Girls Just Wanna Have Funds » Real Estate

Jingle Mail Revisted: Possible Bank Recourse And Borrower Consequences

Ginger — Fri, 17 Oct 2008 04:51:35 +0000

There’s been heavy talk recently around “walking away from foreclosures” and the devastating effect it’s having on banks and homeowners. Jingle mail occurs when the borrower drops the keys in the mail and sends them back to the bank as final step in walking away from their home due to a rising mortgage and hard economic times all around. But one thing we bet you hadn’t considered is that depending on the state, the lender may or may not have recourse or legal ability to seek the balance from you upon foreclosure in the form of a deficiency judgment.

Some states are non-recourse, which means they aren’t able to pursue a deficiency judgment against the borrower, most notable, the homes in California are non-recourse for purchase money mortgages.

Before walking away from your home consider ALL of your options:

Short sale: Call your lender to find out whether or not this is an option for you.
Loan modification: A loan modification can reduce your interest rate thereby changing your monthly payments to reflect one inline with your budget
Loan extension This option allows the bank to place your payments on hold for a period of time and the balance that is unpaid is put towards the end of your loan to be paid in a balloon payment at the end of the term. But this may not be available through all lenders.
Principal write down The bank will refinance your loan down to the current market value, giving homeowners some equity back in their homes and more reason to stay put as most homeowners are disenchanted by the negative equity and perception of their largest investment being worth nothing or very little to them.

The above mentioned options can be pursued through your lender or better yet through housing non profit organizations like NACA and ACORN.

If the above options aren’t available to you for one reason or another you may be thinking about walking away from your home altogether. Before you mail the keys, consider the following consequences:

Payment

You may be on the hook for the balance of what is owed after your home goes into foreclosure depending on your state and it’s laws around lender recourse. The lender may seek a deficiency judgment where you either pay it off or let it charge off on your credit report which leads to severe damage to your credit standing.

Taxes

You may also be taxed on the amount forgiven or the balance owed in either situation. The tax rate can range from 10-35% depending on your income. The IRS treats the discharge of the debt as income or it is listed as “discharge of indebtedness income” on your tax bill. So while losing your home is bad enough, just wait until you get the tax bill.

Now that you have more information, let’s take a look at how the situations are treated depending on whether or not you live in a recourse or non-recourse state. Take note of your state’s laws, the bank’s ability to see a deficiency judgment and, if so, then consider your tax liabilities. The IRS is far more tenacious in its collection of taxes owed so please consider the penalties and consequences of walking away from your home.

The following is a list linking to all the states and their respective laws and information around bank recourse:

Alabama	Alaska	Arizona	Arkansas	California
Colorado	Connecticut	Delaware	Florida	Georgia
Hawaii	Idaho	Illinois	Indiana	Iowa
Kansas	Kentucky	Louisiana	Maine	Maryland
Massachusetts	Michigan	Minnesota	Mississippi	Missouri
Montana	Nebraska	Nevada	New Hampshire	New Jersey
New Mexico	New York	North Carolina	North Dakota	Ohio
Oklahoma	Oregon	Pennsylvania	Rhode Island	South Carolina
South Dakota	Tennessee	Texas	Utah	Vermont
Virginia	Washington	Washington, DC	West Virginia	Wisconsin
Wyoming

If you live in a state that permits recourse then you are liable for the balance owed. If the sale did not yield enough proceeds to cover the balance then you, the borrower must pay the difference which includes the interest that accrues during the process of foreclosure.

For example, if you have a home that is worth $600,000 and you have a $675,000 loan, in a recourse state, the bank has legal standing to go after the borrower for the balance and the IRS will send you a tax bill for the taxes owed on the $75,000 as this is treated as income. The lender is required to send you a 1099 detailing the forgiveness of the debt of which a copy is also forwarded to the IRS.

If your loan is non-recourse then it is secured by the loan collateral. If the sale of your home in foreclosure does not cover the balance on the loan then your lender has no legal standing on which to pursue the remaining or outstanding balance. Therefore if you have a home that is worth $600,000 and you have a $675,000 loan, in a non-recourse state, the bank may not pursue the remaining $75,000.

Keep in mind that you could end up owing capital gains taxes if your loan is non-recourse. You are reading correctly: the bank is selling the house, you are not, still the IRS treats this transaction as if you are selling the home.

