DROdio Real Estate

You have to admit, the current economic landscape makes it difficult for everyone, even the banks although you may not see it that way.  So what do you do if you've come upon hard times and you're no longer able to make your mortgage payment?  Do you sell your home?  But what if you owe more than the home is worth?This is the case for most people who bought within the last few years.  Housing values are falling, payments are rising along with the cost of living in almost every imaginable area.So what's a desperate homeowner to do?  Well, don't look to the bank to give straight forward answers, as they would in a perfect world rather you cough up the money and pay as agreed, even if current situations are less than perfect.Here are 4 tips you can look into with your lender in order to avert a foreclosure:Short SaleWhat Is A Short Sale?If a homeowner cannot keep up with their loan payments, they ask the lender to forgive a portion of the loan and allow the homeowner to sell the home for less than what is owed.  This is actually a good deal for the bank as they tend to lose on average 19% in a short sale and upwards of 40% if they go into foreclosure.The current climate in the market is as such that the bank would rather get their money however they can, but they want you to do it as you originally agreed.  Quite simply, make the payments.  But lenders are taking their time in evaluating short sale requests which waste more time and  money for them and heartache for the borrower.  The following details a typical situation experienced by homeowners waiting on decision to be made on a short sale offer:

John Fitzmorris, a short-sale expediter in East Stroudsburg, Pa., was working with Robson and Laura Pereira, who were behind on their mortgage."She worked, but he had a construction business that went defunct," said Fitzmorris. "That put them in trouble."Falling home prices in the area made a normal sale impossible; the couple was upside-down in their mortgage, owing more on the property than it was worth on the current market.After they fell behind on their payments, Laura Pereira said, her bank, HSBC (HBC), sent her a letter asking her to call for help. "I called them four or five times and they never got back to me," she said. "We had three [short sale] offers on the house at the time." Later, the loan was sold to First American.Fitzmorris, who has been doing short sales for more than 20 years, contacted First American (FAF, Fortune 500) about a short sale well before the foreclosure date.But after three months, the bank still hadn't approved the short sale, and the Pereira's property went to sheriff's sale. (First American declined to comment on specific cases.)"The offer we sent to the bank was $129,500," said Fitzmorris. "But another investor, TM Builders, bought the property at the sheriff's sale for $100,265."In the end, the bank lost $60,000 on the loan, when it could have lost $30,000 by doing a short sale.Ironically, TM Builders flipped the home to Fitzmorris's buyer for the $129,500 short-sale price, money the bank would have gotten had it acted more quickly."The sellers did what they could to mitigate the problem but the bank didn't respond, which hurt both the sellers - with an unnecessary foreclosure permanently impacting their credit - and the bank," said Fitzmorris.

Call your lender and ask about a short sale package which details the process of the short sale, what it would entail and their requirements.  Believe it or not, lenders are more amenable to short sales given the current climate, even though they are slow to approve such a deal.In California, homeowners are giving up and walking away from their homes and often times the bank has no recourse due to the laws around mortgage debt there.  So envision this as doing the bank a favor, as you're being upfront about what you need to remedy the situation and in this way the bank avoids having to take over the property, pay taxes, Realtor fees and maintenance which further cuts into their profit, if any.Keep in mind that the following reasons prevent the bank from acting quickly on approving a request for a short sale:

•  Mortgages are pooled and securitized making it difficult to get approval to change the terms  on a loan as it is often difficult to determine who owns the note
• Given the volume  of foreclosures and owners falling behind on their loans, this makes it difficult for servicers to keep up with the requests  for short sales

By all means, remain vigilant and persistent in your efforts to settle the debt.Loan ModificationA loan modification involves changes made to the loan which allow it to be reinstated under terms which allow the borrower to afford the mortgage payment.  In many cases this involves changing the interest rate and/or the term of the loan.  This works in cases where the borrower signed on for an exploding ARM which increases every 3, 6, 12 months or as specified on their agreement.If your lender doesn't readily offer such options housing organizations such as ACORN and NACA have programs in place to negotiate on behalf of the borrower with the lender.  Be prepared to find and list your financial information as this needed to make your case to the lender.Loan ExtensionA Loan Extension involves the bank suspending your mortgage payments for a certain period of time, typically three months of every 12 month cycle.  The amount that is unpaid during this time is  put at the end of the loan and is due at the end of the loan term.This may be helpful to those borrowers going through hard financial times and expect it to only last for a short time while they reorganize their finances.Principal Write DownA Principal Write Down means the bank will refinance the loan down to the current market value.  For example, if you owe $500,000 on a home that is worth $400,000 the bank may be willing to write down the balance owed on the mortgage to an amount closes to the  current market value of the home.This lowers the amount the borrower owes while also decreasing their monthly payment as the payment will now be based on the adjusted amount owed.  This is a rather popular option since many homes were overpriced in the market upswing a few years ago and the current situation is part of a market a correction.  Still, with elements known to most as the "perfect financial storm"->(rising gas prices, cost of living increases, high unemployment rate, companies going out of business), a principal write down is a welcomed solution as most want to keep their home even with the current economic downturn.Keep in mind none of these options are guaranteed.  You will need to be vigilant around understanding what options are available to you through your lender, nonprofit organizations and new laws being passed to remedy the current housing situation.  An informed homeowner is a smart homeowner, which one are you?

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This entry was posted on Tuesday, August 12th, 2008 at 10:59 pm and was filed under REO Foreclosure Listing Q&A, drodio.com. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.