting?"
Loan modification can take anywhere from 15-90 days. We have seen certain lenders get right at it and complete the process in as little as 15 days, while others take much longer...up to 90 days. It depends on the level of efficiency of the lender as well as how many modification applications they are processing. There is no exact science to the process. It also depends on each client's situation. The more complex and involved the situation is, the longer it will take to complete. borrowers with a lot of collateral issues will take longer to process.
This is an even more important reason to retain the services of a loan modification professional to handle your case. The professional will assemble and format the application and supporting documentation in a format that the lender wants. This will decrease the time factor and increase the chances that your loan will come back with a positive modification proposal. Also, when submitting the proposal to the lender, we always ask for a lot, but do it in a manner that will make sense to the lender, thus increasing the chances that a positive loan modification proposal will be returned from the lender. The professional can find out from the lender the "best" and "worst" case scenario for a time factor, so the client will have some idea as to when they might be hearing back from the lender.
It is always a good idea to get a specific name, a number, and an extension of the lender's agent for future reference. Get their employee ID if possible, especially if specific information was divulged or promises made. If you hire a loan modification professional, be advised...the lender will still call you. When this happens, let the lender know that you have a loan modification professional representing you and that they should direct all calls and correspondence to them. Give the lender the contact information of the professional representing you.
If you are handling the case yourself, be sure to log all phone calls...date, time, and the person or persons you spoke with along with a detailed but concise account of what was discussed. Keep track of important dates. If you do not hear something back on the date provided, call the next day to find out what is going on. Lenders rarely call you back with updates. If you hire a professional to handle your case, they will call the lender and then relay the updates to you. At Credit Capital Solutions, we provide a live link that the customer, the consultant and corporate all have access to, that provides "real time" updates.
Explore other options as well. Have a Plan B & C in mind as well, for a back-up. If you are denied, short sale or foreclosure are options that you are going to explore, so doing some homework ahead of time will alleviate you of stress and time.
Consult a real estate professional for options that make sense if loan modification does not work for your situation.
Do not be surprised if you continue to get delinquent notices or late payment phone calls. Lenders rarely put a stop on the foreclosure process until a workout solution is fully in place. You should ask your lender if your attempts to negotiate a solution will stop or at least postpone other collection actions. If they do not, you should find out what that means for you. Keep track of your time lines with respect to the foreclosure process. Push to have all foreclosure proceedings stopped by the lender until a final decision is complete on the modification process.
When the final decision is in someone else's hands, 15-90 days can seem like an eternity. By remaining proactive, informed, and exploring other options, you not only improve your chances of a positive outcome, but your stress level will remain lower. By doing this you "Empower Yourself".
Not only do homeowners wonder "how long will it be before I hear something?", but they often wonder "what should I do while I am waiting?"
Loan modification can take anywhere from 15-90 days. We have seen certain lenders get right at it and complete the process in as little as 15 days, while others take much longer...up to 90 days. It depends on the level of efficiency of the lender as well as how many modification applications they are processing. There is no exact science to the process. It also depends on each client's situation. The more complex and involved the situation is, the longer it will take to complete. borrowers with a lot of collateral issues will take longer to process.
This is an even more important reason to retain the services of a loan modification professional to handle your case. The professional will assemble and format the application and supporting documentation in a format that the lender wants. This will decrease the time factor and increase the chances that your loan will come back with a positive modification proposal. Also, when submitting the proposal to the lender, we always ask for a lot, but do it in a manner that will make sense to the lender, thus increasing the chances that a positive loan modification proposal will be returned from the lender. The professional can find out from the lender the "best" and "worst" case scenario for a time factor, so the client will have some idea as to when they might be hearing back from the lender.
It is always a good idea to get a specific name, a number, and an extension of the lender's agent for future reference. Get their employee ID if possible, especially if specific information was divulged or promises made. If you hire a loan modification professional, be advised...the lender will still call you. When this happens, let the lender know that you have a loan modification professional representing you and that they should direct all calls and correspondence to them. Give the lender the contact information of the professional representing you.
If you are handling the case yourself, be sure to log all phone calls...date, time, and the person or persons you spoke with along with a detailed but concise account of what was discussed. Keep track of important dates. If you do not hear something back on the date provided, call the next day to find out what is going on. Lenders rarely call you back with updates. If you hire a professional to handle your case, they will call the lender and then relay the updates to you. At Credit Capital Solutions, we provide a live link that the customer, the consultant and corporate all have access to, that provides "real time" updates.
Explore other options as well. Have a Plan B & C in mind as well, for a back-up. If you are denied, short sale or foreclosure are options that you are going to explore, so doing some homework ahead of time will alleviate you of stress and time.
Consult a real estate professional for options that make sense if loan modification does not work for your situation.
Do not be surprised if you continue to get delinquent notices or late payment phone calls. Lenders rarely put a stop on the foreclosure process until a workout solution is fully in place. You should ask your lender if your attempts to negotiate a solution will stop or at least postpone other collection actions. If they do not, you should find out what that means for you. Keep track of your time lines with respect to the foreclosure process. Push to have all foreclosure proceedings stopped by the lender until a final decision is complete on the modification process.
When the final decision is in someone else's hands, 15-90 days can seem like an eternity. By remaining proactive, informed, and exploring other options, you not only improve your chances of a positive outcome, but your stress level will remain lower. By doing this you "Empower Yourself".
Sunday, April 26, 2009
The Young and Empowered Real Estate Investor
Today's young and Empowered real estate investor's are very internet savvy. Some refer tho them as "Internet Empowered Consumers" (IEC). This group, born no earlier than the 1980's are also known as "Generation Y". They have a different mind set than older generations. They were born and raised on computers and the internet. They do their research ahead of time. They educate themselves ahead of time. They appreciate you if you take the time to share your knowledge and expertise with them, but they do not like the "hard-sell" approach. They like to be in control.
IEC's want control, so let them have it. Due to the anonymity factor, the online customer is in control and enjoys that position. The more you attempt to control the situation, the more you will push them away.
IEC's value their privacy. Make sure that you clearly reinforce that client privacy is top priority within every member of your team.
Few IEC's are ready to buy or sell. Some have estimated that 19 our of 20 internet leads are from consumers who are in the information-gathering stage. They are not ready to clearly define their needs. You can win their trust and their business, but you must nurture them through the process to completion of the transaction.
The Generation Y group is tomorrow's home buyers. As a real estate professional, you must learn to adapt to their needs in order to reach them. If you intend to rigidly stick to your old "tried and true" marketing methods, you will attract and hang on to very few of these clients. They expect instant results. They are used to text messaging, IM's, and emails through various avenues, so they expect instant communication. They use social media networks, like MySpace, Facebook, Squidoo, and Twitter. They use Blackberry's, IPHONE's, and various other similar communication devices that provide real time connections. They read blogs, they research homes online, they are always connected and do not want to hear "pitches".
To entice and deal with this type of customer, you must think outside the box. Stop being so concerned with the immediate "sale" This is your long term play. They will also communicate to all their friends how good or how poor your service is...they can build you a network of business referrals and clients that will bring your business residual income for years to come...Empowering Your Life.
IEC's want control, so let them have it. Due to the anonymity factor, the online customer is in control and enjoys that position. The more you attempt to control the situation, the more you will push them away.
IEC's value their privacy. Make sure that you clearly reinforce that client privacy is top priority within every member of your team.
Few IEC's are ready to buy or sell. Some have estimated that 19 our of 20 internet leads are from consumers who are in the information-gathering stage. They are not ready to clearly define their needs. You can win their trust and their business, but you must nurture them through the process to completion of the transaction.
The Generation Y group is tomorrow's home buyers. As a real estate professional, you must learn to adapt to their needs in order to reach them. If you intend to rigidly stick to your old "tried and true" marketing methods, you will attract and hang on to very few of these clients. They expect instant results. They are used to text messaging, IM's, and emails through various avenues, so they expect instant communication. They use social media networks, like MySpace, Facebook, Squidoo, and Twitter. They use Blackberry's, IPHONE's, and various other similar communication devices that provide real time connections. They read blogs, they research homes online, they are always connected and do not want to hear "pitches".
To entice and deal with this type of customer, you must think outside the box. Stop being so concerned with the immediate "sale" This is your long term play. They will also communicate to all their friends how good or how poor your service is...they can build you a network of business referrals and clients that will bring your business residual income for years to come...Empowering Your Life.
Thursday, April 23, 2009
Sub-Prime Mortgages...The Good, The Bad, The Ugly...
Sub-prime lending is a type of credit given to a homeowner who do not meet the criteria for regular or "prime" type loans. A typical sub-prime borrower has a poor or limited credit history and a FICO score below 620. These factors make them a risky investment for regular lenders, which keeps them from taking out loans. To compensate for the risk, sub-prime lenders impose higher cost on their contracts. For credit cards, this is usually a higher fee for over-the-limit spending or late fees. Sub-prime mortgages usually have higher interest rates and stricter terms.
Historically, sub-prime lending has not always been a perfectly legal business. From 2003-2007, sub-prime lending was subject to predatory lending practices by various shady lenders who turned up offering terms ranging from unfair to downright illegal. This along with the economic slowdown has contributed a great deal to the real estate crisis that forced many homeowners into foreclosure.
Not all sub-prime loans and lenders are bad. There are many who give you good value for your money. If you find a good lender and stay current, sub-prime lending can have its benefits. An example would be that some people use sub-prime lending to repair their credit and improve their FICO score. By keeping a good track record with sub-prime lending, it gives you the chance to eventually refinance to better terms.
Sub-prime loans have...higher costs,interest rates, origination fees, and closing fees, compared with prime type loans. Although the basic formula is the same, the higher costs are directly related to an increase in risk. Sub-prime loans also are noted for prepayment penalties. The prepenalty is usually associated with paying extra each month or paying off the loan early. This makes up for the lost interest on the lender's part. The lender will get heir fees one way or another.
Many sub-prime lenders follow the 2/28 structure. This means that you pay a fixed interest rate for the first two years, after which the loan switches to an adjustable rate where your payments are determined by market indicators. Often the introductory rate is higher than the current index and margin is applied once the loan shifts. For example, a lender can give you an intro rate of 8% while the index is currently at 4%, with the margins set at 6%. Assuming the index stays the same, your rate can jump to 10% when your two year is over.
There are laws in place to protect homeowners from predatory lending practices. Theses laws apply to any type of mortgage. The Real Estate Settlement Procedures Act (RESPA) requires all lender to give you a good faith estimate of the total cost of the loan before closing any deal. All mortgages are also covered under the Truth In Lending Act (TILA). This law gives you the right to know the full lending terms and loan costs in any credit transaction, including credit cards. TILA allows you to opt out of a transaction within a reasonable time period if you do not agree with some of the terms.
If a sub-prime mortgage has put you in financial difficulty, another option is loan modification. We have previously discussed loan modification in detail, but thee is one thing to add with relation to sub-prime that is an important thing to consider. As I mentioned earlier, sub-prime lending has been subject to numerous predatory lending practices over the years. If you are in financial trouble with your sub-prime mortgage, you would be wise to consider loan modification. At the same time, have your loan modification professional look at your original loan documents to see if there is any evidence of previous wrongdoing. Although a loan modification professional is not a legal person nor is authorized to give legal advice, often they can tell if something looks suspicious. If they see something unusual, they can refer that you contact and consult with an attorney that specializes in RESPA & TILA, who will review your case and advise you on the best course of action, whether to consider litigation against the lender or just to continue with the modification process...
Historically, sub-prime lending has not always been a perfectly legal business. From 2003-2007, sub-prime lending was subject to predatory lending practices by various shady lenders who turned up offering terms ranging from unfair to downright illegal. This along with the economic slowdown has contributed a great deal to the real estate crisis that forced many homeowners into foreclosure.
Not all sub-prime loans and lenders are bad. There are many who give you good value for your money. If you find a good lender and stay current, sub-prime lending can have its benefits. An example would be that some people use sub-prime lending to repair their credit and improve their FICO score. By keeping a good track record with sub-prime lending, it gives you the chance to eventually refinance to better terms.