Straight talk from the IRS:

Publication 544:

“If you do not make payments you owe on a loan secured by property, the lender may foreclose on the loan or repossess the property. The foreclosure or repossession is treated as a sale or exchange from which you may realize gain or loss. This is true even if you voluntarily return the property to the lender. … You figure and report gain or loss from a foreclosure or repossession in the same way as gain or loss from a sale or exchange. The gain or loss is the difference between your adjusted basis in the transferred property and the amount realized.”

There you have it. Straight from the IRS. Please consider all your options before walking away from a home you worked hard to obtain. Foreclosure can have devastating consequences not only financially but psychologically as well. Please be sure to talk to your lender, CPA and Realtor to gain an understanding of the options available to you.

*Whispers* But if you decide to walk away because it’s just a devalued money pit, that’s alright with me, but you didnt read that here.

Question: Would you consider Jingle Mail if you lived in a non-recourse state?

So You Want To Fire your Realtor? Rights, Penalties and Recourse Upon Termination

Ginger — Wed, 30 Jul 2008 10:00:27 +0000

What are your rights with regards to Realtor representation agreements? Did you sign a buyer representation agreement? A seller representation agreement? If so, or if you’re considering it, this article is for you.

When we started the process of buying our home last year we went were forced to fire one and quickly find another. But before doing so we were faced with the issue of terminating the first agreement and making sure there were no continuing obligations with the broker as most agreements are really signed with the brokerage and not the Realtors themselves.

Realtor representation agreements are legally binding agreements which inform the buyer and agent of their rights and responsibilities to each other while engaged in a contract for services. This is known as agency The buyer grants the Realtor agency and the Realtor provides a service within the bounds of the agreement. However, every agreement doesn’t always end in a happy purchase or sale of a home. Sellers and Buyers may choose to terminate agreements for a myriad of reasons. Whatever the reasons, make sure that you read the fine print before signing the dotted line.

Let’s reiterate: READ THE FINE PRINT.

How To Cancel Your Realtor Agreement

This should typically be done in writing, not over the phone and not via email. If you do cancel your agreement via email, please be sure that you get confirmation and acknowledgment via email (or snail mail) of the Realtor’s response and plans to terminate your contract moving forward. In some cases, your agreement is with the broker of the company your Realtor works for and you will need to make sure that the broker has agreed to cancel the agreement at your request. You will need to obtain proof of this as well.

We live in a litigious society and you need to make sure you have concrete proof of said cancellation, receipt confirmation and acknowledgments by broker and Realtor that they will release you from the agreement and discussion of any potentials penalties for cancellation.

Your Rights

Read the fine print before signing any agreement as this is typically not done until something happens and the buyer or seller need to cancel the agreement. Does your agreement permit you to cancel within a certain time frame with no penalty? What about Realtor compensation upon cancellation?

Legally a Realtor cannot continue to represent you once you have terminated agency; however this does not prevent them from holding you to penalties per the contract you signed.

This may include:

Compensation fee
Commission for the sale of the home said Realtor accompanied you on a showing or open house or a home said Realtor presented to you

Recourse Upon Difficulty Exiting The Contract

Contact the broker
- Most brokers are more than happy to discuss the situation with you and offer you another Realtor within the company or simply terminate the contract. After all, bad news spreads like wildfire and they would rather have your business or release you from the contract without issue
Local Real Estate Board for clarification and/or complaint
- If your broker (for whatever reason) refuses to release you from the contract then your next recourse may be to discuss the situation with your local real estate board for clarification on your rights and/or to make a complaint.
Real Estate Attorney
- When all else fails, consult with a real estate attorney

Contracts can be tricky, again read the fine print and understand each point within the contract as buying and/or selling a home is a large and important transaction. You’ll want to make sure it goes as smooth as possible.

Chasing the Finish Line: Finally Closing On The Home In Jamaica

Ginger — Mon, 31 Mar 2008 05:54:58 +0000

photo credit: pingnews.com

Some of you know that I am originally from Jamaica, for those that didn’t, well I am! How I ended up here in a America is a long story but the short of it is that my father died shortly after I came here to the States some years ago. He left my brother and I the house we lived in and we have been trying to sell it for the longest time.

How long? 3 years. Why so long? I’m not sure, but between my living here in the States, being in school, getting married, personal life stuff, Jamaican bureaucracy and a tenant that has possibly worked my last nerve, closing is tentatively set for the end of April. What. A. Relief !!

A few thoughts as I near the end of this process….

