Just in from the AP Wire… “Fed adopts plan to curb shady mortgage practices”

WASHINGTON – The Federal Reserve has adopted rules to give home buyers more protection from the types of shady lending practices that have contributed to the housing crisis and propelled foreclosures to record highs.

Chairman Ben Bernanke and his central bank colleagues approved a plan Monday that would crack down on dubious lending practices that have hurt many of the riskiest “subprime” borrowers — people with tarnished credit histories or low incomes.

Read more…

I was reading “Housing rescue stalls in Senate” by Associated Press Writer JULIE HIRSCHFELD DAVIS

The article pertains to a bipartisan forclosure rescue bill that has lots of support and was moving well until Sen. John Ensign, R-Nev. attempted to add a $6 billion package of tax breaks for renewable energy producers.

The article also mentioned other reason for the delay…

The stalemate contributed to a pre-vacation Senate traffic jam of high-profile legislation awaiting completion, including the broad housing  package, a terrorist surveillance bill, and bills to fund the Iraq war and avert Medicare cuts.

Senate Majority Leader Harry Reid, D-Nev., said he was determined to complete the housing measure – which also includes long-awaited overhauls of the Federal Housing Administration and Fannie Mae and Freddie Mac, the government-sponsored mortgage giants – but that it will have to wait until next month, after lawmakers return for a weeklong July 4th break.

Thoughts on the Matter

Honestly, what was Sen John Ensign, R-Nev thinking? Environmental issues and looking for ways to increase / promote renewable and sustainable energy (see our Green Blog for more on  Green Energy) are very important but this item has no business being piggy-backed with a foreclosure rescue bill.

It’s kind of ridiculous. Our politicians need to keep focus on the real issues at hand and think about whats best for the people right now, before they push their own personal agendas. Now because of this hold-up those folks who are close to losing their homes in foreclosure, are sweating it out and left waiting until talks resume in a week after the July 4^th holiday.

In today’s real estate market we are seeing a significant amount of short sales and bank-owned properties listed. How does one know whether they should attempt a short sale or simply foreclose? Here is some information about the process of a short sale and how a short sale vs. a foreclosure affects your credit.

Short Sales
The term ‘short sale’ is a bit misleading because they aren’t always short. In a short sale, everything depends on the loan company. The first step to starting a short sale is to contact a real estate agent. In my personal opinion, I would choose a realtor with at least 10 years experience to ensure they are knowledgable and will be able to handle a short sale.

The real estate agent will then determine a value for the home that is below market value so that the house will hopefully be sold quickly. This value is going to be less than the amount owed on the loan so when an offer is made, that offer is then sent to the loan company with a packet. Then the loan company decides whether they will accept it or not. If there are two mortgages on the home, a short sale can be more difficult because the second mortgage company may not get any money, therefore they may not agree to any terms. But, you do not have to be delinquent on payments to have a short sale approved.

Often times, the loan company will absorb a lot of time deciding on whether to accept an offer, sometimes up to three months. This means the buyer needs to be committed and really want the property. If the offer is accepted and escrow is completed you will be relieved of your debt in most cases and about 100 points will be deducted from your credit score.

Foreclosures
A foreclosure happens when a homeowner defaults on their mortgage. The loan company sends a letter of default and notifys the occupants that the house will enter into foreclosure. A house can still be up for a short sale during the foreclosure process and if the bank accepts the offer foreclosure will be stopped.

Foreclosure damages a credit score by about 250 points. Foreclosure is absolutely something a homeowner wants to avoid if they intend to use their credit in the next 5-7 years.

With the rate of foreclosures and homeowners defaulting on their mortgages, most lenders are willing to help consumers keep their current home loan by modifying the existing loan to a new interest rate.

By modifying an existing loan, the homeowner is able to stay in the home with a new, lower payment than what the adjustable rate loan was offering. Modifying an existing loan requires time on the part of the consumer but is often much less expensive than refinancing and in cases where a refinance is not possible due to loan to value ratio, loan modification may be the only option besides a foreclosure or short sale.

Here are tips on getting an existing loan modified:

1. Call the customer service department of the loan company, not the billing department. The billing department is interested only in collecting money, the customer service department will probably be more courteous.

2. Explain to the representative that you are current on your payments but you won’t be able to stay in the house at the current rate. You want to stay in it but you’ll need to give the house back. Then let them talk. They should offer to qualify you for a loan restructure or modification.

3. If they do offer you a loan modification you will be sent to the loss mitigation or loan retention department. You will be set up with a representative and will be asked to send in financial information. They want to make sure that you can actually afford the house and that you didn’t get into a house that was just way over your head. When they determine that you can actually afford the house then they will draw up new loan documents.

4. Now at this time you may need to be the squeaky wheel. If you aren’t getting a response back from them on the approval of a loan modification you should call at least once a week. Time is of the essence for you.

5. Loan modifications typically take 45-60 days. Even if the loan company is overloaded with restructuring loans it should still be handled in a timely manner, that is why phone calls must be made to check the progress of your account.

6. When you receive the loan documents you will probably be asked to pay some legal fees and have the documents notarized. You then send them back and hope everything goes smoothly. Once again, keep in contact with the loan company because they are dealing with thousands of accounts, yours is just another number.

7. Sometimes mathematical errors are caught when the modified loan goes through underwriting. This will slow the process and possibly cause them to ask you to get more papers notarized. In most cases this won’t be necessary if it is a document without a signature. Ask them if they can just send that one or two pieces of paperwork and you will sign them so you don’t have to get the entire stack notarized again.

8. Be sure to really go over the math with your new loan. Often times the loan company will tell you that they will take care of one months payment for you but they just roll it into the value of the loan. You may or may not want that.

9. Make sure you ask questions. You may think they are doing you a favor but they really want to modify your loan just as bad as you want to stay in your house. Ask what kind of loan they will be proposing, will it be a 30-year fixed rate, will it go back to the interest rate before the last increase, or will they give you a new rate for two years and then adjust it again.

Loan modification or restructuring is a better option for most homeowners than foreclosure. It keeps your credit looking good and allows you to keep your family in your home.

We recently completed a major overhaul of the Tehachapi Realtors. We gave it a major face lift, made the pages wider and reorganized a few things. At the same time we moved the website into a content management system and added the Tehachapi Real Estate Blog.

With this overhaul we’ll also be restructuring our advertising opportunities. We’re still working out all the details but we’re talking about offering a free basic listing to all real estate related businesses and allow for ala carte upgrades to those listings for a small annual fee. We’re also talking about offering banner ad placements.

We’ll post the information as we have it so you might want to Subsribe to the RSS feed.

Feel free to share any thoughts on how we might be able to make this site more useful and we’d also love to hear your feed back about the new website.