Sub-prime loans have...higher costs,interest rates, origination fees, and closing fees, compared with prime type loans. Although the basic formula is the same, the higher costs are directly related to an increase in risk. Sub-prime loans also are noted for prepayment penalties. The prepenalty is usually associated with paying extra each month or paying off the loan early. This makes up for the lost interest on the lender's part. The lender will get heir fees one way or another.
Many sub-prime lenders follow the 2/28 structure. This means that you pay a fixed interest rate for the first two years, after which the loan switches to an adjustable rate where your payments are determined by market indicators. Often the introductory rate is higher than the current index and margin is applied once the loan shifts. For example, a lender can give you an intro rate of 8% while the index is currently at 4%, with the margins set at 6%. Assuming the index stays the same, your rate can jump to 10% when your two year is over.
There are laws in place to protect homeowners from predatory lending practices. Theses laws apply to any type of mortgage. The Real Estate Settlement Procedures Act (RESPA) requires all lender to give you a good faith estimate of the total cost of the loan before closing any deal. All mortgages are also covered under the Truth In Lending Act (TILA). This law gives you the right to know the full lending terms and loan costs in any credit transaction, including credit cards. TILA allows you to opt out of a transaction within a reasonable time period if you do not agree with some of the terms.
If a sub-prime mortgage has put you in financial difficulty, another option is loan modification. We have previously discussed loan modification in detail, but thee is one thing to add with relation to sub-prime that is an important thing to consider. As I mentioned earlier, sub-prime lending has been subject to numerous predatory lending practices over the years. If you are in financial trouble with your sub-prime mortgage, you would be wise to consider loan modification. At the same time, have your loan modification professional look at your original loan documents to see if there is any evidence of previous wrongdoing. Although a loan modification professional is not a legal person nor is authorized to give legal advice, often they can tell if something looks suspicious. If they see something unusual, they can refer that you contact and consult with an attorney that specializes in RESPA & TILA, who will review your case and advise you on the best course of action, whether to consider litigation against the lender or just to continue with the modification process...
Wednesday, April 22, 2009
Time to Buy...Housing Market at Historic Lows...
With the current contraction in our global economy spurned by the housing bubble, housing prices are at 10 year lows. Mortgage rates have fallen to rates we have not seen in over a decade. Currently, there is an incentive plan for first time buyers (individuals who have not owned a house within last three years) that if you purchase a home before October of 2009, you can appreciate an $8000 tax credit.
SalesTraq has reported that the median price of an existing home in March of 2009, in Las Vegas, was $134,900...a 41.3% decline from the same month a year ago. Sales of existing homes increased by 85.6% during the at month to 3626 recorded closings. However, 66% of these closings were foreclosed properties.
Most insiders feel that in Las Vegas, we will hit the bottom toward the end of 4th quarter of this year. Then we may see some positive growth toward second quarter of next year. Short sales will become a prominent factor as bank-owned properties are taken off the market. The Mortgage Bankers Association forecasts a steady increase in home sales beginning in the second quarter.
If you are a first time buyer...now is the time. Interest rates are between 4-5% fixed. FHA down payment requirement is at 3%. Conventional mortgage down payment requirement is 5%. Those coupled with low interest rates, and first time home buyer tax credit...make for an amazing opportunity to own your own home.
If you are in need of a new home, home mortgage, or loan modification, contact me directly...our teams of professionals can help..."Empower You Life".
SalesTraq has reported that the median price of an existing home in March of 2009, in Las Vegas, was $134,900...a 41.3% decline from the same month a year ago. Sales of existing homes increased by 85.6% during the at month to 3626 recorded closings. However, 66% of these closings were foreclosed properties.
Most insiders feel that in Las Vegas, we will hit the bottom toward the end of 4th quarter of this year. Then we may see some positive growth toward second quarter of next year. Short sales will become a prominent factor as bank-owned properties are taken off the market. The Mortgage Bankers Association forecasts a steady increase in home sales beginning in the second quarter.
If you are a first time buyer...now is the time. Interest rates are between 4-5% fixed. FHA down payment requirement is at 3%. Conventional mortgage down payment requirement is 5%. Those coupled with low interest rates, and first time home buyer tax credit...make for an amazing opportunity to own your own home.
If you are in need of a new home, home mortgage, or loan modification, contact me directly...our teams of professionals can help..."Empower You Life".
Monday, April 20, 2009
Five Key Points For A Good Loan Modification "Hardship" Letter
A "hardship letter" is a key component and requirement of the loan modification process. A "hardship letter" can also be crafted for requesting the lender to approve a "short sale". We will discuss how this relates to the loan modification process.
One of the first things we discuss with each new client is to ask them what type of "hardship" they are encountering? If they fall into the category that reflects the qualification for loan modification, we tell them that they will have to write a letter describing their "hardship".
When writing a "hardship letter" for a home loan modification, keep in mind that the lenders really want to see why you have fallen behind with your mortgage payments. It should be clear, honest, and contain just the right amount of detail. The way you write it can literally spell the difference between keeping and losing your home. Here's how you can write a hardship letter that puts your point across and gets you the best loan modification deal.
1.] Keep it concise. A typical lender can only spend five minutes reading your letter. Try to keep it to a single page. Any longer and they might not have time to really read it through. Lose all unnecessary detail and keep only those that are relevant to your case.
2.] Get Straight to the Point. Start by stating the purpose of your letter, so that the reader knows outright what to expect. Basically, it should say "I need you to buy my home/restructure my mortgage/give me a lower interest rate," in a way that compels them to find out why. You can use the succeeding paragraphs to explain it in more detail.
3.] Explain your hardship. First, make sure you problem actually qualifies as a financial hardship. Your goal is to convince your bank that you have no other means of mortgage assistance, and that you can get back on track if they do grant your request. Hardship can be any of the following:
A.] Loss or reduction of income.
B.] Natural disasters.
C.] Illness and medical expenses.
D.] Death of a family member or co-borrower
E.] Divorce, separation, or other legal expenses.
F.] Military service
It doesn't have to be one of these things, of course. Each lender has its own standards, and the letter's purpose is to give them a more personal look into your situation. Once you have established your hardship, provide details that will help strengthen your case. Make sure to tell them how you got into the situation and why it's our of your control.
4.] Restate your case. end your letter by reiterating your purpose, in slightly different words. Ideally, your previous paragraphs should explain that it's the only way to stop foreclosure. Make it clear that you intend to get back to your regular payments once the loan has been modified.
5.] Be humble. One thing you should never do is imply that your situation is your lender's fault. Instead of pinning the blame on anyone, simply tell things as they are and leave the judgment to your reader. Finally, thank them in advance and mention that you are looking forward to continuing business with them.
Following these simple, but clear guidelines for writing the "hardship letter" is "Empowering". It will make a major difference in whether you are able to successfully complete the loan modification process.
One of the first things we discuss with each new client is to ask them what type of "hardship" they are encountering? If they fall into the category that reflects the qualification for loan modification, we tell them that they will have to write a letter describing their "hardship".
When writing a "hardship letter" for a home loan modification, keep in mind that the lenders really want to see why you have fallen behind with your mortgage payments. It should be clear, honest, and contain just the right amount of detail. The way you write it can literally spell the difference between keeping and losing your home. Here's how you can write a hardship letter that puts your point across and gets you the best loan modification deal.
1.] Keep it concise. A typical lender can only spend five minutes reading your letter. Try to keep it to a single page. Any longer and they might not have time to really read it through. Lose all unnecessary detail and keep only those that are relevant to your case.
2.] Get Straight to the Point. Start by stating the purpose of your letter, so that the reader knows outright what to expect. Basically, it should say "I need you to buy my home/restructure my mortgage/give me a lower interest rate," in a way that compels them to find out why. You can use the succeeding paragraphs to explain it in more detail.
3.] Explain your hardship. First, make sure you problem actually qualifies as a financial hardship. Your goal is to convince your bank that you have no other means of mortgage assistance, and that you can get back on track if they do grant your request. Hardship can be any of the following:
A.] Loss or reduction of income.
B.] Natural disasters.
C.] Illness and medical expenses.
D.] Death of a family member or co-borrower
E.] Divorce, separation, or other legal expenses.
F.] Military service
It doesn't have to be one of these things, of course. Each lender has its own standards, and the letter's purpose is to give them a more personal look into your situation. Once you have established your hardship, provide details that will help strengthen your case. Make sure to tell them how you got into the situation and why it's our of your control.
4.] Restate your case. end your letter by reiterating your purpose, in slightly different words. Ideally, your previous paragraphs should explain that it's the only way to stop foreclosure. Make it clear that you intend to get back to your regular payments once the loan has been modified.
5.] Be humble. One thing you should never do is imply that your situation is your lender's fault. Instead of pinning the blame on anyone, simply tell things as they are and leave the judgment to your reader. Finally, thank them in advance and mention that you are looking forward to continuing business with them.
Following these simple, but clear guidelines for writing the "hardship letter" is "Empowering". It will make a major difference in whether you are able to successfully complete the loan modification process.
Saturday, April 18, 2009
Loan Modification...What Is The Best Option For You?
When considering a loan modification, homeowners have several choices available for the processing aspect of the modification. You can do it yourself. You can retain the services of an attorney, or you can retain the services of a professional loan modification company. There are pros and cons to each of these choices like any other situation in life, and it is best to understand these three options so you can make an informed decision that best fits your needs.
You can do the loan modification yourself. If you choose to do the loan modification yourself, you need to be prepared. First, have all your paperwork ready. Check with your lender to see what they require. They all will require basic financial information such as; bank statements, W-2's, and tax returns, etc... You should also review these documents carefully to understand your current situation. After that, contact the bank to initiate your first conversation to see if you qualify. If you do, you will have to write a hardship letter that can be documented...one that is brief and factual. Always include in this letter how you plan to pay back the loan. You must be prepared to spend a lot of time on the phone. Lenders are not so apt to want to deal with the homeowner, as they have the position of power, and the homeowner is usually very stressed and nervous, due to their financial situation.
You can retain the services of an attorney to assist you through this process. They typically will require a retainer of at least $3500.00 to take your case. This maybe a good idea if you are concerned that there is something wrong with your loan...either a RESPA or TILA violation. Any loans taken out from 2005-2007 could have structuring problems that would cause the validity of the mortgage to be questioned. Attorneys understand these issues and can advise you on your particular mortgage. However, to the budget of an already cash-strapped family, this might be more than they can tolerate financially.
A professional loan modification company gives you a more cost effective alternative. They will handle the paperwork as well as all negotiations with the lender. At our firm, we ask that the client say nothing to the lender...only that they have retained our services and that all communication needs to go through us. Overall, professional loan modification companies make the process much less stressful for the client, is a more cost-effective alternative to attorneys and creates an environment where the client feels safe and secure. The downside is that there are a lot of unscrupulous individuals out there to take advantage of the public. Do your research. Be Empowered...ask for referrals. Check with your state to see who has jurisdiction over loan modification. Find out if the firm you choose to retain has had any complaints registered against them.
We have sat and spoken to various bankruptcy attorneys on numerous occasions. We asked them what they do differently than what we do to assist the client with loan modification. The answer is always the same. We were always told that we do the same things that attorneys do...who charge significantly more for their services.
At Credit Capital Solutions, we have an attorney on staff. We have strict protocols to protect the client. We do not take money up front...as many firms choose to do. In Nevada, it is against state law for a loan modification professional to take money up front for services to be rendered. Only an attorney can do this and it is in the form of a retainer.
Whatever way you choose to move ahead with your loan modification, make sure that you understand the facts, your options, and potential negative ramifications. Make educated and informed decisions...Empower Yourself!
You can do the loan modification yourself. If you choose to do the loan modification yourself, you need to be prepared. First, have all your paperwork ready. Check with your lender to see what they require. They all will require basic financial information such as; bank statements, W-2's, and tax returns, etc... You should also review these documents carefully to understand your current situation. After that, contact the bank to initiate your first conversation to see if you qualify. If you do, you will have to write a hardship letter that can be documented...one that is brief and factual. Always include in this letter how you plan to pay back the loan. You must be prepared to spend a lot of time on the phone. Lenders are not so apt to want to deal with the homeowner, as they have the position of power, and the homeowner is usually very stressed and nervous, due to their financial situation.