I am more attached to the house than previously thought and even though I’ve been brought to tears while discussing the closing specifics its too far to go back now.

I learned the importance of setting up a proper will/estate/trust as this was the hardest process I’ve ever gone through in life. The short of it, if you have children, set up a trust in the even that you pass away with SPECIFICS. Let them know, let all parties involved what’s set forth in the documents so they are no issues upon your passing around clarification of final wishes.

Keep all important documents around final wishes and paperwork handy. Going through the court system to get copies of the death certificate, will and deed to the house have been one drama after the other. I wasn’t old enough to figure all of this out then but moving forward I’ve learned the importance of doing so.

I am not cut out to be a landlord. I am too much of a sap! I hear all the sob stories not knowing or sensing my tenant is pulling another fast one meanwhile she owes me 14 months of back rent! I wish I had it in me to kick her out but I didn’t. Still, working things out with her has given me an advantage I am seeing now in hindsight.

The money comes at an excellent time. No wedding or house to save for but debt to pay off, emergency fund and retirement accounts to fund. While it’s a tidy sum I am determined to be a good steward, the temptation is so strong to get hardwood floors and a deck but I know better!

I still miss my dad, terribly, and historically this has been a hard subject for me to discuss with anyone who asks about him. My dad was well respected in his community and whenever I visit I get the “you look so much like him” comments which are almost certainly a tear jerker. Selling his house opens up a new chapter in my life as it means I am that much more removed from the memories now.

First it was moving to the States, then finding myself in American culture, most recently it was getting married and now it will be finding myself once again. I am not sure why selling the house brings up all these old feelings but I am willing to process them to see what comes of it. I have been looking forward to the day that I’d be able to get this house off my back and now that it’s finally on the horizon, I can stand to wait a bit longer.

photo credit: â˜»mrhappyâ˜»

It’s sort of like wanting time to stop as the sun goes down while you enjoy the beauty of the sunset. Just a few more minutes while I remember old times in the park nearby the house, evenings when he came looking for me after the street lights were off, weekends at Devon House getting ice cream and spending all day at the beach. I’ll never forget his gentle temperament and unfailing patience with me even during the last days. There are times when I think he was taken away from me too soon, but again in hindsight, it was for the best.

Thankfully my husband has been really understanding during this time because the range of emotions I’ve experienced during this process have been draining. He has been nothing short of supportive and really stepped things up to help me get through it all.

This was supposed to be a long detailed post about the personal finance related lessons I learned but they really came from learning how to close the door on the past while opening another to the future. The loss of a parent is never easy but it does get better with time. I just hope I get to a point when it won’t hurt as much and I can reflect on the happier times and know that he is in a better place.

Debunking the Myth That You Need 20% Down to Buy a Home

Ginger — Thu, 27 Mar 2008 14:19:47 +0000

We all know conventional financial wisdom tells us we should put 20% down on a home, but I’ve always found it difficult to grasp hold of that theory especially now.

I moved to DC in 20003 when the real estate boom was in full swing. Houses were being bought and sold within a matter of days and weeks and realizing a of 25-40% ROI. It was amazing because I often wondered who are these people that bid over the asking price and paid 20% down? Let’s use Cameron Station as an example.

Cameron Station.

Cameron Station located in Alexandria, VA, noted as “the handsomest town” has to be one of my favorite places to live. Its a new planned community boasting a members clubhouse with a fitness club, swimming pool, guest services and main street retailers include flower shop, coffee shop and a deli/market. Its picturesque surroundings make it a delight especially with the fountain in the midst of the lake along the dog run. *swoon*

Of course I’d just wanted to rent there with no intentions of buying into the community because I didn’t see the logic in putting down $160,000 on a $800,000 town home, and I should add with no backyard. I’ve questioned that line of thinking since getting interested in real estate back then. Why? Because the bubble had to pop some day. Its the type of logic that most didn’t think twice about especially when 2005 rolled around and the market started to stagnate and buyers weren’t purchasing houses at 2004 highs. Still people kept funneling their life savings into these houses and where are they now? Most can’t even refinance because market conditions wiped out the equity and all they have is whatever a buyer chooses to pay for the home right now, putting the seller in a difficult situation.

From the Washington Post:

Lynn Edmonds and his wife, Sebnem, could barely wait to sign on the dotted line back in May when they committed themselves to pay $796,000 for a three-floor townhouse under construction in Alexandria’s Cameron Station.

