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October 21, 2007
Bankers Say More Mortgage Contraction Ahead
Members of the Mortgage Bankers Association meeting at their annual convention in Boston heard predictions from the organization’s chief economist that mortgage originations will fall 18 percent in 2008 and another 6 percent in 2009.
"We have not yet seen fully the impact of the credit shock to the U.S. and world economies, and the severity of that impact will depend on how long it takes for the markets to return to normal functioning and where credit spreads ultimately settle," MBA chief economist Doug Duncan told reporters in a preview of his Wednesday convention speech.
The MBA expects sales to hit bottom in the third quarter of next year, after existing-home sales decline a projected 12 percent this year to 5.72 million units sold. Existing-home sales are expected to decline a further 10 percent next year before growing by 5 percent in 2009.
The MBA forecasts a 2 percent home price decline both this year and next year, with prices flattening out in 2009.
With the current glut of homes for sale, "any significant increase in homebuilding is probably years off," Duncan said.
Posted by Jeff at 7:47 AM | TrackBack
October 18, 2007
How to Handle a Loan Modification
You’re suddenly notified of a higher monthly mortgage payment and you’re unable to afford it. Yet you already have a substantial down payment on your home and have been paying your mortgage on time for a few years, building up some equity.
You would think that would make you a good candidate for a loan modification, a change in the terms of your mortgage that would result in a payment you can afford. But you could be in for a surprise.
Lenders may actually be quicker to foreclose on your home than they would on that of your neighbor, who put no money down and owes more than the home is worth!
Why? Lenders would rather foreclose when they believe they can sell the home and recover out-of-pocket expenses, principal and interest and fees. If you have substantial equity in your home, the chances the lender can sell and recoup the entire mortgage balance are much greater.
Although it seems counterintuitive, you might have a better chance at negotiating a loan modification if you start letting your payments lapse. A missed loan payment can strengthen your case.
If you do seek a loan modification, expect to feel like you’re beating your head against a brick wall. But don’t give up. Too many people do. This is a problem that will not go away by itself. It will result in a sheriff’s sale, foreclosure and eviction.
Loan modification is “not a panacea. There’s just not a perfect solution to these problems. Typically, servicers will insist upon accrued interest.
This generally means that a modification will lower your monthly mortgage payment or let you skip a few payments, but the term of your loan will be extended. Bottom line: You’re paying off at least the same amount of debt and sometimes more.
Expect frustration
To get the process started, it’s always best to ask for a lender’s “loan mitigation department” or the “real estate owned (REO) department.” Still, getting a modification can prove frustrating.
I can tell you the process takes a few hours a day regularly — for anywhere from four to eight weeks. Some servicers have set up call centers in India.
Expect documents and records to get lost as they’re faxed back and forth. Get a supervisor’s name, and expect the process to repeat itself. It can be a tough task if you have to work for a living.
The key is to prepare in advance, and let your lender know up front, with complete documentation, what kind of payment you can afford.
This involves some homework before getting on the phone. Round up recent pay stubs, current or prior year W-2 forms, bank statements, property tax bills and insurance bills. If possible, obtain appraisal information for your home. Many property assessors’ offices will have data online or you can obtain an estimate of value on real estate Web sites, although those are often inaccurate.
Have you already tried unsuccessfully to sell your home? Have copies of your property listing agreement with the real estate agent. This way, you can demonstrate, for example, that you owe $200,000 on the mortgage and you haven’t received a single offer on your $180,000 listing price in three months.
Calculate your debt-to-income ratio in advance. This can be key to determining what kind of payment you can afford. A number of online calculators can help with this calculation.
Make a point of showing and documenting to people you communicate with that there’s no possibility I can afford the debts exceeding monthly income. I need to cut my payment to X dollars per month to make mortgage payments.
Credit dings
Always keep in mind that the lender and servicer don’t want to go through the expense of evicting you. They prefer the option makes them more money or costs the least. Present your solution with that in mind.
Remember that interest-rate reductions don’t show up on credit reports. But expect any payment modification to show up on your credit report and hurt your future efforts to obtain loans. Don’t expect a loan modification to necessarily get you out of debt either. A loan modification may be faster and more lucrative than attempting to sue your lender for predatory lending violations, if you think your jump in payment is abusive.
Simply because a mortgage is facing an interest rate reset doesn’t mean a homeowner was a victim of predatory lending. Those that buy mortgages look over the paperwork carefully for loans written in violation of predatory lending laws.
Posted by Jeff at 6:58 AM | TrackBack
October 4, 2007
Traders Bet That Home Prices Will Fall 10%
Traders are betting that home prices in 10 major cities will drop by 10 percent between mid-2007 and November 2011, according to an analysis of housing futures traded on the Chicago Mercantile Exchange.
The contracts have been trading since May 2006, but last month were modified so that traders could bet on prices as long as 60 months into the future. The trading, which has been fairly light so far, is based on expected movements in the S&P/Case-Shiller house price indexes.
Here are the expected four-year changes in average home prices for selected metro areas, based on the futures contracts:
All 10 metro areas: -10.2 percent
Chicago: -6.6
New York: -12.1
Washington, D.C.: -13.3
Boston: -13.8
Denver: -14.4
Los Angeles: -15.0
Las Vegas: -18.1
San Diego: -18.6
San Francisco: -25.9
Miami: -27.9
Source: The Wall Street Journal, James R. Hagerty (10/04/2007)