You can retain the services of an attorney to assist you through this process. They typically will require a retainer of at least $3500.00 to take your case. This maybe a good idea if you are concerned that there is something wrong with your loan...either a RESPA or TILA violation. Any loans taken out from 2005-2007 could have structuring problems that would cause the validity of the mortgage to be questioned. Attorneys understand these issues and can advise you on your particular mortgage. However, to the budget of an already cash-strapped family, this might be more than they can tolerate financially.
A professional loan modification company gives you a more cost effective alternative. They will handle the paperwork as well as all negotiations with the lender. At our firm, we ask that the client say nothing to the lender...only that they have retained our services and that all communication needs to go through us. Overall, professional loan modification companies make the process much less stressful for the client, is a more cost-effective alternative to attorneys and creates an environment where the client feels safe and secure. The downside is that there are a lot of unscrupulous individuals out there to take advantage of the public. Do your research. Be Empowered...ask for referrals. Check with your state to see who has jurisdiction over loan modification. Find out if the firm you choose to retain has had any complaints registered against them.
We have sat and spoken to various bankruptcy attorneys on numerous occasions. We asked them what they do differently than what we do to assist the client with loan modification. The answer is always the same. We were always told that we do the same things that attorneys do...who charge significantly more for their services.
At Credit Capital Solutions, we have an attorney on staff. We have strict protocols to protect the client. We do not take money up front...as many firms choose to do. In Nevada, it is against state law for a loan modification professional to take money up front for services to be rendered. Only an attorney can do this and it is in the form of a retainer.
Whatever way you choose to move ahead with your loan modification, make sure that you understand the facts, your options, and potential negative ramifications. Make educated and informed decisions...Empower Yourself!
Thursday, April 16, 2009
Obama's Home Affordability Loan Modification Program Part 3
In my two previous posts, I discussed the concept that wraps the Obama "Making Home Affordable Loan Modification Program" along with details of "Making Home Affordable" as well as "Eligibility and Verification". Today, I will discuss the 3rd and 4th aspects of the plan..."Loan Modification Terms and Procedures" as well as "Transparency and Accountability".
3.] Loan Modification Terms and Procedures
A.] Participating servicers are required to service all eligible loans under the rules of the program unless explicitly prohibited by contract; servicers are required to use reasonable efforts to obtain waiver of limits on participation.
B.] Participating loan servicers will be required to use a net present value (NPV) test on each loan that is at risk of imminent default or at least 60 days delinquent. The NPV test will compare the net present value of cash flows with modification and without modification. If the test is positive..i.e. meaning that the net present value of expected cash flow is greater in the modification scenario...the servicer must modify, absent of fraud or a contract prohibition.
C.] Parameters of the NPV test are spelled out in the guidelines, including acceptable discount rates, property valuation methodologies, home price appreciation, assumptions, foreclosure costs, time-lines, and borrower cure and re-default rate assumptions.
D.] Servicers will follow a specified sequence of steps in order to reduce the monthly payment to no more than 31% of gross monthly income (DTI).
E.] The modification sequence requires first reducing the interest rate (subject to a rate floor of 2%), then if necessary extending the term of amortization of the loan up to a maximum of 40 years. If necessary "Forbearance" fo the principal can be effected. Principal Forgiveness or a Hope for Homeowners refinancing are acceptable alternatives.
F.] The monthly payment includes principal, interest, taxes, insurance, flood insurance, homeowner's association and/or condominium fees. Monthly income includes wages, salary, overtime, fees, commissions, tips, social security, pensions, and all other income.
G.] Servicers must enter into the program agreements with Treasury's financial agent on or before December 31, 2009.
H.] Payments to servicers, lenders, and responsible borrowers.
I.] The program will share with the lender/investor the cost of reductions in monthly payments from 38% to 31% DTI.
J.] Servicers that modify loans according to the guidelines will receive an up-front fee of $1000.00 for each modification, plus "pay for success" fees on still-performing loans of $1000/year.
K.] Homeowners who make their payments on time are eligible for up to $1000 of principal reduction payments each year for up to 5 years.
L.] The program will provide one-time bonus incentive payments of $1500 to lender/investors and $500 to servicers for modification made while a borrower is still current on mortgage payments.
M.] The program will include incentives for extinguishing second liens on loans modified under this program.
N.] No payments will be made under the program to the lender/investor, servicer, or borrower unless and until the servicer has first entered into the program agreements with Treasury's financial agent.
O.] Similar incentives will be paid for Hope for Homeowner refinances.
4.] Transparency and Accountability
A.] Measures to prevent and detect fraud, such as documentation and audit requirements, will be central to the program.
B.] Servicers will be required to collect, maintain and transmit records for verification and compliance review, including borrower eligibility, underwriting, incentive payments, property verification, and other documentation.
C.] Freddie Mac will audit compliance.
The guidelines are detailed. They are set to protect all parties. Homeowners can effect the transactions themselves, however it is advisable to retain the services of a qualified loan modification professional who will have the expertise to expedite the process and avoid any pitfalls that the individual homeowner is likely to stumble upon. The goal here is to ensure that each homeowner gets the best chance possible to stay in their homes. Other than the personal benefit of being "Empowered", by being able to remain in their homes...each home loan that is successfully modified will help to insure that our economy begins to stabilize and grow. This will "Empower" each of us...
3.] Loan Modification Terms and Procedures
A.] Participating servicers are required to service all eligible loans under the rules of the program unless explicitly prohibited by contract; servicers are required to use reasonable efforts to obtain waiver of limits on participation.
B.] Participating loan servicers will be required to use a net present value (NPV) test on each loan that is at risk of imminent default or at least 60 days delinquent. The NPV test will compare the net present value of cash flows with modification and without modification. If the test is positive..i.e. meaning that the net present value of expected cash flow is greater in the modification scenario...the servicer must modify, absent of fraud or a contract prohibition.
C.] Parameters of the NPV test are spelled out in the guidelines, including acceptable discount rates, property valuation methodologies, home price appreciation, assumptions, foreclosure costs, time-lines, and borrower cure and re-default rate assumptions.
D.] Servicers will follow a specified sequence of steps in order to reduce the monthly payment to no more than 31% of gross monthly income (DTI).
E.] The modification sequence requires first reducing the interest rate (subject to a rate floor of 2%), then if necessary extending the term of amortization of the loan up to a maximum of 40 years. If necessary "Forbearance" fo the principal can be effected. Principal Forgiveness or a Hope for Homeowners refinancing are acceptable alternatives.
F.] The monthly payment includes principal, interest, taxes, insurance, flood insurance, homeowner's association and/or condominium fees. Monthly income includes wages, salary, overtime, fees, commissions, tips, social security, pensions, and all other income.
G.] Servicers must enter into the program agreements with Treasury's financial agent on or before December 31, 2009.
H.] Payments to servicers, lenders, and responsible borrowers.
I.] The program will share with the lender/investor the cost of reductions in monthly payments from 38% to 31% DTI.
J.] Servicers that modify loans according to the guidelines will receive an up-front fee of $1000.00 for each modification, plus "pay for success" fees on still-performing loans of $1000/year.
K.] Homeowners who make their payments on time are eligible for up to $1000 of principal reduction payments each year for up to 5 years.
L.] The program will provide one-time bonus incentive payments of $1500 to lender/investors and $500 to servicers for modification made while a borrower is still current on mortgage payments.
M.] The program will include incentives for extinguishing second liens on loans modified under this program.
N.] No payments will be made under the program to the lender/investor, servicer, or borrower unless and until the servicer has first entered into the program agreements with Treasury's financial agent.
O.] Similar incentives will be paid for Hope for Homeowner refinances.
4.] Transparency and Accountability
A.] Measures to prevent and detect fraud, such as documentation and audit requirements, will be central to the program.
B.] Servicers will be required to collect, maintain and transmit records for verification and compliance review, including borrower eligibility, underwriting, incentive payments, property verification, and other documentation.
C.] Freddie Mac will audit compliance.
The guidelines are detailed. They are set to protect all parties. Homeowners can effect the transactions themselves, however it is advisable to retain the services of a qualified loan modification professional who will have the expertise to expedite the process and avoid any pitfalls that the individual homeowner is likely to stumble upon. The goal here is to ensure that each homeowner gets the best chance possible to stay in their homes. Other than the personal benefit of being "Empowered", by being able to remain in their homes...each home loan that is successfully modified will help to insure that our economy begins to stabilize and grow. This will "Empower" each of us...
Wednesday, April 15, 2009
Obama's Home Affordability Loan Modification Program Part 2
The Obama Plan has a number of provisions to assist homeowners who are responsible, but are exhibiting hardships. We will discuss 2 segments of the plan and how they are broken down...
1.] Making Home Affordable
1.] Home Affordable Refinance Program for Responsible Homeowners
Suffering From Falling Home Prices.
2.] A Comprehensive $75 Billion Home Affordable Modification Program
A.] A Loan Modification Plan to Reach up to 3-4 Million Homeowners
B.] Shared Effort with Lenders to Reduce Mortgage Payments
C.] Incentives to Servicers and Borrowers
D.] Clear and Consistent Guidelines for Loan Modifications
E.] Required Participation by Financial Stability Plan Participants
F.] Modifications of Home Mortgages During Bankruptcy
G.] Strengthen Hope for Homeowners and Other FHA Loan Programs
H.] Support Local Communities and Help Displaced Renters
I.] Support Low Mortgage Rates by Strengthening Confidence in Fannie Freddie
Making Home Affordable will offer assistance to as many as 7-9 million homeowners, making their mortgages more affordable and helping to prevent the destructive impact of foreclosure on families, communities, and the national economy.
The Home Affordable Refinance program will be available to 4-5 million homeowners who have a solid payment history on an existing mortgage owned by Fannie Mae or Freddie Mac. Under normal conditions these borrowers would be unable to refinance because their homes have lost value, pushing their current loan-to-value ratio above 80%. Under the Home Affordable Refinance program, many of them will now be eligible to refinance their loan to take advantage of today's lower mortgage rates or to refinance an adjustable-rate mortgage into a more stable mortgage, such as a 30-year fixed rate loan.
GSE lenders and servicers already have much of the borrower's information on file, so documentation requirements are not likely to be burdensome. In addition, in some cases an appraisal will not be necessary. This flexibility will make the refinance quicker and less costly for both borrowers and lenders. The Home affordable Refinance program ends in June 2010.
The Home Affordable Modification program will help up to 3-4 million at-risk homeowners avoid foreclosure by reducing monthly mortgage payments. Working with the banking and credit union regulators, the FHA, the VA, the USDA, and the Federal Housing's Finance Agency, the Treasury Dept has announced program guidelines that are expected to become standard industry practice in pursuing affordable and sustainable mortgage modifications. This program will work in tandem with an expanded and improved Hope for Homeowners Program.
With the information now available, servicers can begin immediately to modify eligible mortgages under the modification program so that at-risk borrowers can better afford their payments. Detailed guidelines will provide information on the following:
2.] Eligibility and Verification
A.] Loan originated on or before January 1, 2009
B.] First-lien loans on owner-occupied properties with unpaid principal balances up to $729,750.00. Higher limits allowed for owner-occupied properties with 2-4 units.
C.] All borrower must fully document income, including signed IRS 4506-T, two most recent pay stubs, and most recent tax returns, and must sign an affidavit of financial hardship.
D.] Property owner occupancy status will be verified through borrower credit report and other documentation; no investor-owned, vacant, or condemned properties.
E.] Incentives to Lenders and servicers to modify at risk borrowers who have not yet missed payments when the servicer determines that the borrower is at imminent risk of default.
F.] Modifications can start from now until December 31, 2012; loans can be modified only once under the program.
In my next post, I will discuss and detail "Loan Modifications Terms and Procedures", as well as "Transparency and Accountability". These protocols are detailed so that the public can understand how the process works, who is eligible, and what will be required.