But since May, the sales prices for the development have fallen — and units like the one the Edmonds bought are now being sold for $699,900. The Edmonds are facing the prospect of a $100,000 loss in value before they even walk through the front door.

Sad, but true. I wonder where that family is now and I’m actually quite curious as to their financial situation after buying that house. I am nosy in that way LOL!

So who does putting 20% down benefit? Where did it all start?

A Little History

From Dan Green @ The Mortgage Reports:

In 1956, when a bank stopped receiving interest payments on a mortgage, it took two important steps:

It took the home under possession via foreclosure

It did everything in its power to sell the home quickly

Remember, banks don’t like to hold real estate because they are not in the Real Estate business. Banks are in the “Making Money on Deposits” business.

To sell the home quickly, banks often sold homes at a discount to their “true” value. Not coincidentally, that have-to-sell-the-home-quickly discount hovered at 20 percent.

Steep, 20% discounts proved a terrific way for banks to rid their balance sheets of non-performing assets (i.e. homes owned by the bank on which no mortgage interest was being paid).

This is why The 20% Downpayment Myth ever existed at all.

Only, it wasn’t a myth up until 1956, it was the rule. A bank simply wouldn’t lend to a homeowner unless there was an up-front, 20 percent deposit on the home’s value. The 20 percent downpayment was really the bank’s insurance policy in case the homeowner defaulted.

In this sense, the bank was protected in the event of default whereas the homeowner stood to lose not only the house, but also the 20 percent.

This affair was truly one-sided in favor of the bank.

Over time, though, banks recognized that not all homeowners could afford 20 percent downpayments. Especially as home values began to increase. Banks also recognized how profitable mortgage lending could be.

PMI was born.

The PMI industry does exactly what its name implies — it provides insurance policies to issuers of mortgage credit. Using PMI, a bank could accept a less-than-20% downpayment, while buying an offsetting insurance policy in the event of default.

PMI benefited the banks in two way:

More money could be lent, increasing profits

The homeowner (and not the bank) paid for the bank’s insurance policy

Using PMI, a homeowner could make a 15 percent downpayment and buy an insurance policy for the remaining 5 percent down. This way, if the homeowner defaults, the bank can still drop the price 20% and walk away relatively unharmed — 15% comes from the (former) homeowner, 5% from the insurance.

Read more here, Dan really breaks it down giving us a good background on the myth of the 20% down payment.

Equity

In 2003, equity was a good thing! There were talks of buying homes with equity which made the deal sweeter. Buyers would then use the equity to leverage purchases of even more investment property which garnered them more equity with each purchase. And, rightfully so, prices during 2003 skyrocketed to astronomical levels here in DC.

Now? Not so much. Many homes are upside down with homeowners owing more than they paid for it, so the market is in the process of correcting itself if not on its way down to a recession. As such many people are beginning to realize that equity is only truly valuable when realized as cold hard cash.

Buyer Psychology Determines Realization of Equity

I don’t believe in “equity”, not until its realized money in my hand after a sale. Its “ghost money” and banks trick you into getting into more debt based on the equity on your house. Equity is the cash value of your home above what you paid for it. And another myth attached to the 20% down payment myth is that when you do put 20% down you automatically walk in with 20% equity that you may be able to borrow against in an emergency. Well, consider the family from Cameron station, if they had put 20% down, how much would that matter now? Their property value dropped significantly lower than what equity a 20% down payment would have afforded them.

So until I sell my home, the equity that resides here doesn’t exist. Why? Money talks BS walks, cash is king.

Recent Subprime Mess Means Less Equity for Most

Need I say more? Have you checked your house value in the last 6 months to a year? With short sales abounding and foreclosures rampant, these affect the prices of homes in the neighborhood. So be careful to think that if you’re paying 20% down that you will somehow have a built in nest egg due to your equity. If your home doesn’t appraise to the needed value then you are stuck until you sell your home. And, that is if you sell at a price needed to get back the 20% you put down.

My personal opinion? I think its foolish to put 20% down on a home. I would rather take my chances with the stock market. I know, feel free to set me straight in the comments

20% could be invested wisely in the stock market instead of sitting in your house

I have been screaming this from the rooftops since my mom bought her first house in 1999. No way would I lock up 20% in a house hoping that I will somehow benefit from it when this was all structured to benefit the bank in the first place. Think about it, if you wanted that 20%, you’ll have to PAY to get it if you aren’t selling your house. How is that a profit?

