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Refinance Your Mortgage No Matter How Far Underwater It Is

One million more homeowners have just become eligible for refinancing at the current very low interest rates. Until now, the federal Home Affordable Refinance Program (HARP) has been limited to homeowners with mortgages of no more than 125% of the value of their homes. By way of example, for a home currently worth $200,000, the mortgage could be no more than $250,000. Now that 125% limitation has been eliminated, allowing homeowners more deeply underwater to qualify for HARP refinancing. So some people who have not been able to take advantage of the low interest rates will be able to do so and get the resulting lower monthly mortgage payments. This change should especially help homeowners in those parts of the country hardest hit by reduced home values, where a large percentage of homeowners have been cut off from being able to use HARP.

To qualify under the revised refinancing:

1. You must have a mortgage owned or guaranteed by Fannie Mae or Freddie Mac, which include about half of all U.S. home mortgages. You can find out whether yours is by looking that up online at Fannie Mae and Freddie Mac or calling 800-7FANNIE or 800-FREDDIE (8 am to 8 pm ET for both numbers).

2. Your mortgage must have belonged to either of these two institutions by no later than May 31, 2009.

3. You cannot have been late on any of the mortgage payments during the last 6 months or on more than one payment in the last 12 months.

4. You can’t have already refinanced through HARP.

The program continues to be voluntary for the mortgage lenders, so there are additional incentives for them. Lenders have been accused of being extremely picky about income documentation and home valuation under HARP, apparently fearing that they would have to buy-back the new mortgages being sold to Fannie Mae or Freddie Mac. So the new changes eliminate most of that risk. As a result, the application process should be much easier and less expensive for borrowers.

Detailed rules are expected by the middle of November, with lenders ready to implement the revamped program starting around December 1.

 

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Know This Before Deciding to Sell Your Home

If you’re a homeowner who is selling his or her home for any of the following three reasons, think again: 1) you can’t afford the house payments, 2) you owe income taxes with a tax lien on your house, and/or 3) your mortgage modification application was rejected.

In my last blog I told you the first three of ten reasons why you should get advice from a bankruptcy attorney before selling your home. Here are the next three. All of these are about saving you money, and helping you make much better decisions about your home.  

1.  Can’t Afford the House Payments:   It’s sensible to sell your home if it’s more house than you need, or you’re not able to make the payments. But you may really need to hang onto the house, and are selling it because you think you have no choice. If so, you may instead be able to keep your home either by reducing the debt attached to the house or by reducing the rest of your debt so that you can afford the house debt. I gave you some ways to reduce the debts on the house in my last blog, and will give some more in the next one. As for reducing or getting rid of the rest of your debt, even if you are resisting the idea of filing bankruptcy “just so I can afford my house,” you still owe it to yourself to know your options. We live in truly extraordinary times in terms of home values and economic uncertainty. So especially now, it’s wise to be open to creative ways of meeting your financial needs.

2.  Have Income Tax Debt:   If you owe back income taxes, these taxes may have already attached to your home’s title with the recording of a tax lien. Or that may happen in the near future. You may feel extra pressure to sell your home to pay those taxes. But Chapter 7 and 13 bankruptcy options can often help you deal with your tax debts, sometimes in ways better than you expect. Some income taxes can be legally written off altogether. Others would likely be able to be paid much less than outside bankruptcy, through huge savings in interest and penalties, and other possible advantages. The details are beyond what I can cover in this blog. But if income tax debts or tax liens are part of why you are selling your home, first find out how bankruptcy would deal with them.  

3.  Your Mortgage Modification Application Was Rejected:   Mortgage modification programs—both governmental ones like HAMP as well as private ones—have been tremendously controversial and of questionable benefit to homeowners.  They are almost always terribly frustrating to go through. Without getting into all that here, there are definitely times when mortgage modification requests are rejected because the homeowner did not fully complete the application or the mortgage lender did not process it accurately. Often it is not really clear why the modification was not approved. After going through this challenging process without a reduction in your mortgage payments, understandably you may well feel like you have no choice but to sell your home. But sometimes a bankruptcy filing—either Chapter 7 or 13, depending on the circumstances—can help get a mortgage modification approved, either the first time or in a renewed application. Reducing your debts through bankruptcy provides you more resources to put into your house, generally making you a better candidate for mortgage modification.