Even if the applicant cannot qualify under these guidelines, there are other "Loan Modification" programs available. Each program is unique to the lender and each situation is unique to the borrower. Some include investor-type properties, as well as second homes. Each is decided on a "case by case" basis. Don't consider yourself out of the game. If you are experiencing a hardship...if you are experiencing financial challenges...be proactive. "Empower Yourself". Contact me directly. We can help...
1.] Making Home Affordable
1.] Home Affordable Refinance Program for Responsible Homeowners
Suffering From Falling Home Prices.
2.] A Comprehensive $75 Billion Home Affordable Modification Program
A.] A Loan Modification Plan to Reach up to 3-4 Million Homeowners
B.] Shared Effort with Lenders to Reduce Mortgage Payments
C.] Incentives to Servicers and Borrowers
D.] Clear and Consistent Guidelines for Loan Modifications
E.] Required Participation by Financial Stability Plan Participants
F.] Modifications of Home Mortgages During Bankruptcy
G.] Strengthen Hope for Homeowners and Other FHA Loan Programs
H.] Support Local Communities and Help Displaced Renters
I.] Support Low Mortgage Rates by Strengthening Confidence in Fannie Freddie
Making Home Affordable will offer assistance to as many as 7-9 million homeowners, making their mortgages more affordable and helping to prevent the destructive impact of foreclosure on families, communities, and the national economy.
The Home Affordable Refinance program will be available to 4-5 million homeowners who have a solid payment history on an existing mortgage owned by Fannie Mae or Freddie Mac. Under normal conditions these borrowers would be unable to refinance because their homes have lost value, pushing their current loan-to-value ratio above 80%. Under the Home Affordable Refinance program, many of them will now be eligible to refinance their loan to take advantage of today's lower mortgage rates or to refinance an adjustable-rate mortgage into a more stable mortgage, such as a 30-year fixed rate loan.
GSE lenders and servicers already have much of the borrower's information on file, so documentation requirements are not likely to be burdensome. In addition, in some cases an appraisal will not be necessary. This flexibility will make the refinance quicker and less costly for both borrowers and lenders. The Home affordable Refinance program ends in June 2010.
The Home Affordable Modification program will help up to 3-4 million at-risk homeowners avoid foreclosure by reducing monthly mortgage payments. Working with the banking and credit union regulators, the FHA, the VA, the USDA, and the Federal Housing's Finance Agency, the Treasury Dept has announced program guidelines that are expected to become standard industry practice in pursuing affordable and sustainable mortgage modifications. This program will work in tandem with an expanded and improved Hope for Homeowners Program.
With the information now available, servicers can begin immediately to modify eligible mortgages under the modification program so that at-risk borrowers can better afford their payments. Detailed guidelines will provide information on the following:
2.] Eligibility and Verification
A.] Loan originated on or before January 1, 2009
B.] First-lien loans on owner-occupied properties with unpaid principal balances up to $729,750.00. Higher limits allowed for owner-occupied properties with 2-4 units.
C.] All borrower must fully document income, including signed IRS 4506-T, two most recent pay stubs, and most recent tax returns, and must sign an affidavit of financial hardship.
D.] Property owner occupancy status will be verified through borrower credit report and other documentation; no investor-owned, vacant, or condemned properties.
E.] Incentives to Lenders and servicers to modify at risk borrowers who have not yet missed payments when the servicer determines that the borrower is at imminent risk of default.
F.] Modifications can start from now until December 31, 2012; loans can be modified only once under the program.
In my next post, I will discuss and detail "Loan Modifications Terms and Procedures", as well as "Transparency and Accountability". These protocols are detailed so that the public can understand how the process works, who is eligible, and what will be required.
Even if the applicant cannot qualify under these guidelines, there are other "Loan Modification" programs available. Each program is unique to the lender and each situation is unique to the borrower. Some include investor-type properties, as well as second homes. Each is decided on a "case by case" basis. Don't consider yourself out of the game. If you are experiencing a hardship...if you are experiencing financial challenges...be proactive. "Empower Yourself". Contact me directly. We can help...
Tuesday, April 14, 2009
Obama's Home Affordability Loan Modification Program
President Obama's "Making Home Affordable" program will offer assistance to as many as 7-9 million homeowners making a good faith effort to make their mortgage payments, while attempting to prevent the destructive impact of the housing crisis on families and communities.
The target is homeowners who have made every possible effort to stay current on their mortgage payments. It will not help speculators. Just as the American Recovery and Reinvestment Act works to save or create several million new jobs and the Financial Stability Plan work to get credit flowing, the Making Home Affordable Program will support a recovery in the housing market and ensure that these workers can continue paying off their mortgages.
By supporting low mortgage rates and strengthening confidence in Fannie Mae and Freddie Mac...providing up to 4-5 million homeowners with new access to refinancing and creating a comprehensive stability initiative to offer reduced monthly payments for up to 3-4 million at-risk homeowners, this plan...which draws off the best ideas developed within the Administration, as well as from Congressional Housing Leaders and FDIC Chair Sheila Bair...brings together the government, lenders, loan servicers, investors and borrowers to share responsibility towards ensuring working Americans can afford to stay in their homes.
As we continue, we discuss in depth the following aspects of the "Obama Plan".
These key points will be detailed and discussed...
1.] Making Home Affordable.
2.] Eligibility and Verification.
3.] Loan Modification Terms and Procedures.
4.] Transparency and Accountability.
Even though this plan was put into effect in early March of 2009, there is still a lot of misinformation and confusion. Frequently, I get questions from the public regarding certain aspects...such as "How do I know I can qualify?"...or "What kind of improvement can I expect to see from my loan terms?" The purpose of detailing out the plan is to help the public understand how this plan can benefit them and assist them to stay in their homes...thus "Empowering Themselves."
The target is homeowners who have made every possible effort to stay current on their mortgage payments. It will not help speculators. Just as the American Recovery and Reinvestment Act works to save or create several million new jobs and the Financial Stability Plan work to get credit flowing, the Making Home Affordable Program will support a recovery in the housing market and ensure that these workers can continue paying off their mortgages.
By supporting low mortgage rates and strengthening confidence in Fannie Mae and Freddie Mac...providing up to 4-5 million homeowners with new access to refinancing and creating a comprehensive stability initiative to offer reduced monthly payments for up to 3-4 million at-risk homeowners, this plan...which draws off the best ideas developed within the Administration, as well as from Congressional Housing Leaders and FDIC Chair Sheila Bair...brings together the government, lenders, loan servicers, investors and borrowers to share responsibility towards ensuring working Americans can afford to stay in their homes.
As we continue, we discuss in depth the following aspects of the "Obama Plan".
These key points will be detailed and discussed...
1.] Making Home Affordable.
2.] Eligibility and Verification.
3.] Loan Modification Terms and Procedures.
4.] Transparency and Accountability.
Even though this plan was put into effect in early March of 2009, there is still a lot of misinformation and confusion. Frequently, I get questions from the public regarding certain aspects...such as "How do I know I can qualify?"...or "What kind of improvement can I expect to see from my loan terms?" The purpose of detailing out the plan is to help the public understand how this plan can benefit them and assist them to stay in their homes...thus "Empowering Themselves."
Saturday, April 11, 2009
Important Requirement For Successful Loan Modification
One of the items your lender will ask for during the loan modification process is a "Hardship Letter". A hardship letter is a written explanation as to what "event" has caused you to fall behind on your mortgage and it is vital in helping you stop foreclosure.
This letter acts much like an outline or biography of your current "life" issues that are affecting your ability to meet your financial obligations. Once thing to note....as you comprise the hardship letter for your lender...keep it concise and to the point. With the current foreclosure crisis, lenders are seeing thousands of these letters. They are extremely busy and back logged. Do not write a "book", as it could very well get over-looked.
To follow is a partial list of hardships that lenders consider during the loan modification process:
Adjustable Rate Mortgage Reset-Payment Shock
Illness
Lost of Job
Reduced Income
Failed Business
Job Relocation
Death of a Spouse or Co-Borrower
Death
Incarceration
Divorce
Martial Separation
Military Duty
Reduced Income
Medical Bills
Damage to Property
Now that you see what your lender is looking for, it is time to sit down and write a hardship letter. I have made it easier by giving you a couple of examples to work with...However make it unique to your situation. You still have to make it legit...The hardship letter is only one part of the equation, but it is key in helping you avoid foreclosure. You will still have to jump through a few hurdles with your lender before they will approve any type of loan modification.
Here are two examples of "Hardship Letters":
Example #1...
Name
Address
Lender Name
Loan #
To Whom It May Concern:
I am writing this letter to explain my unfortunate set of circumstances that have caused us to become delinquent on our mortgage. We have done everything in our power to make ends meet but unfortunately we have fallen short and would like you to consider working with us to modify our loan. Our number one goal is to keep our home and we would really appreciate the opportunity to dot that.
The main reason that caused us to be late is (insert here and don't be too lengthy). soon after being late and our income not being nearly enough, we had fallen further and further behind. Now it is to the point where we cannot afford to pay what is owed to(insert lender's name). It is our full intention to pay what we owe. but at this time we have exhausted all of our income and resources so we are turning to you for help.
(the approximate date of hardship and we believe that our situation is [temporary or is permanent]}.
Our situation has improved because (insert reason) and we feel that ha loan modification would benefit us both. We would appreciate if you can work with us to lower the delinquent amount owed and/or payment so we can keep our home and also afford to make amends with your firm.
We truly hope that you will consider working with us and we are anxious to get this settled so we all can move on.
Sincerely and Respectfully
Borrowers signature)
Date
Co-Borrower's signature
Date
Example #2...
Date
To: (Lender)
RE: Loam Modification
Due to the recent adjustment to the mortgage I currently have with your company, I am finding it very difficult to afford the new payment. I have a three year fixed rate which is now adjustable and is scheduled to adjust again in(insert date)
Considering my current income, there will be no way I can afford the increased payments come February. Hopefully there is a way to renegotiate the terms of my current mortgage to avoid default and foreclosure.
Is it possible to have my current adjustable rate mortgage converted to a fixed rate?
If this is not possible can the next rate change be postponed to a future date to allow me to hopefully refinance? Any other solution you could provide would be greatly appreciated.
I have had no problem making my payments for over three years and do not want to change that pattern. My mortgage was originally written by another company and bought by (insert lender). The original mortgage terms are terrible but it was the only loan I was qualified for at the time. I was assured that refinancing would be no problem but that turned out not to be true due to the downturn of the housing industry.
The main problem is that my property is now worth about 5-10% less than what I paid for it, which is preventing me from being able to refinance. I was researching on the internet and came across the Fannie Mae announcement regarding the servicing of conventional mortgage modification.
I believe this addresses the situation I currently find myself in along with many other homeowners. Attached are recent pay stubs showing my current income.
Thank-you for your time and consideration.
Sincerely & Respectfully'
(Your Nam)
Writing a complete, concise letter of hardship is essential to completing a successful loan modification. Making it convincing and honest is of utmost importance...
This letter acts much like an outline or biography of your current "life" issues that are affecting your ability to meet your financial obligations. Once thing to note....as you comprise the hardship letter for your lender...keep it concise and to the point. With the current foreclosure crisis, lenders are seeing thousands of these letters. They are extremely busy and back logged. Do not write a "book", as it could very well get over-looked.
To follow is a partial list of hardships that lenders consider during the loan modification process:
Adjustable Rate Mortgage Reset-Payment Shock
Illness
Lost of Job
Reduced Income
Failed Business
Job Relocation
Death of a Spouse or Co-Borrower
Death
Incarceration
Divorce
Martial Separation
Military Duty
Reduced Income
Medical Bills
Damage to Property
Now that you see what your lender is looking for, it is time to sit down and write a hardship letter. I have made it easier by giving you a couple of examples to work with...However make it unique to your situation. You still have to make it legit...The hardship letter is only one part of the equation, but it is key in helping you avoid foreclosure. You will still have to jump through a few hurdles with your lender before they will approve any type of loan modification.
Here are two examples of "Hardship Letters":
Example #1...
Name
Address
Lender Name
Loan #
To Whom It May Concern:
I am writing this letter to explain my unfortunate set of circumstances that have caused us to become delinquent on our mortgage. We have done everything in our power to make ends meet but unfortunately we have fallen short and would like you to consider working with us to modify our loan. Our number one goal is to keep our home and we would really appreciate the opportunity to dot that.