Also consider that buying a home may not be such a wise investment decision, check out these articles:

The Cost of Buying a Home Over 30 Years
3 Reasons Not to Buy a Home
Sometimes renting is just fine
Why we rent
Skip the 20% Down Payment

So do your research behind what may seem to be conventional financial wisdom. Your money should be working for you 100%. Not the bank. Paying 20% pays for the bank’s risk they take on by loaning you the money.

I’m interested to hear your thoughts on this as I know that it is a rather controversial topic. Many are invested in the myth that they need to put 20% down to buy a home, but my reply to that is….is buying a home profitable in the long run when you calculate all expenses involved (not just the purchase and sale price!)?

Do you still think that 20% is needed to buy a home?

How do you think 20% benefits the homeowner?

House Lust and our Marriage

Ginger — Fri, 22 Feb 2008 10:00:01 +0000

photo credit: Hamed Saber

I got it bad! Everyday I search real estate listings looking at McMansions. I know that we don’t plan to be here for very long, but, my husband wants to be in Upstate NY upon our next move. I on the other hand wouldn’t mind staying here in the DC/MD/VA area.

I don’t necessarily feel that great a tie to NY, whereas he does because he has family there. I do too but I still love the DC metro area! I wouldn’t say that it’s a sore topic for us but let’s just say we’ve learned to debate pros and cons in a civil manner.

The truth is I see the sparkle in his eyes at the prospect of moving back there and I don’t want to be the one that stands in the way of his dream. We’ve been here since 2003/2004 and I think we’ll be ready in a few years. Say 3-5.

*hush*

But something changed my mind tonight, well my interest has peaked.

I’ll preface this by saying I LOVE new construction homes but part of the turn off around buying something in NY was that you get some tiny little box for 500k that’s 20+ years old. I am not a fan. After buying our first home last year I already have a list of things that we want in our next home. I think being first time home buyers we were so eager to get into our home. And, we were limited by our price point, we aren’t stacking it like that just yet.

Anyhoo, while searching the Westchester, NY real estate listings I saw this house and fell in love!

Aint she perty? I have been here ooohing and aaahing for the last 30 minutes, scheming on how we will afford this house! Of course he saw it and started with the “I told you so!”. Yada yada yada LOL!

Indulge me for a few minutes.

So the other house I’ve been looking at here is this one in Cameron Station. This is one of the better master planned communities in Alexandria, VA that I am still in love with after a few years. I’m not sure of the date of their most recent settlement but I do know that as of last Spring they were still settling on new condos. Well, if we bought there I would only take an end unit town home OR a single family home. If we bought there last year we would have gotten a

Here’s the other one we debated tonight, LOL! Yea I know, as if we haven’t only been in our present home for 8 months, but we’re looking forward to what the future will hold.

The only thing that upsets me about this house is the lack of a backyard. Folks, this is a patio, not a lush green backyard where kids can run and play. *sigh* Why is it that you can pay 1 million + and STILL not have a backyard? Madness.

The verdict?

In a few years we will be moving back to NY. I don’t think I could with good conscience force us to stay here because he would be so unhappy. Until then I’m satisfied with my daily dose of house lust! *snicker*

Sounds of Foreclosure: “Jingle Mail”

Ginger — Mon, 18 Feb 2008 10:00:38 +0000

Picture this scenario, the mortgage company receives an envelope, what they believe will be this month’s mortgage payment, is actually the keys to the house instead. The homeowner has vacated the premises, sending in the keys as a sign of surrender, but this is really the awful sound of foreclosure. Imagine the horror. Well, this is the reality for many homeowners across the nation and a nightmare come true for lenders. This is the new phenomenon known as “Jingle Mail”.

I won’t attempt to summarize the article as everything written on the subject stems from the NY TImes article. However, I will discuss the shift in consumer psychology as of late. I couldn’t help but note the shift in attitudes around consumer psychology. This in turn affects attitudes towards debt, lack of problem solving ability and commitment to a solution. Where did it start? When will it end? These are all questions still looming on the horizon as lender fears are realized and homeowners’ dreams become nightmares. I don’t have the answer but I will take a stab at where it started and where it stands today.

Change in Consumer Psychology

There was once a time when people adhered to conventional personal finance wisdom. This included putting 20% down on a home (which I think is a load), saving for a rainy day and keeping credit card balances to a minimum (ie below 20% utilization). However, what we have today are consumers who believe in excess. Excess they can’t afford which lodges them up a creek with no way down. How did we get here? How and why did we become a buy now pay later society?

