This review and commentary is not intended to be a scholarly achievement. This is a quick and brief look at what is impacting the Real Estate Market. I will focus on:
1. Homeowners who stay current on mortgage
FOCUS: The Homeowner Affordability and Stability Plan was developed to provide refinancing up to 105% of the current market value for those stayed current on payments and have the income to support the debt. The program is limited to loans held or securitized by Fannie Mae or Freddie Mac = impacting up to approximately 50% of all mortgages in the United States.
PROBLEM: DO NOT QUALIFY - Property values have declined a significant amount compared to the amount owed, placing the homeowner and the lender in a position of having in some cases a 50% loss on the original loan amount. Many Banks/Lenders therefore fail to support the plan because they lose to much money. Don't blame the Banks/Lenders because in their eyes they have a homeowner making monthly payments in a timely manner so why change, sometimes they offer a Modification and refer you to Loss Mitigation. Loss Mitigation review your file within 3 to 9 months then say you have sufficient income to pay, you just need counseling to reduce your debt.
OUTCOME: Some go as far as depleting their savings and retirement account then start to go late on making monthly payments and make a financial decision to abandone the home. Other save their savings and retirement account and abandone the home.
2. Homeowners who are behind on their mortgage
FOCUS: Those that do not qualify for Refinance whether severely late payments, in foreclosure, headed for foreclosure, income does not support payment or home value/equity issues does not support Homeowner Affordability and Stability Plan.
PROBLEM: Homeowners go behind in their monthly payment 2+ months with the majority within the foreclosure process. Referral made to Loss Mitigation for file review - a process that has poor structure (Lenders not sure what they are doing or whether or not they prefer to foreclose; Employees that are clueless and receiving mix messages from the Lender; Various Lenders having varying criteria regarding who qualifies and what options/terms the homeowner qualify for; Homeowners having no clue how to setup their file/paperwork so they Lender can review!!!) caotic and painful to say the lease. may take 3 to 6 months then say you have sufficient income to pay, you just need counseling to red - disappointing and discouraging to say the best.
OUTCOME: Homeowners are taken advantage of by all parties involved, including themselve due to a lack of knowledge. Homeowners give up and simply walk away. Foreclosure process completes before modification has an opportunity. Lenders push for a Forbearance Solution resulting in further damage to homeowners ability to stay within home. Courthouse flooded with foreclosure cases.
3. Buyers looking to purchase a home
FOCUS: Some buyers are either scared, think an opportunity is there BUT lets wait and see if prices get better, or looking for that perfect shortsale... Lenders feeling the pain of unperforming loans increase their criteria and reduce the loan approvals - tightening their standards and reducing credit.
OUTCOME: Slow sales and frustrated buyers due to slow turn-around times 2+months for Lenders to approve shortsale. Properties going into foreclosure end up vandalized and other Lenders refuse to provide funds due to condition. Credit criteria across the boards (credit cards and any/all financing alternatives are placed on hold... slower sales, continued slow down in business activity resulting in slower job growth, increased unemployment... resulting in a cycle of foreclosures and a lack of financing.
4. Banks/Lending Institutions
FOCUS: Increased Unemployment, Tightening Credit, Increase Foreclosures, Losing Foreclosure Courtcases; Refusing to Lend; Refusing to Modify Mortgage Terms, Lack Financial Stability - Lender want their money back and they are charged with showing a return on their investment. Their inability to mitigate their losses is resulting in a continuing downward spiral.
OUTCOME: Continuing cycle of Foreclosure - Instability - Financial Losses
5. Investors
FOCUS: Fear, Lack of Liquidity, Wait and See
OUTCOME: Cutting their losses and attempt to maintain what they have safe and sound until the market improves.
Key to all this activity is the Banks/Lending Institutions. The Obama Plan requires Banks to act but they are remaining on the sidelines and tightening their credit requirements while they squeeze the homeowner for every penny due to their inability to avoid hardship. My solution is the focus must not be on Loss Mitigation, we need to focus on Lose Avoidance through proactive measures that stop the cycle. The Banks methodology of "Mitigating Loss" results in a continuing cycle and does not produce empowerment of the homeowner or the economy.