The main reason that caused us to be late is (insert here and don't be too lengthy). soon after being late and our income not being nearly enough, we had fallen further and further behind. Now it is to the point where we cannot afford to pay what is owed to(insert lender's name). It is our full intention to pay what we owe. but at this time we have exhausted all of our income and resources so we are turning to you for help.
(the approximate date of hardship and we believe that our situation is [temporary or is permanent]}.
Our situation has improved because (insert reason) and we feel that ha loan modification would benefit us both. We would appreciate if you can work with us to lower the delinquent amount owed and/or payment so we can keep our home and also afford to make amends with your firm.
We truly hope that you will consider working with us and we are anxious to get this settled so we all can move on.
Sincerely and Respectfully
Borrowers signature)
Date
Co-Borrower's signature
Date
Example #2...
Date
To: (Lender)
RE: Loam Modification
Due to the recent adjustment to the mortgage I currently have with your company, I am finding it very difficult to afford the new payment. I have a three year fixed rate which is now adjustable and is scheduled to adjust again in(insert date)
Considering my current income, there will be no way I can afford the increased payments come February. Hopefully there is a way to renegotiate the terms of my current mortgage to avoid default and foreclosure.
Is it possible to have my current adjustable rate mortgage converted to a fixed rate?
If this is not possible can the next rate change be postponed to a future date to allow me to hopefully refinance? Any other solution you could provide would be greatly appreciated.
I have had no problem making my payments for over three years and do not want to change that pattern. My mortgage was originally written by another company and bought by (insert lender). The original mortgage terms are terrible but it was the only loan I was qualified for at the time. I was assured that refinancing would be no problem but that turned out not to be true due to the downturn of the housing industry.
The main problem is that my property is now worth about 5-10% less than what I paid for it, which is preventing me from being able to refinance. I was researching on the internet and came across the Fannie Mae announcement regarding the servicing of conventional mortgage modification.
I believe this addresses the situation I currently find myself in along with many other homeowners. Attached are recent pay stubs showing my current income.
Thank-you for your time and consideration.
Sincerely & Respectfully'
(Your Nam)
Writing a complete, concise letter of hardship is essential to completing a successful loan modification. Making it convincing and honest is of utmost importance...
Thursday, April 9, 2009
Preparing To Negotiate The Loan Modification
Is it wise for the homeowner to attempt to negotiate with the lender to modify their loan? That is a decision only you as the homeowner can make...
I have seen numerous cases where the homeowner attempted to modify the loan without retaining the services of an attorney or a professional loan modification company. Sometimes they are successful, but more often than not they run into obstacles that may prevent them from successfully completing thje process. Loan modification professionals understand the pitfalls and how to navigate through the mine fields of the process.
Here are a few simple steps that you can take to prepare the needed documentation for the loan modification process.
1.] Make sure that you know the state of your finances. Determine how much income you are bringing in each month. Calculate how much your monthly bills amount to. Evaluate where you can cut costs. This is where retaining the services of a qualified loan modification professional can make an immediate impact even before you submit to the lender. The loan modification professional will be able to recognize if your "Debt To Income" (DTI) ratio is out of balance with respect to the guidelines and criteria lenders will follow. If the DTI is too high, the loan modification professional can manipulate the numbers in the appropriate fashion. If this does not achieve the desired effect, they can help you with debt reduction or consolidation, so that your loan can be successfully modified.
2.] Once you have established your income and expenses, decide what payment you can afford that is reasonable. If you have retained the services of a professional modifier, they will assist you by putting together the professional financial package. Their assistance is key when negotiating with the lender to insure that you get the best possible ending result. This may require offers and counter-offers.
3.] You need to decide how you are going to pay off the loan. This is a question the lender will put forth, so you need to have a clear understanding how this will work.
4.] If you think your financial strain is very short term, you can request a forebearance which is where you do not make any payments for typically, 3 months. Banks allow this to help their customers get back on their feet from a temporary setback. Understand that the lender will attach the payments to the end of the loan. With the current opportunities that the Obama administraton has developed and the plan put into play in March 2009, it makes sense to go forward with a loan modification plan.
5.] If you haved an adjustable rate mortgage (ARM) that reset and you cannot meet the higher monthly payments, you should attempt to modify your loan. You should have some cushion in your income to show that you can handle a fixed payment, even if you have to get a second job. This will give you a better chance of successfully modifying your loan.
6.] Make copies of everything you submit to your lender. Keep all correspondance. Stay in touch with your loan modification professional so that you are up to date on the latest results.
Preparing your documents, retaining the services of a loan modification professional, retaining copies of all correspondance between the lender and yourself, being proactive and assertive...these will Empower you...they will help insure you make good choices, not emotional ones...Empower Yourself to Success!
I have seen numerous cases where the homeowner attempted to modify the loan without retaining the services of an attorney or a professional loan modification company. Sometimes they are successful, but more often than not they run into obstacles that may prevent them from successfully completing thje process. Loan modification professionals understand the pitfalls and how to navigate through the mine fields of the process.
Here are a few simple steps that you can take to prepare the needed documentation for the loan modification process.
1.] Make sure that you know the state of your finances. Determine how much income you are bringing in each month. Calculate how much your monthly bills amount to. Evaluate where you can cut costs. This is where retaining the services of a qualified loan modification professional can make an immediate impact even before you submit to the lender. The loan modification professional will be able to recognize if your "Debt To Income" (DTI) ratio is out of balance with respect to the guidelines and criteria lenders will follow. If the DTI is too high, the loan modification professional can manipulate the numbers in the appropriate fashion. If this does not achieve the desired effect, they can help you with debt reduction or consolidation, so that your loan can be successfully modified.
2.] Once you have established your income and expenses, decide what payment you can afford that is reasonable. If you have retained the services of a professional modifier, they will assist you by putting together the professional financial package. Their assistance is key when negotiating with the lender to insure that you get the best possible ending result. This may require offers and counter-offers.
3.] You need to decide how you are going to pay off the loan. This is a question the lender will put forth, so you need to have a clear understanding how this will work.
4.] If you think your financial strain is very short term, you can request a forebearance which is where you do not make any payments for typically, 3 months. Banks allow this to help their customers get back on their feet from a temporary setback. Understand that the lender will attach the payments to the end of the loan. With the current opportunities that the Obama administraton has developed and the plan put into play in March 2009, it makes sense to go forward with a loan modification plan.
5.] If you haved an adjustable rate mortgage (ARM) that reset and you cannot meet the higher monthly payments, you should attempt to modify your loan. You should have some cushion in your income to show that you can handle a fixed payment, even if you have to get a second job. This will give you a better chance of successfully modifying your loan.
6.] Make copies of everything you submit to your lender. Keep all correspondance. Stay in touch with your loan modification professional so that you are up to date on the latest results.
Preparing your documents, retaining the services of a loan modification professional, retaining copies of all correspondance between the lender and yourself, being proactive and assertive...these will Empower you...they will help insure you make good choices, not emotional ones...Empower Yourself to Success!
Wednesday, April 8, 2009
Profit From Foreclosures Part 2
In my last post we discussed how the single biggest advantage associated with REO's is the fact that equity can be created instantly either by finding a hot deal or through shrewd negotiation. There is no one telling the bank that they owe too much on a property and can't lower the price.
We discussed two types of scenarios that give leverage and Empower the investor, while allowing him or her to avoid the issue of "Non-Assignability". These were "Add to the Contract then Quit Claim" and the "Simultaneous Double Close". We looked at the Pros and Cons of each...
Today we will review two other scenarios that can Empower investors to avoid the pitfalls of "Non-Assignability".
1.] The "True Double Close"
This is also known as the "wet close". It is the same as the simultaneous double close...the wholesale investor is buying the foreclosure property and instantly reselling it to the end buyer for a profit, except that the wholesale investor is coming in with his or her own cash to fund his or her end of the deal.
This makes title companies happy, but it may be difficult for the beginning investor who may not have a lot of cash sitting around to work with. There are companies that provide funding for these types of transactions. They are called "flash funding". They do same day transactions for a fee. Title companies like "wet closings", but if "flash funding" is utilized, it eats away at your profits.
2.] "Sell The LLC"
This method is becoming more popular, especially when the end buyer brings cash to the table. The wholesale investor brings an offer on a property under an LLC entity. Once the bank accepts the offer, the investor quickly registers the LLC with the state.
At that point, the investor finds an end buyer for the property. They agree on the price and agree on the terms by purchasing the entire LLC for the price of the wholesale fee. From there, as the new owner of the LLC, the end buyer is Empowered to close on the original transaction and purchase the property.
The upside to this method is that you work around the extra costs in the form of the transfer taxes and/or flash funding fees that come with the "double-close" methods. Another benefit is your name never goes on the transaction.
The downside to this type of transaction is that the end buyer has to pretty much be paying cash. Banks typically do not lend money to LLC's. You wold have to purchase the property in your personal name to be eligible for a mortgage. Another thing to consider is that if you start buying and selling numerous LLC's in a month, you might catch the attention of state regulators, who would be confused as to why you are buying and selling so many LLC's in a month.
Using good business sense, being creative with the way you as an investor structure the deal...you can navigate around and make a profit on foreclosures by "flipping" them. These methods make it easier for the investor to bring little to none of their own money to a transaction, enabling them to realize less risk, leverage themselves futher if they so desire, and maintain a level of privacy. Armed with these work arounds, investors nationwide are able to successfully wholesale flip REO foreclosures.
We discussed two types of scenarios that give leverage and Empower the investor, while allowing him or her to avoid the issue of "Non-Assignability". These were "Add to the Contract then Quit Claim" and the "Simultaneous Double Close". We looked at the Pros and Cons of each...
Today we will review two other scenarios that can Empower investors to avoid the pitfalls of "Non-Assignability".
1.] The "True Double Close"
This is also known as the "wet close". It is the same as the simultaneous double close...the wholesale investor is buying the foreclosure property and instantly reselling it to the end buyer for a profit, except that the wholesale investor is coming in with his or her own cash to fund his or her end of the deal.
This makes title companies happy, but it may be difficult for the beginning investor who may not have a lot of cash sitting around to work with. There are companies that provide funding for these types of transactions. They are called "flash funding". They do same day transactions for a fee. Title companies like "wet closings", but if "flash funding" is utilized, it eats away at your profits.
2.] "Sell The LLC"
This method is becoming more popular, especially when the end buyer brings cash to the table. The wholesale investor brings an offer on a property under an LLC entity. Once the bank accepts the offer, the investor quickly registers the LLC with the state.
At that point, the investor finds an end buyer for the property. They agree on the price and agree on the terms by purchasing the entire LLC for the price of the wholesale fee. From there, as the new owner of the LLC, the end buyer is Empowered to close on the original transaction and purchase the property.
The upside to this method is that you work around the extra costs in the form of the transfer taxes and/or flash funding fees that come with the "double-close" methods. Another benefit is your name never goes on the transaction.
The downside to this type of transaction is that the end buyer has to pretty much be paying cash. Banks typically do not lend money to LLC's. You wold have to purchase the property in your personal name to be eligible for a mortgage. Another thing to consider is that if you start buying and selling numerous LLC's in a month, you might catch the attention of state regulators, who would be confused as to why you are buying and selling so many LLC's in a month.
Using good business sense, being creative with the way you as an investor structure the deal...you can navigate around and make a profit on foreclosures by "flipping" them. These methods make it easier for the investor to bring little to none of their own money to a transaction, enabling them to realize less risk, leverage themselves futher if they so desire, and maintain a level of privacy. Armed with these work arounds, investors nationwide are able to successfully wholesale flip REO foreclosures.
Tuesday, April 7, 2009
Profit From Foreclosures Part 1
Wholesaling is one of the most popular approached to real estate investing. It appeals to both beginning and seasoned investors.
Current market conditions are driving investors to bank owned properties, also known as REO's. The single biggest advantage associated with REO's is the fact that equity can be created instantly either by finding a hot deal or through shrewd negotiation. There is no one telling the bank that they owe too much on a property and can't lower the price.