My assumption is that we wanted to get away from the old wisdom of our parents and do it our way. Buy bigger homes, afford nicer cars and essentially keep up with Barringtons across the street. I won’t pick your mind with psychological theory, but other than we want to be able to do it bigger and better with no concrete means of paying for “stuff”, while digging deeper into debt. Of course, there’s the “I want my kids to have more than we did“….”David just got a new BMW 7 series, maybe I should go out and get a CLS 550 instead of the Camry Amy and I talked about“….”Hmmm…Allison just bought a new pair of Prada heels, gotta get those Christian Louboutins!”…..and it goes on and on.

Do you see a pattern here? People are making financial decisions based on emotion and not facts. Facts which tell them they can’t afford it once the bill/payment comes due.

Attitudinal Shift Towards Debt Responsibility

When did it become OK to walk away from debt? A home you signed papers to honor the obligation for the next 30, in some cases 50 years. Uprooting your family and putting them through the process of foreclosure and bankruptcy because you signed up for a home you can’t afford at this stage in life. It’s selfish and irresponsible. Just because the bank says you can afford the mcmansion, it doesn’t mean that you can.

A home used to be something that people saved towards and made sure they were ready to purchase, but its become an ATM machine for some and biting them in the arse when its time to pay it all back. Homeownership may be part of the American Dream but it isn’t a must have on the list of things while on the path to building wealth. But we’ve some how made it ok with the proliferation of shady home loans justified by the desire to keep up with everyone else. When you know better, you do better.

Lack of problem solving ability and commitment to a solution

This applies to both the lender and borrower. Lender sticks the borrower with a shady loan and the borrower takes the loan due to a lack of due diligence. Who’s to blame? Both are, both entered into this agreement knowing that the end was never in sight. What do they do now?

Find a happy medium.

Lenders know that in order to stay afloat they need consumers to remain current on their debts. It’s not secret that the banks have been fleecing us for years. What with obnoxious fees to access and hold our money along with reducing our ability to counteract fraud with the new Check 21 act? I am well aware. However, this gives us more reason to bring our “A” game to the underwriters. This is a game, make no mistake. Banks are betting that you will NOT pay that note on time and they will then raise the payment and ding your credit report with a late payment and/or foreclosure. The borrower then panics and attempts to do one of the following: catch up on payments, miss payments, refinance, sell or in this case walk away. But, does the bank really win? They’re now stuck with a property that they are paying taxes on while losing out in their investment.

Does this seem like its going no where? It isn’t. The banks want their money, borrowers don’t have it and both are stuck. This is where I note the lack of a problem solving orientation towards debt. Lets be honest here, no one wins if no one pays. Borrowers’ credit gets jacked up and the bank loses their return on investment and losses trickle down the pipeline. As a nation we have to learn how to work together in tough situations. It works out for everyone when we do, not when we’re deadlocked in a stalemate waiting for the other to surrender.

Are you in this situation? There’s help on the way:

–Housing rescue: Allow more subprime mortgage holders to refinance into federally insured loans by raising the limit on Federal Housing Administration loans from $362,790 to as high as $729,750 in expensive areas. Increase the availability of mortgages by providing a one-year boost to the cap on loans Fannie Mae and Freddie Mac can buy, from $417,000 up to $729,750 in high-cost markets.

Here are a few things you should consider from the BaltimoreSun:

â€¢Contact your lender. Lenders are more open to working something out than they were even several months ago, whether that’s freezing your interest rate or temporarily forgiving payments you missed. Ask for the loss-mitigation department.

â€¢ Call a nonprofit housing counselor. They will act as a go-between and can have more luck getting to the right people. You can find a list of HUD-approved Maryland groups at www.hud.gov/foreclosure. Or call 888-995-HOPE.

â€¢ Inquire about a no-interest loan to get you current on your mortgage. The state of Maryland’s new Bridge to HOPE program offers loans of up to $15,000 to qualifying homeowners with subprime or exotic loans. Go to mdhope.org for details, or call 877-462-7555. City residents could also qualify for a $5,000 loan from Neighborhood Housing Services of Baltimore. You’ll need to be referred by a housing counselor.

â€¢ Refinance. The state has a Lifeline refinancing program - details at dhcd.state.md.us/Lifeline - and there is also the federal FHASecure, www.hud.gov/news/fhasecure.cfm.