We need to build a bridge that will take the Banks/Lending Institutions out of the loop so that the economy can stabilize, which in turn will allow for the Financial institutions to stabilize. While the Homeowner Affordability and Stability Plan has merit to inspire stability, with the Banks/Lending Institutions playing the primary role for implementation the economy will continue to lag. Stability can only occur through strength not status quo.
Yesterday, I receive a phone call from someone looking for feedback on whether or not it was a good time for him and his wife to purchase their first home. Always eager to have that conversation, I called him back and we begun to talk particulars regarding where he was financially and what he wanted to accomplish within the near future. Of course I shared with him how the real estate market is in a great position for someone looking to purchase... BUT the key to enjoying this opportunity is to ensure you are in the best position to enjoy the benefits of such a purchase. After speaking for approximately 20 minutes several factors popped up to suggest in their particular circumstance it would be best to outline a roadmap of preparation.
With the world economy in turmoil - Euro Unemployment - OVER 9% and Increasing, US Unemployment - OVER 9% and Increasing, stock prices and retirement plans bleeding wealth and in a perpetual negative growth cycle, Oil Prices - Sporadic, the Financial Sector - in Confusion... Banks forced to for go private ownership and accepting public funding, Banks developing artificial barriers to lending while refusing to provide credit and worst of all withdrawing credit previously promised and paid on in a timely manner. An overall lack of economic direction worldwide as nations point fingers, political leaders try to position themselves as being 'the solution' and journalist sensationalize 'the news' in an effort to increase their bottomline, ratings and to pursue their political agenda - sticking their hands out, increasing their coffers. What is the everyday person to do? Prepare. Now that you know the rules of engagement... Prepare...
ABA Chief Economist James Chessen said: "When people lose their jobs or work fewer hours, it makes it that much harder to meet their obligations. Unfortunately, we're going to see higher job losses in the next year, and I expect elevated delinquencies."
Assess Your Priorities
The Obama Plan will not get the job done. Why? Because Banks are in a key position to determine what, when, where and how. Do not expect them to do anything but look at their bottom line. Because journalist - news organizations will report what, when, where and how to support their bottom line. Because everday people lack the political pressure to enforce and agenda that will allow for effective leadership and the implementation of policies 'for the people by the people.' Your focus must be your family and your personal growth. Preparation will allow you the opportunity to purchase a home (if you do not have one); shore up your retirement fund and assessing your risk tolerance while you make educated decisions that will directly impact your future quality of life; and all-in-all reposition your priorities and wealth to work for you. Recognize when your priorities are not in sync with reality or not conducive to future happiness and change.
Develop A Plan
The focus is to reposition your priorities and wealth to work for you. If you still have a job, Maximize Your Liquidity... Renegotiate your expenses with a sole focus on your priorities. you must educate yourself and have an ubderstanding of your needs. While you may think "Now is the time to buy that new house" -- your reality versus your perception may not be realistic. Suze Orman speaks to it in so many different ways... "for lack of knowledge my people perish." EDUCATE YOURSELF -- regardless of what your position is in life, it is not over and all is not lost -- you have an opportunity to position yourself for future wealth. I enjoy when people call me and share their goals and ask my opinion on how they can achieve their goals given their circumstances. In these hard economic times the field of opportunity/the playing field is even. The ones who will be successful within the coming years will understand where they stand and develop a (steps to success) that is manageable.
Each persons goals will be different, but the steps to accomplishing those goals remain the same. While someone with a stable job and income may look like they are in a better position from the other person who just got laid off from their employment, priorities are necessary, edcucating yourself is required, a plan must be developed and you must execute one step at a time. Your plan must be:
You should be able to see the fruits of your sacrifice and those dreams being realized as you execute your step-by-step plan... one step closer each week/month. Ideally you want to spread out your milestones in 1 to 3 month increments.
Execute
Each decision you make, everything you do, every thought you have, every emotion you entertain is about execution. Your actions will determine your outcome. You have the power to achieve, not your circumstances. Whether you make a decision to give up or you agressively pursue change, their will be action on your part and your action (or inaction) will determine what opportunities you have in the future. There are ways to fight foreclosure, there are ways to lower your monthly payments, reduce your debts or build wealth. Through education you allow yourself the ability to execute. Now is the time to act... there are basic facts of life. Nothing stays the same, the exciting part of life is your actions will determine your future!!!