There is really only one downside to wholesaling REO properties..."Non-Assignability". When an investor gets a bank-owned property under contract it always comes with multi-page addendums that make the deal "non-assignable". This will turn a lot of investors off when it comes to flipping bank owned homes...not realizing that there are ways around this "bump in the road".
We will discuss four different ways this can be accomplished. Since they are quite in depth...to keep it simple we will address two today and the other two in my next post...
1.] Add to the Contract, then Quit Claim...
Most banks do not have an issue with adding an additional party to a contract..they just do not want the original party removed at any time. Investor "A " gets a property under contract for $40K. Investor "A" then goes to Investor "B". They negotiatate and discuss the terms of the contract. Investor "B" then agrees to a price of $50K. Investor "A" then calls the bank and requests an addendum be drawn up that adds Investor"B" to the contract. The bank agrees and all parties show up for closing. Investor "B" brings two checks. One check for $40K for the purchase of the property and one check of $10K made out to Investor "A". Investor "B" gives the check for $10K to Investor "A" and Investor "A" then signs a quit claim deed over to Investor "B".
The advantage to this method is that there is only one closing...saves on closing costs...simple and straight forward. It also works around the 90 day deed restriction that comes packaged with many Fannie Mae/Fredddie Mac properties.
The disadvantage to this method is that this will not work for HUD proerties because HUD does not allow any changes to the parties that are on the original offer and the end buyer usually cannot get a mortgage, because a mortgage company won't allow you to be on a title if they are lending someone else money against the home.
2.] Simultaneous Double-Close
The simultaneous double-close is actually two transactions. An investor is buying from the bank and then instantly reselling to a third party in a separate transaction. The "twist" that comes with this method is that the wholesale investor never actually brings any money into play. The end-buyer's funds are used to fund both transactions. This is possible because, as along as both closings take place on the same day, it doesn't matter which one closes first for the title company's accounting puposes. What really matters is that the deeds are RECORDED in the proper order when filed with the county. It is very important to have the first transaction filed first and the second transction filed second.
This works well for those who have zero cash as long as they have a good title company that will still do these types of transactions. It still works even with end buyers that are getting conventional financing if the end buyer is getting their financing through the right lender. This method is NOT an option if the end buyer is getting FHA financing. This method also does NOT work for Fannie Mae/Freddie Mac foreclosures in most cases, because these super-banks put a deed restriction in place that prevents you from reselling the property to ANYONE for at least 90 days.
Bear in mind that with the simultaneous double close, you will have two sets of transfer taxes, recording fees, and other associated closing costs that will work into the budget. The shrewd negotiator will build that into the price by lowering your offer to the bank to overcome those costs.
The biggest road block nowadays is finding a title company that is comfortable with this type of transaction...no money brought to the table by the wholesale investor...often they are refusing to close these types of deals...Too many concerns over fraud...
In my next post we will discuss: "The True Double Close" and "Sell The LLC". Stay tuned...
Current market conditions are driving investors to bank owned properties, also known as REO's. The single biggest advantage associated with REO's is the fact that equity can be created instantly either by finding a hot deal or through shrewd negotiation. There is no one telling the bank that they owe too much on a property and can't lower the price.
There is really only one downside to wholesaling REO properties..."Non-Assignability". When an investor gets a bank-owned property under contract it always comes with multi-page addendums that make the deal "non-assignable". This will turn a lot of investors off when it comes to flipping bank owned homes...not realizing that there are ways around this "bump in the road".
We will discuss four different ways this can be accomplished. Since they are quite in depth...to keep it simple we will address two today and the other two in my next post...
1.] Add to the Contract, then Quit Claim...
Most banks do not have an issue with adding an additional party to a contract..they just do not want the original party removed at any time. Investor "A " gets a property under contract for $40K. Investor "A" then goes to Investor "B". They negotiatate and discuss the terms of the contract. Investor "B" then agrees to a price of $50K. Investor "A" then calls the bank and requests an addendum be drawn up that adds Investor"B" to the contract. The bank agrees and all parties show up for closing. Investor "B" brings two checks. One check for $40K for the purchase of the property and one check of $10K made out to Investor "A". Investor "B" gives the check for $10K to Investor "A" and Investor "A" then signs a quit claim deed over to Investor "B".
The advantage to this method is that there is only one closing...saves on closing costs...simple and straight forward. It also works around the 90 day deed restriction that comes packaged with many Fannie Mae/Fredddie Mac properties.
The disadvantage to this method is that this will not work for HUD proerties because HUD does not allow any changes to the parties that are on the original offer and the end buyer usually cannot get a mortgage, because a mortgage company won't allow you to be on a title if they are lending someone else money against the home.
2.] Simultaneous Double-Close
The simultaneous double-close is actually two transactions. An investor is buying from the bank and then instantly reselling to a third party in a separate transaction. The "twist" that comes with this method is that the wholesale investor never actually brings any money into play. The end-buyer's funds are used to fund both transactions. This is possible because, as along as both closings take place on the same day, it doesn't matter which one closes first for the title company's accounting puposes. What really matters is that the deeds are RECORDED in the proper order when filed with the county. It is very important to have the first transaction filed first and the second transction filed second.
This works well for those who have zero cash as long as they have a good title company that will still do these types of transactions. It still works even with end buyers that are getting conventional financing if the end buyer is getting their financing through the right lender. This method is NOT an option if the end buyer is getting FHA financing. This method also does NOT work for Fannie Mae/Freddie Mac foreclosures in most cases, because these super-banks put a deed restriction in place that prevents you from reselling the property to ANYONE for at least 90 days.
Bear in mind that with the simultaneous double close, you will have two sets of transfer taxes, recording fees, and other associated closing costs that will work into the budget. The shrewd negotiator will build that into the price by lowering your offer to the bank to overcome those costs.
The biggest road block nowadays is finding a title company that is comfortable with this type of transaction...no money brought to the table by the wholesale investor...often they are refusing to close these types of deals...Too many concerns over fraud...
In my next post we will discuss: "The True Double Close" and "Sell The LLC". Stay tuned...
Friday, April 3, 2009
When To Purchase Real Estate In A Down Market
Everyone wants to know when to purchase real estate. Questions abound...have we hit the bottom yet? Will we see an uptake in real estate values next year? What type of return can I expect on my investment if I purchase real estate now? These are questions that are frequently raised by home buyers as well as investors.
Some Home Buyers Should Purchase Immediately
1.] If you are a seller who wants to move up to a more expensive home in a down market...now is a great time. If you need to sell, you should do so as your selling price may continue to drop.
2.] Another option is to sell now, arrange for temporary alternate housing, wait a few months and then make your purchase.
3.] If you buy and sell at the same time, you typically will still be ahead of the game because the price redution on the purchase is greater than the loss on the sale.
Consider What "Loss" You Might Appreciate When Selling Your Home
For example...your house is worth $300,000, but because of increased inventory and few buyers, you must reduce your rice by 10%. So, instead of receiving $300,000, you would get $270,000 and appreciate a "loss" of $30,000.
Consider Your Real Profit
You purchased this home for $100,000 ten years ago. Even though you "lost" $30,000 on the sale, you still appreciated a capital gain of $170,000. (not taking into consideration payments made...but you would have made them whether it was a mortgage or you were renting).
Consider The "Savings" On Buying Your New Home
If you are planning on moving up to a $600,000 home, you should be able to appreciate a "savings" of at least 10% and possibly more...because you would be able to purchase the home at a discount. If you negotiate shrewdly, you might be able to increase that amount to at least 20%, depending on market conditions in your area.
Reviewing The Transactions And The Associated Numbers
1.] You "lost" $30,000 on the sale of your home.
2.] You "saved" a minimum of $60,000 on the purchase of your new home.
3.] That is a net of $30,000 ahead.
Watch Out For The Impact Of Interest Rates
Are interest rates moving up or down? If interest rates are nearing an all time low and are beginning to inch upward. waiting could cost you more than you think. Here are some facts to consider...
1.] Each 1/2 point increase in your interest rate gives you $25,000 less in purchasing power.
2.] Each 1 point increase in your interest rate gives you $50,000 less in purchasing power.
3.] Each 2 point increase in your interest rate gives you $100,000 less in purchasing power.
Look At The Differences Among Purchase Prices VS Interest Rates.
If you put 20% down and qualify for an 80% loan...here are some scenarios to consider:
1.] $425,000 sales price at 8.25% interest, your payment is $2554.
2.] $450,000 sales price at 7.75% interest, your payment is $2579.
3.] $475,000 sales price at 7.25% interest, your payment is $2592
4.] $500,000 sales price at 6.75% interest, your payment is $2594
5.] $525,000 sales price at 6.25% interest, your payment is $2586
You can see the obvious difference....although the payments are pretty much the same, your purchasing power dramatically increases with the lower interest rates.
A wise strategy is to consider the pros and cons of real estate ownership prior to making a decision to buy or sell. Don't panic or overreact to what you hear in the media. Run your own numbers...double check yourself...Make an informed decision...an Empowering one. If you have questions, contact me...our professionals can help.
Some Home Buyers Should Purchase Immediately
1.] If you are a seller who wants to move up to a more expensive home in a down market...now is a great time. If you need to sell, you should do so as your selling price may continue to drop.
2.] Another option is to sell now, arrange for temporary alternate housing, wait a few months and then make your purchase.
3.] If you buy and sell at the same time, you typically will still be ahead of the game because the price redution on the purchase is greater than the loss on the sale.
Consider What "Loss" You Might Appreciate When Selling Your Home
For example...your house is worth $300,000, but because of increased inventory and few buyers, you must reduce your rice by 10%. So, instead of receiving $300,000, you would get $270,000 and appreciate a "loss" of $30,000.
Consider Your Real Profit
You purchased this home for $100,000 ten years ago. Even though you "lost" $30,000 on the sale, you still appreciated a capital gain of $170,000. (not taking into consideration payments made...but you would have made them whether it was a mortgage or you were renting).
Consider The "Savings" On Buying Your New Home
If you are planning on moving up to a $600,000 home, you should be able to appreciate a "savings" of at least 10% and possibly more...because you would be able to purchase the home at a discount. If you negotiate shrewdly, you might be able to increase that amount to at least 20%, depending on market conditions in your area.
Reviewing The Transactions And The Associated Numbers
1.] You "lost" $30,000 on the sale of your home.
2.] You "saved" a minimum of $60,000 on the purchase of your new home.
3.] That is a net of $30,000 ahead.
Watch Out For The Impact Of Interest Rates
Are interest rates moving up or down? If interest rates are nearing an all time low and are beginning to inch upward. waiting could cost you more than you think. Here are some facts to consider...
1.] Each 1/2 point increase in your interest rate gives you $25,000 less in purchasing power.
2.] Each 1 point increase in your interest rate gives you $50,000 less in purchasing power.
3.] Each 2 point increase in your interest rate gives you $100,000 less in purchasing power.
Look At The Differences Among Purchase Prices VS Interest Rates.
If you put 20% down and qualify for an 80% loan...here are some scenarios to consider:
1.] $425,000 sales price at 8.25% interest, your payment is $2554.
2.] $450,000 sales price at 7.75% interest, your payment is $2579.
3.] $475,000 sales price at 7.25% interest, your payment is $2592
4.] $500,000 sales price at 6.75% interest, your payment is $2594
5.] $525,000 sales price at 6.25% interest, your payment is $2586
You can see the obvious difference....although the payments are pretty much the same, your purchasing power dramatically increases with the lower interest rates.
A wise strategy is to consider the pros and cons of real estate ownership prior to making a decision to buy or sell. Don't panic or overreact to what you hear in the media. Run your own numbers...double check yourself...Make an informed decision...an Empowering one. If you have questions, contact me...our professionals can help.
Thursday, April 2, 2009
Bankruptcy?... Can It Benefit Foreclosure?
Avoid or delay foreclosure of your home by seeking bankruptcy protection.
If you are facing foreclosure and cannot work out a deal or other alternatives measures with the lender, bankruptcy may help.
In previous posts, we have discussed the foreclosure process along with short sales...the pros & cons...the pitfalls. What alternatives are there if you cannot work out an effective modification plan for your loan and you have exhausted other alternatives, but still want to stay in your home?
