The House is expected on Wednesday to pass a $300 billion housing rescue bill aimed at helping troubled homeowners avoid foreclosure and supporting mortgage giants Fannie Mae and Freddie Mac. If the bill is then passed by the Senate and signed by President Bush, who withdrew his threat to veto the legislation, thousands of at-risk borrowers will be able to refinance their unaffordable old mortgages into new, low-cost fixed-rate Loans insured by the Federal Housing Administration.
The Congressional Budget Office estimates that 400,000 borrowers with $68 billion in loans may benefit from the program - but the bill allows for as many as one or two million borrowers to participate.
Who’s eligible?
Qualified borrowers must live in their homes and have loans that were issued between January 2005 and June 2007. Additionally, they must be spending at least 40% of their gross monthly income on all household debt to be eligible for the program. They can be up-to-date on their existing mortgage or in default, but either way borrowers must prove that they will not be able to keep paying their existing mortgage - and attest that they are not deliberately defaulting just to obtain lower payments. Before a homeowner can get an FHA-backed mortgage they must first retire any other debt on the home, such as a home equity loan or line of credit. Borrowers are not permitted to take out another home equity loan for at least five years, unless it's to pay for necessary upkeep on the home. To get a new home equity loan, borrowers will need approval from FHA, and total debt cannot exceed 95% of the home's appraised value at the time.
How can I apply?
Borrowers can contact their current mortgage servicer or go directly to an FHA-approved lender for help. These lenders can be found on the Web site of the Department of Housing and Urban Development.
How does the refinancing process work?
This is a voluntary program, so lenders holding the original mortgage have to agree to rework a given loan before things can get started. The bill requires lenders to make major concessions, writing down the value of the loan to 90% of the homes current value. In areas where prices have plummeted by as much as 20% that will mean a substantial loss for the lender. But lenders won't sign off on a workout unless they think that they'll lose less money on that than they would by allowing a home to go through the costly foreclosure process. Each loan will have to be underwritten by an FHA lender on a case-by case basis. That means the banks will do a new appraisal to determine the home's current value, as well as examine and verify income statements, bank accounts, job histories and credit scores. Based on that new appraised home value, the FHA lender determines now much the original lender has to reduce the original mortgage by, so that it will reflect 90% of the home's market value. If the original lender agrees to the write down, the new lender buys the old loan and takes over the reworked mortgage. As part of the deal, the old lender writes off any fees and penalties on the original mortgage, including prepayment penalties and accepts the proceeds from the new loan on a paid-in-full oasis. Additionally it pays the FHA an up-front premium equal to 3% of the mortgage principal.
What does it cost?
Where should be little up-front costs for borrowers to bear. Loan origination fees will vary by lender, but these can usually be paid by the borrower over the life of {HB loan in the form of a slightly higher interest rate. However, the refinanced loans do come with many strings. For one thing, borrowers are responsible for paying an insurance premium to the FHA guaranteeing the loan, which will be 1.5% of the principal annually. Borrowers also agree to share any profits from future home price appreciation with the FHA. To do that, they'll pay a "3% exit fee" of the mortgage principal to the FHA when they resell or refinance. Plus, they'll agree to pay the FHA 100% of any profits they realize from higher home prices if they sell or refinance within a year. So if the original loan principal is $200,000 and the home Sells for $250,000, the borrower will owe the FHA $50,000, minus costs. After a year, borrowers will share 90% of the profits with the FHA. The percentage keeps dropping in 10% increments to 50% after the fifth year, where it stays.
What will I save?
Savings depend on what borrowers are paying for their present loan and where they live, but for most people it will be substantial, even factoring in the FHA fees.
In areas that have sustained such as Sacramento, where prices have fallen about 30% over the past year, some loans might be reduced by more than 40%.
Additionally the FHA loans carry reasonable interest rates which are fixed for the life of the loan. as opposed to a sub prime adjustable rate mortgage that can jump higher every six months.
Residents of the Live Where You Play community came out in force last weekend to help promote local businesses at the Lakeview Plaza in Discovery Bay. Under a hot August sun, the outdoor celebration was another perfect day in paradise, complete with wine, music and yes, cheeseburgers.
“This is nice,” said Juli Peterson of the event she attended with friends. “It’s relaxing and fun. It’s an easy way to spend a Sunday afternoon.”
The local event, sponsored by the merchants in the Lakeview Plaza, featured an array of catered goodies, home-baked treats and elegant appetizers. Live music was provided by local band Take 2, and the Discovery Bay Sports Bar and Steakhouse held free drawings every half hour. Prizes included the artwork of Mark Godard, internationally renowned for his silly, sly and whimsical paintings of martini glasses and animated olives.
Jan and Mike Todorovic, property owners of Lakeview Plaza in general and two of the plaza’s businesses in particular (The Spa & Salon at Discovery Bay and Todorovic Dentistry), felt that given the current economic times, a local business block party might be a nice way to bring the community together – and they were right.
“We had a great turnout, even better than we expected,” said Jan. “Everybody’s a little slow right now and we just wanted to help promote all these wonderful businesses. Discovery Bay has supported us tremendously and we just wanted to return the favor.”
The event also marked the grand re-opening for Marples & Associates Realtors, established over 30 years ago at what is now the Lakeview Plaza site. And although Marples & Associates operates offices throughout East County, this particular location has sentimental meaning.