Questions and Answers for Borrowers - Homeowner Affordability and Stability Plan
Borrowers Who Are Current on Their Mortgage Are Asking:
Under the Homeowner Affordability and Stability Plan, eligible borrowers who stay current on their mortgages but have been unable to refinance to lower their interest rates because their homes have decreased in value, may now have the opportunity to refinance into a 30 or 15 year, fixed rate loan. Through the program, Fannie Mae and Freddie Mac will allow the refinancing of mortgage loans that they hold in their portfolios or that they placed in mortgage backed securities.
Eligible loans will now include those where the new first mortgage (including any refinancing costs) will not exceed 105% of the current market value of the property. For example, if your property is worth $200,000 but you owe $210,000 or less you may qualify. The current value of your property will be determined after you apply to refinance.
Complete eligibility details will be announced on March 4th when the program starts. The criteria for eligibility will include having sufficient income to make the new payment and an acceptable mortgage payment history. The program is limited to loans held or securitized by Fannie Mae or Freddie Mac.
As long as the amount due on the first mortgage is less than 105% of the value of the property, borrowers with more than one mortgage may be eligible to refinance under the Homeowner Affordability and Stability Plan. Your eligibility will depend, in part, on agreement by the lender that has your second mortgage to remain in a second position, and on your ability to meet the new payment terms on the first mortgage.
The objective of the Homeowner Affordability and Stability Plan is to provide creditworthy borrowers who have shown a commitment to paying their mortgage with affordable payments that are sustainable for the life of the loan. Borrowers whose mortgage interest rates are much higher than the current market rate should see an immediate reduction in their payments. Borrowers who are paying interest only, or who have a low introductory rate that will increase in the future, may not see their current payment go down if they refinance to a fixed rate. These borrowers, however, could save a great deal over the life of the loan. When you submit a loan application, your lender will give you a "Good Faith Estimate" that includes your new interest rate, mortgage payment and the amount that you will pay over the life of the loan. Compare this to your current loan terms. If it is not an improvement, a refinancing may not be right for you.
The objective of the Homeowner Affordability and Stability Plan is to provide borrowers with a safe loan program with a fixed, affordable payment. All loans refinanced under the plan will have a 30 or 15 year term with a fixed interest rate. The rate will be based on market rates in effect at the time of the refinance and any associated points and fees quoted by the lender. Interest rates may vary across lenders and over time as market rates adjust. The refinanced loans will have no prepayment penalties or balloon notes.
No. The objective of the Homeowner Affordability and Stability Plan is to help borrowers refinance into safer, more affordable fixed rate loans. Refinancing will not reduce the amount you owe to the first mortgage holder or any other debt you owe. However, by reducing the interest rate, refinancing should save you money by reducing the amount of interest that you repay over the life of the loan.
To determine if your loan is owned or has been securitized by Fannie Mae or Freddie Mac and is eligible to be refinanced, you should contact your mortgage lender after March 4, 2009.
Mortgage lenders will begin accepting applications after the details of the program are announced on March 4, 2009.
You should gather the information that you will need to provide to your lender after March 4, when the refinance program becomes available. This includes:
Borrowers Who Are at Risk of Foreclosure Are Asking:
The Homeowner Affordability and Stability Plan offers help to borrowers who are already behind on their mortgage payments or who are struggling to keep their loans current. By providing mortgage lenders with financial incentives to modify existing first mortgages, the Treasury hopes to help as many as 3 to 4 million homeowners avoid foreclosure regardless of who owns or services the mortgage.
No. Borrowers who are struggling to stay current on their mortgage payments may be eligible if their income is not sufficient to continue to make their mortgage payments and they are at risk of imminent default. This may be due to several factors, such as a loss of income, a significant increase in expenses, or an interest rate that will reset to an unaffordable level.
In general, you may qualify for a mortgage modification if (a) you occupy your house as your primary residence; (b) your monthly mortgage payment is greater than 31% of your monthly gross income; and (c) your loan is not large enough to exceed current Fannie Mae and Freddie Mac loan limits. Final eligibility will be determined by your mortgage lender based on your financial situation and detailed guidelines that will be available on March 4, 2009.