Bankruptcy should be considered. Here are some ways it can help...
When someone files Chapter 13 or Chapter 7 bankruptcy, the court automatically issues an order called the "Order for Relief". This order includes something called an "Automatic Stay". This alerts all creditors that they are to stop all collection activities immediately. If your home is scheduled for a foreclosure sale, the sale will be legally postponed while the bankruptcy is pending. Typically this is about 3-4 months.
There can be two exceptions to this rule...
"Motion to Lift the Stay"...The lender obtains the bankruptcy court's permission to proceed with the sale...you may not get the full three to four months. Even if this occurs, there will still be some lag time, depending on how fast the process moves along.
"Foreclosure Notice Already filed"...Unfortunately, bankruptcy's automatic stay won't stop the clock on the advance notice that most states require before a foreclosure sale can be held. For example, if you received a three month notice of default, then file for bankruptcy protection two months later, the three-month period would elapse after you'd been in bankruptcy for only one month. At that time, the lender could file motion to lift the stay and ask the court for permission to schedule the foreclosure sale.
The Two Types Of Bankruptcy...Chapter 13 & Chapter 7...
Primary residential real estate, for many individuals, is their only source of permanent security, and they will do whatever it take to stay in their house. If an individual is behind on their payments with no feasible way to get current, the only way to keep your home is to file a Chapter 13 bankruptcy.
Chapter 13 lets you become current on mortgage payments in the rears over a length of time on a payment plan that you propose...sometimes up to five years! However you must have enough income to remain current on your mortgage while making the "arrears" payments. Chapter 13 often makes it possible to eliminate 2nd & 3rd mortgages completely. When the market drops to the point that your 1st mortgage balance is more than the value of the home, then a bankruptcy judge can "strip" away the 2nd & 3rd mortages as they become "unsecured" at that point.
Chapter 7 basically eliminates all debt. In this case, you will lose your home, but if you are in such dire straits that this becomes necessary, then there are some positive aspects to discuss...
when you file for Chapter 7 protection, the foreclosure sale will be stalled for at least 3 months. This will give you time to save up some money, as all debts are absolved and typically you can stay in your house for at least three months without any payments. It not only cancels all non-scured debt, but it also cancels your 1st mortgage, as well as any 2nd or 3rd mortgages.
Thanks to a new law, you no longer face tax liability for losses your mortage or home-improvement lenders incurs as a result of your default, whether you file bankruptcy or not...this new law applies to the 2007 tax year and the following two years. This law does not shield you from tax liability for losses the lender incurs after the foreclosure sale if:
1.] The loan is not a mortgage or was not used for home improvements...
2.] The mortgage or home equity loan is secured by property other than your principal residence. However chapter 7 bankruptcy will exempt you from tax liability on losses the lender incurs if you default on these other loans.
If you are facing foreclosure and cannot work out a deal or other alternatives measures with the lender, bankruptcy may help.
In previous posts, we have discussed the foreclosure process along with short sales...the pros & cons...the pitfalls. What alternatives are there if you cannot work out an effective modification plan for your loan and you have exhausted other alternatives, but still want to stay in your home?
Bankruptcy should be considered. Here are some ways it can help...
When someone files Chapter 13 or Chapter 7 bankruptcy, the court automatically issues an order called the "Order for Relief". This order includes something called an "Automatic Stay". This alerts all creditors that they are to stop all collection activities immediately. If your home is scheduled for a foreclosure sale, the sale will be legally postponed while the bankruptcy is pending. Typically this is about 3-4 months.
There can be two exceptions to this rule...
"Motion to Lift the Stay"...The lender obtains the bankruptcy court's permission to proceed with the sale...you may not get the full three to four months. Even if this occurs, there will still be some lag time, depending on how fast the process moves along.
"Foreclosure Notice Already filed"...Unfortunately, bankruptcy's automatic stay won't stop the clock on the advance notice that most states require before a foreclosure sale can be held. For example, if you received a three month notice of default, then file for bankruptcy protection two months later, the three-month period would elapse after you'd been in bankruptcy for only one month. At that time, the lender could file motion to lift the stay and ask the court for permission to schedule the foreclosure sale.
The Two Types Of Bankruptcy...Chapter 13 & Chapter 7...
Primary residential real estate, for many individuals, is their only source of permanent security, and they will do whatever it take to stay in their house. If an individual is behind on their payments with no feasible way to get current, the only way to keep your home is to file a Chapter 13 bankruptcy.
Chapter 13 lets you become current on mortgage payments in the rears over a length of time on a payment plan that you propose...sometimes up to five years! However you must have enough income to remain current on your mortgage while making the "arrears" payments. Chapter 13 often makes it possible to eliminate 2nd & 3rd mortgages completely. When the market drops to the point that your 1st mortgage balance is more than the value of the home, then a bankruptcy judge can "strip" away the 2nd & 3rd mortages as they become "unsecured" at that point.
Chapter 7 basically eliminates all debt. In this case, you will lose your home, but if you are in such dire straits that this becomes necessary, then there are some positive aspects to discuss...
when you file for Chapter 7 protection, the foreclosure sale will be stalled for at least 3 months. This will give you time to save up some money, as all debts are absolved and typically you can stay in your house for at least three months without any payments. It not only cancels all non-scured debt, but it also cancels your 1st mortgage, as well as any 2nd or 3rd mortgages.
Thanks to a new law, you no longer face tax liability for losses your mortage or home-improvement lenders incurs as a result of your default, whether you file bankruptcy or not...this new law applies to the 2007 tax year and the following two years. This law does not shield you from tax liability for losses the lender incurs after the foreclosure sale if:
1.] The loan is not a mortgage or was not used for home improvements...
2.] The mortgage or home equity loan is secured by property other than your principal residence. However chapter 7 bankruptcy will exempt you from tax liability on losses the lender incurs if you default on these other loans.
Monday, March 30, 2009
Guidelines For Loan Modification..."A Road Map"
If you can’t qualify to refinance under President Obama’s "Making Home Affordable Plan", you might still have a chance to lower your monthly payments by doing a loan modification. This portion of the plan is aimed at people who are — or who soon will be – having a tough time paying their mortgage, but who would be able to afford their home if the interest rate on their mortgage was lowered.
Who qualifies?
This will only apply to the first mortgage on your primary residence. To qualify, you must:
- Have originated your mortgage before Jan. 1, 2009.
- Be an owner-occupant.
- Have an unpaid balance that is equal to or less than $729,750 (for a single-family home).
- Have trouble paying your mortgage due to financial hardship. That could be because you have had an increase in your mortgage payments, or because your income was reduced or you suffered a hardship (like medical problems) that increased your bills, or, you can show that you soon will be unable to make your payments. You will be required to submit a lettter of financial hardship.
- Your monthly mortgage payment must also be more than 31% of your gross (pre-tax) monthly income.
To seal the deal, you must successfully complete a three-month trial period at the modified rate. If you make all payments on time, you will keep this lower rate that will be fixed for five years.
I Owe Way More Than My Home is Worth? Am I Eligible?
Yes, how underwater you are (or aren’t) doesn’t matter for this program.
What if I am About to be Foreclosed On?
The foreclosure process will stop while you’re being considered for the program (or for any alternative foreclosure prevention option).
How Will This Help?
The aim is for your monthly payments (not including private mortgage insurance) to reach 31% of your pre-tax monthly income. The monthly payments are defined as payments on the principal, interest, taxes, insurance (not including mortgage insurance) and homeowners association/condo fees.
First, the lender will reduce the interest rate to no less than 2% on the loan so that the monthly payments are less than 38% of your monthly income. Then, the Treasury will match further reductions, dollar-for-dollar, with your lender, to bring the monthly payments down further, to 31% of your monthly income.
If you keep your payments on time after the modification, the government will pay up to $1,000 each year in the first five years toward reducing the principal on your mortgage.
After five years, the interest rate on the loan will start to increase by no more than 1% per year, but can’t go higher than what the market rate was (as determined by Freddie Mac) on the day your loan was modified.
What Will it Cost?
Under the program, the borrower does not have to pay any charges or fees. Any fees are supposed to be paid by the company that holds the loan, and the servicer of the loan will pay for your credit report.
What’s in it for My Lender/Servicer?
The company that services your loan will get a an incentive fee of $500 for each modification they do. Once your lender modifies your loan, they’ll be paid a $1,500 incentive.
Is There a Deadline?
New borrowers will be accepted until Dec. 31, 2012.
How Do I Start?
It is advisable to retain the services of a qualified loan modification professional to put together the package, submit, negotiate, and follow through to completion. You may ask, can I do the loan modification myself and avoid the fees of hiring a professional? The answer is, most certainly you can do that...feel free to call your loan servicing company. The down side to this is that the typical homeowner is not well-versed in negotiating with front line individuals at the loan servicing company, let alone those in the loss mitigation department. Homeowners who are facing the financial challenges of not being able to stay current on their mortgage will benefit greatly by working with a qualified loan modification professional, as this will greatly reduce the stress that the homeowner is experiencing, and will ensure that the homeowner's negotiating position is strong. Throughout the process, the loan modification professional puts together the financial package to submit to the lender, follows through, and provides the negotiation necessary to insure the best possible scenario for the homeowner.
Loan servicing companies are not required to join or accept the loan modification program, but the government hopes that the incentives, along with the fact that this could help millions avoid defaulting on their mortgage, will motivate them to participate.
For more information, visit:
http://www.financialstability.gov/Thursday, March 26, 2009
Do You Qualify For a Loan Modification?
Lenders and loan servicing companies in general, look for one thing when you submit a loan modification request. First, they look for a hardship that can be documented, but at the end of the day if they decide to grant your request for a loan modification all they really want to know is if you can afford the new payment(s). This is the big secret behind getting a loan modification approved.
There is an art to making loan modifications work. You must demonstrate that you cannot afford your previous mortgage payments while showing that you can afford the new payment structure. It sounds complicated. It is at first but you will rapidly learn key strategies for effectively processing loan modifications.
To understand what the lender or loan servicing company considers "qualified", you have to know how lenders calculate your income. The income you can use to qualify for a modification is different from income calculations used to qualify for traditional loans. The difference in the qualification guidelines is typically in your favor.
For a loan modification, you can qualify based on your documented total household income. You can count income from almost any source: Grandma’s SSI, income from child day care services, from a second job paid under the table, etc... as long as it can be proved. Proof must be in the form of bank statements, 1099’s or in some other documented form as outlined in the submission paperwork you will provide the lender. In addition, if only one of two spouses was on the original loan, the other spouse’s income can count so long as it can be documented. Once you calculate documented, monthly household income from all sources, you can present this to the lender as new qualifying income.
To calculate a qualifying monthly mortgage payment, use the benchmark fully amortizing 5.00% rate on whatever the new balance might be. Count payments in the rears if they are added back into the loan. WARNING: this is only for a general qualifying exercise. Do not expect this rate or this payment! If the payment at 5.00% is just too high, then you may not be an appropriate candidate for a modification. However, you can still request help with other services such as a deed in lieu of foreclosure, a short sale, or postponing as long as possible a notice of trustee’s sale in an effort to help you transition to more affordable housing.
Qualifying for loan modification is a fairly straight forward process. It can be challenging for the homeowner, as they are navigating a mine field. Utilizing loan modification professionals brings efficiency to the process, and peace of mind for the client,Monday, March 23, 2009
Tax Ramifications of Foreclosures and Short Sales
The IRS has a unique way of getting into our back pockets even if we are facing financial challenges. If you transfer title on your home, no matter whether it is voluntary or forced...you have "sold your home". You may have transferred it voluntarily through through a warranty deed or a grant deed, or you may have transferred it involuntarily through foreclosure. Under the tax code, you might be subject to taxes even if you lost money on the sale either by "selling short" or being "foreclosed" upon.
This seems really unfair...and to make matters worse, you might not even find out aoubt your tax ramification until you receive a 1099 - A in the mail at the end of the year.
