News From the Housing Trenches

Good News and Bad News

The latest housing figures are now in with mixed results.  The good news is that the number of seriously delinquent loans is down to a bit less than 10% of all loans, so it does look that with short sales, loan mods and, perhaps also, the home buyers’ tax credit, the combined efforts of the federal government, lenders and home owners are finally having an impact.

But, another bit of statistical news is troubling. After a solid year of declines, the first-time mortgage delinquency rate has gone up. The most likely cause is, of course, the continuing crisis we are facing in employment.  After months without work,  eventually resources run out and unemployed homeowners must face the inevitable and start missing mortgage payments.

Choices If You Are Unwilling or Unable to Make the Mortgage Payment

So, what are the resources available to homeowners with underwater mortgages and/or no jobs? Well, with time we now have some clarity about the choices open to us.

One choice is to try for a refinance under the government program. With this, homeowners can get up to 125% of their property’s value. The catch is  the homeowner needs a job to apply and in California, at least, usually even this amount is not enough to cover the shortfall in value.

Another option is to search for a loan mod.  These fall normally under HAMP , the federal government’s Home Affordable Modification Program. This and all loan mod programs have been spectacularly unsuccessful as indicated in several previous posts. Suffice it to say, that even those who actually succeeded in obtaining these loan mods are now back in default in record numbers. The main reason is that the average mortgage, tax and debt loan for such homeowners is around 65%–a recipe for failure.

So, that leaves short sales. Even there we now have two flavors of short sales-regular and HAFA. The difference is that particpants in HAFA, the government-backed plan, must have first applied for a loan mod under HAMP. Having done that, though, such HAFA short sellers are guaranteed no deficiency judgment after the sale  by the participating lenders.  HAFA short sellers also get $3000 at close of escrow to help them move.

Which Is the Best Choice?

Short sales in my view are the way to go. Homeowners do eventually lose their homes, but statistically, that is taking quite a long time. The average homeowner in foreclosure is now an incredible, unbelievable 461 days behind in his payments. That is, short sellers are living  rent-free for months or even more than a year-on average. The stigma of short selling is now mostly gone. Those who short sale their homes can expect to be accepted for a new loan in as little as 18 months, provided that is the only negative on the credit.

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