No. For example, if you own a house that you use as a vacation home or that you rent out to tenants, the mortgage on that house is not eligible. If you used to live in the home but you moved out, the mortgage is not eligible. Only the mortgage on your primary residence is eligible. The mortgage lender will check to see if the dwelling is your primary residence.
Yes. Mortgages on 2, 3 and 4 unit properties are eligible as long as you live in one unit as your primary residence.
Only the first mortgage is eligible for a modification.
The primary objective of the Homeowner Affordability and Stability Plan is to help borrowers avoid foreclosure by modifying troubled loans to achieve a payment the borrower can afford. Lenders are likely to lower payments mainly by reducing loan interest rates. However, the program offers incentives for principal reductions and at your lender's discretion modifications may include upfront reductions of loan principal.
Yes. To encourage borrowers who work hard to retain homeownership, the Homeowner Affordability and Stability Plan provides incentive payments as a borrower makes timely payments on the modified loan. The incentive will accrue on a monthly basis and will be applied directly to reduce your mortgage debt. Borrowers who pay on time for five years can have up to $5,000 applied to reduce their debt by the end of that period.
There is no cost to borrowers for a modification under the Homeowner Affordability and Stability Plan. If you wish to get assistance from a HUD-approved housing counseling agency or are referred to a counselor as a condition of the modification, you will not be charged a fee. Borrowers should beware of any organization that attempts to charge a fee for housing counseling or modification of a delinquent loan, especially if they require a fee in advance.
No. Mortgage lenders participate in the program on a voluntary basis and loans are evaluated for modification on a case-by-case basis. But the government is offering substantial incentives and it is expected that most major lenders will participate.
Ask your lender or counselor to be considered under the Homeowner Affordability and Stability Plan.
You may not need to do anything at this time. Most mortgage lenders will evaluate loans in their portfolio to identify borrowers who may meet the eligibility criteria. After March 4 they will send letters to potentially eligible homeowners, a process that may take several weeks. If you think you qualify for a modification and do not receive a letter within several weeks, contact your mortgage servicer or a HUD-approved housing counselor. Please be aware that servicers and counseling agencies are expected to receive an extraordinary number of calls about this program.
You should gather the information that you will need to provide to your lender on or after March 4, when the modification program becomes available. This includes
Contact your mortgage servicer or credit counselor. Many mortgage lenders have expressed their intention to postpone foreclosure sales on all mortgages that may qualify for the modification in order to allow sufficient time to evaluate the borrower's eligibility. We support this effort.
During the Thanksgiving Holiday I had an investor friend contact me requesting for information regarding what he can offer buyers interested in purchasing his newly renovated home. Being the Finance man that I am I immediately thought numbers, seller concessions and the like. He is using the For Sale By Owner approach while maintain the willingnes to participate with Real Estate Agents and Brokers. What would you do if provided this opportunity?
I am interested in any feed back from this site, what type of feedback would you provide or suggest? Please feel free to comment or email direct.
Previously a writer commented on the results of a Virginian Focus Group conducted November 20, 2008 by Peter Hart and aired November 28, 2008 on C-SPAN. Mr. Hart stated that the Group was willing to cut Obama some slack based on the current condition of the economy. Well, I say "it is time for change." For too long we have been expecting our Government and Big Business to UNDER PERFORM. We have lowered our expectations and now, in todays times, you do yourself and the world a dis-service if you lower expectations.
No flexibility for Obama or anyone else, for that matter. We, the American People, will not give anyone flexibility when we are loosing our jobs, loosing our homes and fighting to find a way to put food in our families mouths. No flexibility for anyone who has the power to made a difference but either decides to do nothing or does not have the intelligence to do anything. Obama is not the President so we, the American People, are not giving him ANY flexibility.
We expect him to be forward thinking... HE IS DOING THAT; we expect him to be pro-active and transparent... HE IS DOING THAT; and FINALLY WE DEMAND FOR HIM TO BE READY... waiting for January 20, 2008... time will tell. I have always been an Obama supporter, but my support is based on his promise of change. I, as an Obama supporter, do not believe he needs flexibility. I do not believe change happens immediately, but I KNOW the steps to change when I see it and I (as an American) DEMAND for our Government to work for the best interest of the American People.
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