Sellers who have owned their homes for lengthy periods of time most often will appreciate a "capital gain" during the sale of their property. However sellers of real estate who acquired them within say a time frame of 2-3 years, often will incur a net loss at the time of sale. Even if they do not lose value on the property, there are closing costs to incur such as real estate, escrow, and title fees that can be significant. It does not matter the seller's position...they cannot deduct the losses...no matter what forced them to sell.
Besides the problems for sellers of personal residences, investors are feeling this pain as well. This is true, especially in markets where real estate was purchased with the intent to "flip" within a short period of time. The market changed, they are stuck with real estate that is declining in value...rents do not cover the monthly expenses...they are forced to make a hard choice. Do they hold on or let the property go and face possible tax ramifications...
Sellers can offset their capital losses against capital gains under the current tax code. However if there are no gains, there is a yearly cap in the amount they can write off their taxes. It is $3000.00 ($1500.00 for married couples filing separately) on the amount of losses that can be offset against their "ordinary income".
The IRS has specific rules for foreclosures and short sales. These can be painful and severe, especially for the homeowner or investor who has already incurred significant expense and losses due to losing their property.
I am going to give you an example...Mr. Jones purchase a home for $200,000. He puts 10% down and takes out a mortgage for $180,000. Over the next 18 mos he manages to pay down his mortgage to $175,000, then he becomes very ill...loses his job and incurs significant medical expenses. He defaults on his mortgage payments and is forced to give the home to the bank. The IRS code treats this as a sale. The real estate market in this area has declined due to a major manufacturing plant closing its doors. The current market value of similar homes down the street has fallen to $140,000. Mr Jones incurs a $60,000 loss that cannot be deducted. His house is sold at the auction for $140,000. He gets a "1099 - A" at the end of the year. It indicates the foreclosure bid price of $140,000, the amount of Mr Jones' debt of $175,000, and his personal tax liability of $35,000. This is taxed at the rate of "ordinary income"...the same as salaries and tips. This is a typical problem seen when the homeowner is personally liable for the debt.
There is another type of scenario where the person taking out the loan is not "personally liable" for the loan...the tax ramifications are not so severe under the code. According to Kleinrock Publishing, "the IRS says sellers who are not personally liable for a debt will realize an amount that includes the full canceled debt, even if the value of the property that is security for the debt is less, which can be offset depending on your adjusted basis in the property". For example, Mr. Jones purchases a home for $200,000. Mr Jones puts 10% down and takes out a mortgage for $180,000. He pays down the mortgage to $175,000 then stops making payments. The bank forecloses on the loan for $175,000. The value has dropped to $150,000. The property sells for $150,000 at the auction. Mr. Smith realizes an amount of $175,000 on the foreclosure, but has an adjusted basis of $180,000 due to a "casualty loss" of $5,000. He owes no tax. This is a rare scenario, as banks and savvy lenders almost always require the individual who takes out the loan to sign "personally" for the note.
The tax code is extremely confusing to navigate under normal circumstances, let alone when you are facing challenges and are under significant stress. The above examples are for informational purposes only and should not be taken as "tax advice". If you are considering a short sale process or foreclosure, you should always consult a qualified CPA and tax attorney to get accurate, real world advise. Make sure you completely understand your options. Do your planning ahead of time....DO NOT wait until the last minute. Consider loan modification. This is a very viable option. We have solutions and can help...contact me directly for a free confidential consultation.
This seems really unfair...and to make matters worse, you might not even find out aoubt your tax ramification until you receive a 1099 - A in the mail at the end of the year.
Sellers who have owned their homes for lengthy periods of time most often will appreciate a "capital gain" during the sale of their property. However sellers of real estate who acquired them within say a time frame of 2-3 years, often will incur a net loss at the time of sale. Even if they do not lose value on the property, there are closing costs to incur such as real estate, escrow, and title fees that can be significant. It does not matter the seller's position...they cannot deduct the losses...no matter what forced them to sell.
Besides the problems for sellers of personal residences, investors are feeling this pain as well. This is true, especially in markets where real estate was purchased with the intent to "flip" within a short period of time. The market changed, they are stuck with real estate that is declining in value...rents do not cover the monthly expenses...they are forced to make a hard choice. Do they hold on or let the property go and face possible tax ramifications...
Sellers can offset their capital losses against capital gains under the current tax code. However if there are no gains, there is a yearly cap in the amount they can write off their taxes. It is $3000.00 ($1500.00 for married couples filing separately) on the amount of losses that can be offset against their "ordinary income".
The IRS has specific rules for foreclosures and short sales. These can be painful and severe, especially for the homeowner or investor who has already incurred significant expense and losses due to losing their property.
I am going to give you an example...Mr. Jones purchase a home for $200,000. He puts 10% down and takes out a mortgage for $180,000. Over the next 18 mos he manages to pay down his mortgage to $175,000, then he becomes very ill...loses his job and incurs significant medical expenses. He defaults on his mortgage payments and is forced to give the home to the bank. The IRS code treats this as a sale. The real estate market in this area has declined due to a major manufacturing plant closing its doors. The current market value of similar homes down the street has fallen to $140,000. Mr Jones incurs a $60,000 loss that cannot be deducted. His house is sold at the auction for $140,000. He gets a "1099 - A" at the end of the year. It indicates the foreclosure bid price of $140,000, the amount of Mr Jones' debt of $175,000, and his personal tax liability of $35,000. This is taxed at the rate of "ordinary income"...the same as salaries and tips. This is a typical problem seen when the homeowner is personally liable for the debt.
There is another type of scenario where the person taking out the loan is not "personally liable" for the loan...the tax ramifications are not so severe under the code. According to Kleinrock Publishing, "the IRS says sellers who are not personally liable for a debt will realize an amount that includes the full canceled debt, even if the value of the property that is security for the debt is less, which can be offset depending on your adjusted basis in the property". For example, Mr. Jones purchases a home for $200,000. Mr Jones puts 10% down and takes out a mortgage for $180,000. He pays down the mortgage to $175,000 then stops making payments. The bank forecloses on the loan for $175,000. The value has dropped to $150,000. The property sells for $150,000 at the auction. Mr. Smith realizes an amount of $175,000 on the foreclosure, but has an adjusted basis of $180,000 due to a "casualty loss" of $5,000. He owes no tax. This is a rare scenario, as banks and savvy lenders almost always require the individual who takes out the loan to sign "personally" for the note.
The tax code is extremely confusing to navigate under normal circumstances, let alone when you are facing challenges and are under significant stress. The above examples are for informational purposes only and should not be taken as "tax advice". If you are considering a short sale process or foreclosure, you should always consult a qualified CPA and tax attorney to get accurate, real world advise. Make sure you completely understand your options. Do your planning ahead of time....DO NOT wait until the last minute. Consider loan modification. This is a very viable option. We have solutions and can help...contact me directly for a free confidential consultation.
Wednesday, March 18, 2009
Stop The Foreclosure Process
Homeowners who are facing foreclosure frequently have difficulty dealing with the facts that landed them there in the first place. Few homeowners ever think that they will go into foreclosure...it is the furthest thing from their mind.
Apart from those individuals who commit mortgage fraud...take out a loan without ever intending to pay...I have listed a few reasons that can cause a homeowner to stop making payments:
1.] Loss of employment
2.] Medical emergency or sudden illness
3.] Death in the family
4.] Divorce
5.] Excessive debt obligations
6.] Job status/financial changes
7.] ARM changes
8.] Unforeseen major home expenses
The best way to avoid foreclosure is to prevent the filing of a "Notice of Default". Lenders do not want a foreclosure on their hands, but will file a "Notice of Default" to protect their interests. If you are finding yourself in this type of situation, communicating with your lender to see what your options are is a prudent way of handling the problem, rather than waiting until the "Notice of Default" is in play.
The lender may agree to working out a payment plan to make up the back payments. This is called "Forbearance".
A rare but second option is "Payment Forgiveness". This is where the lender, based on your past history and present circumstances, may forgive one or two payments.
The lender may also allow you to add a small amount to your regular payment over the course of time to make up the difference, all the while keeping current.
In our current economic situation, Loan Modification is very viable option where the lender negotiates with the borrower, usually with the help of a "Loan Modification Professional" to change the terms of the loan. This varies from lender to lender and on a case by case basis. The borrower must demonstrate a hardship as well as be behind on their mortgage payments. Changes can range from a decrease in the interest rate, extend the length of the loan, or change an ARM to a fixed 30 year loan. At times the lender may forgive the interest accrued in a negative amortization loan and on a more rare situation principal reduction may come into play. With the new Obama plan, we should see more principal reduction to the current home market value when modifying loans.
If your house is in foreclosure, selling your home, selling your home in a short sale, or signing a "Deed-in-Lieu of Foreclosure" are all other options. When you sign the "Deed -in-Lieu of Foreclosure", you have deeded the home back to the lender and the lender forgives the debt. Lenders tell us that credit is affected in the same way as if the house was foreclosed upon.
Successfully completely the loan modification process is the best option. It is a "Win-Win" for the lender and the borrower. The borrower remains in their home. Psychologically, this is positive along with the financial issues being resolved. It is good for the lender as well because when a property is foreclosed upon, the note immediately loses at least 50% in value, and legal fees that can easily exceed $20k.
Stopping foreclosures is a challenge for the homeowner. With good communication, a good loan modification plan, proper counsel and professional guidance, the process can be mitigated. The homeowner remains in the home under better circumstances, the lender avoids the financial losses associated with the foreclosure process and usually is able to re-coop the losses over a period of time.
Our current economic situation demands that we are proactive in various ways to avoid foreclosure. By taking a proactive stance, we will effect change that over time that will improve the current economic crisis.
Apart from those individuals who commit mortgage fraud...take out a loan without ever intending to pay...I have listed a few reasons that can cause a homeowner to stop making payments:
1.] Loss of employment
2.] Medical emergency or sudden illness
3.] Death in the family
4.] Divorce
5.] Excessive debt obligations
6.] Job status/financial changes
7.] ARM changes
8.] Unforeseen major home expenses
The best way to avoid foreclosure is to prevent the filing of a "Notice of Default". Lenders do not want a foreclosure on their hands, but will file a "Notice of Default" to protect their interests. If you are finding yourself in this type of situation, communicating with your lender to see what your options are is a prudent way of handling the problem, rather than waiting until the "Notice of Default" is in play.
The lender may agree to working out a payment plan to make up the back payments. This is called "Forbearance".
A rare but second option is "Payment Forgiveness". This is where the lender, based on your past history and present circumstances, may forgive one or two payments.
The lender may also allow you to add a small amount to your regular payment over the course of time to make up the difference, all the while keeping current.
In our current economic situation, Loan Modification is very viable option where the lender negotiates with the borrower, usually with the help of a "Loan Modification Professional" to change the terms of the loan. This varies from lender to lender and on a case by case basis. The borrower must demonstrate a hardship as well as be behind on their mortgage payments. Changes can range from a decrease in the interest rate, extend the length of the loan, or change an ARM to a fixed 30 year loan. At times the lender may forgive the interest accrued in a negative amortization loan and on a more rare situation principal reduction may come into play. With the new Obama plan, we should see more principal reduction to the current home market value when modifying loans.
If your house is in foreclosure, selling your home, selling your home in a short sale, or signing a "Deed-in-Lieu of Foreclosure" are all other options. When you sign the "Deed -in-Lieu of Foreclosure", you have deeded the home back to the lender and the lender forgives the debt. Lenders tell us that credit is affected in the same way as if the house was foreclosed upon.
Successfully completely the loan modification process is the best option. It is a "Win-Win" for the lender and the borrower. The borrower remains in their home. Psychologically, this is positive along with the financial issues being resolved. It is good for the lender as well because when a property is foreclosed upon, the note immediately loses at least 50% in value, and legal fees that can easily exceed $20k.
Stopping foreclosures is a challenge for the homeowner. With good communication, a good loan modification plan, proper counsel and professional guidance, the process can be mitigated. The homeowner remains in the home under better circumstances, the lender avoids the financial losses associated with the foreclosure process and usually is able to re-coop the losses over a period of time.
Our current economic situation demands that we are proactive in various ways to avoid foreclosure. By taking a proactive stance, we will effect change that over time that will improve the current economic crisis.
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