“We are just so thrilled to be back home, and we are thrilled with the turnout,” said Cathy Marples. “We’ve been wanting to come back here forever, but there was just no room in the manger, so this is a wonderful homecoming. It (the party) is also a big boost for the community and a chance for us to say thank you to a community that has given us so much.”
Also new to the plaza is the Discovery Bay Visitors Center. Open just a few weeks, the center will house the Chamber of Commerce offices, Dove Publications and a conference room available to chamber members. Residents and visitors can purchase Discovery Bay memorabilia and clothing at the center, and artwork by local artists will also be on display and available for purchase.
“This is a great place for residents and businesses to get local information about their community,” said Chamber President Tim Mobley. “Discovery Bay has never had something like this before and we’re very excited. It will be a nice addition to the plaza and the community.”
For all the merchants at Lakeview Plaza, including the Oriental House and Pierce Chiropractic, the afternoon event was such a success that the next get-together is already in the works.
“We’re planning another community event for Christmas,” said Jan. “We’d like to have Santa on a fire truck, pictures, and all kinds of things. This was so much fun; we can’t wait for the next one.”
Short Sales happen when a lender agrees to accept less then the amount owed against the homes because there is not enough equity to sell and pay all costs of sale. Not all lenders will negotiate a short sale, and that is why a real estate agent can be tremendous help by contacting the lenders loss mitigation department to find out.
You can’t just wake up and decide you are going to sell your homes at a loss by asking for a short sale. Typically, lenders won’t even consider a short sale if your payment are current. Lenders will be more agreeable to negotiation if you payments are in arrears. Plus, if you have cash assets, the lender might try to tap those accounts. Doing a short sale is not for the faint of heart.
How is the Seller’s Credit Affected?
According to David Steep, division manager at Vitek Mortgage, sellers will take a bigger hit on their credit report by going through foreclosure or giving the lender a deed-in-lieu of foreclosure. Steep says the points lost on a FICO score (the formula used to assess a borrower’s risk factor) are as follows:
Foreclosure or Deed-in-Lieu of Foreclosure
Both of these solutions affect the credit the same. Sellers will take a hit of 250 to 280 points. This means is a seller’s IFCO score before foreclosure was 680, it could dip as low as 400.
Short Sale
The affect of a short sale on a seller’s credit report is much less damaging. The ding on credit will show up as a pre-foreclosure in redemption status, Steep says, which will result in a loss of 80 to 100 point. This means a short sale with a previous FICO of 680 will see a fall to 580 to 600.
Waiting period before buying another home
Foreclosure or Deed-in-Lieu of Foreclosure
Steep says a seller who wants to buy another home after foreclosure will end up waiting about 36 months before a lender will offer any kind of interest rate that makes sense.
Short Sale
The good news for a short sale seller is the wait is much shorter before buying another home. “They can buy again in about 18 months at a reasonable interest rate” says Steep.
Short Sale/Foreclosure Deficiency Judgments
The bad news is a seller could be subject to a deficiency judgment for the difference between the loan amount and the amount paid. In California, purchase money loans are not subject to efficiency judgments; however, hard money loans, home equity loans and refinances are. Other states have laws regarding personal guarantees, which could also result in a deficiency judgment if the home owner personally liable for loan repayment.
The lender has sole discretion whether to pursue a deficiency judgment in those instances when the judgment is permitted. To determine whether a pending foreclosure or short sale is subject to a deficiency judgment, talk to a real estate lawyer.
For sellers trying to decide whether to let a home go through foreclosure versus attempting a short sale, salvaging their credit is the main advantage to doing a short sale. Be sure to seek legal and tax advice before making this decision.
Article obtained from about.com and authored by Elizabeth Weintraub who has an extensive background in real estate spanning more then 30 years.
On behalf of Cathie Marples and The Marples Team, I want to thank you for the opportunity to present our services. I am confident that we can provide you with unparalleled real estate representation. Over 70% of our business is derived from referrals and past clients. We believe that this is the clearest and truest reflection of our unequaled commitment to our clients and their trust in our representation.
If you are interviewing other Realtors, I would ask you to closely consider these facts:
Cathie Marples & The Marples Team closed nearly 200 real estate transaction sides in 2006. Our nearest competitor closed approximately 110 transactions. We are currently on pace to exceed our all time sales record.
Cathie Marples & The Marples Team, due to our position, represents the highest probability of selling your home, representing the buyer and producing the lowest possible commission expense. No Realtor Group in your marketplace currently competes with the level of sales attained by Cathie Marples & The Marples Team.
Marples & Associates Realtors have 30 years experience selling real estate in your marketplace. Our Team has successfully closed several thousand transactions totaling nearly one billion dollars in homes sales.
Cathie Marples & The Marples Team are the only real estate group in your marketplace with a four member, full-time staff who oversee every aspect of your real estate transaction with unequaled attention and commitment.
Our Team has an administrative staff and expert Realtors who are available 7 days a week to show property to our buyers and preview all of our active listings!
Cathie Marples & The Marples Team hold every major sales record for residential homes sales in your marketplace. We believe this success is closely tied to our unrelenting philosophy of treating every real estate transaction as if it were our own.
Please feel free to call our offices if you have any questions. Thank you for your time and we look forward to working with you.