Deciding whether to sell your home involves a whole lot of factors–personal, financial, and legal. Virtually every time I meet with new clients who are thinking about selling their home, they learn a bunch of things which puts that decision in a whole different light.  Often, my clients are pleasantly surprised by options and advantages they did not know were available. Let me help you, too, make an informed and wise choice about most important asset.

 

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The Option ARM Foreclosure Time Bomb Fuse is Burning . . . But Will it End with a Fizzle?

Does the recent increase in foreclosures signal the long-anticipated surge in defaults of Option ARMs (adjustable-rate mortgages) that were scheduled to reset their interest rates right about now?

That’s a question that came to mind when I noticed the recent uptick in new home foreclosures.

Option ARMs gave borrowers a choice of paying principal and interest, interest-only, or else lower payments covering only a part of the interest and none of the principal. Most people paid on the low end, which increased their principal balances every month. Plus many of them had low “teaser” interest rates. These rates would reset after 5 years, or sooner if the principal balance reached a certain threshold, say 120% of the original amount. People could get more house for less money, but with a greater gamble that house values would continue to rise.

Since $600 billion worth of Option ARMs were made from 2005 through 2007, we are now right in the thick of when they were scheduled to reset. A similar flood of resets among subprime mortgages in 2006 and 2007 likely was a major cause of the “subprime mortgage crisis” which ignited the Great Recession. Around that time lots of smart folks were warning about this huge second wave of mortgage defaults and foreclosures that was to hit now.

But it’s not happening, or at least not nearly with the intensity anticipated. Why not?

1. Because many of these mortgages never got as far as their reset dates. They fell into default as the economy got worse and property values declined. They’ve just been part of the mix of mortgages in the foreclosure pipeline through these last two-three years.

2. Something like 20% of the Option ARMs have been modified by mortgage lenders and servicers, many into fixed-rate mortgages. Although mortgage modification efforts overall have been roundly criticized for their ineffectiveness, the lenders recognized their self-interest in avoiding the anticipated Option ARM defaults and so they were proactive with this category of mortgages.

3. Because the economy has been so slow in its rebound, interest rates have stayed extremely low for much longer than most anticipated. As a result the interest rate resets have increased mortgage payments much less than expected. In fact, in some cases mortgage payments have actually gone down.

4. Unlike subprime loans which mostly went to homeowners with shaky credit scores, Option ARMs went to borrowers with average or better credit. Those that have not already defaulted, and who are getting relatively modest payment increases at reset time, tend to be borrowers who can better afford to make the payments.

However, there still are millions of Option ARMs, most of which ARE requiring payment increases when they reset.  A large percentage of ARMs are at least 30 days late. So although the reset impact is not nearly as bad as many anticipated, with the very shaky economy many homeowners with these mortgages, even if they had decent credit a few years ago, are very vulnerable now.

If you have an Option ARM, or any other kind of mortgage, and need advice about your options, please come in to see me.

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Is a New Wave of Foreclosures Rising?

In August, mortgage lenders started so many home foreclosures that the month-to-month increase was the biggest since August of 2007. For nearly a year the number of foreclosures has been relatively low as lenders have reacted to an explosion of challenges to the legality of their mortgage and foreclosure practices. But this new surge in foreclosure starts may reflect that the lenders think they have worked through these problems.

According to RealtyTrac, mortgage default notices–the first step in the foreclosure process—increased by 33% from July to August.

That increase has to take into consideration that July’s numbers had been relatively low. Not only had the number of foreclosure filings come down modestly—by 4%–from the prior month. They were also down significantly—by 18%–from a year earlier. In fact, July 2011 had the lowest foreclosure activity in 44 months.

Now with this 33% increase in August, the tide seems to be turning. But is it going to turn into a new wave of foreclosures?

That’s impossible to tell. Not only are there countless factors at play here, they shift all the time, reacting to the constantly changing environment.

Just take a look at one of the factors affecting how many foreclosures are filed: the ongoing legal challenges to foreclosures. These challenges are making their way through the court appeals systems. For example, just a couple days ago the Supreme Court of Alabama ruled that the embattled MERS (Mortgage Electronic Registration Systems) has standing to foreclose. That ruling will presumably open the foreclosure spigots in Alabama, because some lenders undoubtedly had held off on foreclosing while awaiting that ruling. Similar dynamics are at play in just about every state.

This means is that foreclosure trends can be very much a local and dynamic affair. This means you need local advice. Day in and day out I constantly deal with mortgage lenders, and help local homeowners make good decisions about their homes. Give me a call so that I can help you, too.

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