â€¢ Sell. If you can’t do so for at least as much as you owe, ask your lender if it would approve a “short sale” and forgive the difference.

â€¢ Be wary of unsolicited offers of help. Foreclosure-rescue scammers are targeting homeowners.

Don’t forget about national nonprofits, NACA and ACORN. Let’s begin to make smart decisions about debt moving forward. There’s a lot of work to be done, but it starts with each of us. Making good personal finance decisions ensures that we will be in a good place financially 20..30..40 years from now.

(Photo by Aaron Issler)

Worst Hit Foreclosure Zipcodes: Are you on the list?

Ginger — Mon, 11 Feb 2008 12:00:19 +0000

CNN’s article Foreclosures: 100 Worst Hit Zip Codes certainly got my attention. I continue to be amazed at the steady increase of foreclosures across the nation. I keep asking myself, didn’t anyone think this would all come back to bite them in the arse later? How do you take on a mortgage that you know that would cannot afford when the ARM resets? Or when the balloon payment comes due? Why did they fall for the “we’ll refinance you into a better loan later?”

For those thinking that I am on a soapbox, well, I am. We were there, and offered ARM options during the preapproval run. And although we declined like the responsible borrowers we are, we were still hit at the closing table with a change in the loan program initially offered. We politely declined and walked away from the deal. I promise you, it pays to do some research and become educated about the largest financial investment of your life. Or else it can cost you-your livelihood, home, credit standing thus forcing you to start over in this credit based society we happen to live in.

The folks in Las Vegas are hardest hit along with Detroit and California. This runs contrary to reports that Georgia led the country in foreclosures, nevertheless, they are still on the list.

If you happen to be in a situation where you are facing foreclosure, help is on the way:

HOUSING RESCUE

House: Allow more subprime mortgage holders to refinance into federally insured loans by raising the limit on Federal Housing Administration loans from $362,790 to as high as $729,750 in expensive areas. Increase the availability of mortgages by providing a one-year increase in the cap on loans Fannie Mae and Freddie Mac may buy, from $417,000 up to $729,750 in high-cost markets. No cost.

Senate: Identical provisions on FHA and Fannie Mae and Freddie Mac loan limits. Provides mortgage financing relief for homeowners with subprime loans by expanding the availability of state and local government bonds and raising the cap on the bonds by $10 billion over the next three years. Negligible cost.

Community Refinance Programs

ACORN is a community non profit that…

provides free housing counseling for low- and moderate-income people. ACORN tries first to get lenders to postpone the foreclosure while a plan is worked out, said Yancy. For example, if a borrower is three months behind and the mortgage is 8 percent, ACORN tries to renegotiate a lower, fixed rate, with the owed money wrapped into the loan.

(Source)

NACA, a program similar to ACORN, also provides housing counsleing and refinancing for predatory loans defined as loans above 10%. However, given the recent onslaut of foreclosures, this may have changed so please check with your local office. NACA’s rate is current 5.0%-30 year FIXED! !! You can’t beat that and it would surely be a welcome relief to so many who need a fixed rate mortgage.

I will update this list as I get more information on programs that offer refinancing to those in predatory loan situations. If you come across a program that you feel should be on this list feel free to contact me or leave a comment.

The Age of the Refi Renaissance

Ginger — Wed, 23 Jan 2008 10:00:41 +0000

Over the weekend I came across this article in The Washington Post, Lower Rates, Coming Resets: An Opening For Refinancing which discusses the onslaught of refinances due to the adjustable rate mortgages that are about to reset.

Here are some of the more salient points in the article. Homeowners with ARMS should pay close attention:

“Thanks to the lowest mortgage interest rates in a year and a half, nearly 60 percent of all new mortgage applications by mid-January were for refinancings, according to data compiled by the Mortgage Bankers Association. Rates this week were 5.69 percent for a 30-year fixed-rate mortgage and 5.21 percent for a 15-year fixed-rate loan, Freddie Mac said.”

“Jay Brinkmann, vice president for research and economics at the Mortgage Bankers Association, said “no-cost” refinancings — in which transaction fees are rolled into the interest rate — “are absolutely an option” for people who took out fixed-rate loans in 2006 or 2007 ,when rates were at or above 6.25 percent.”

“borrowers with a 6.5 percent fixed-rate loan might be able to refinance into a 6 percent loan without paying any fees at origination or settlement. The lender would simply add a quarter of a percentage point to a 5.75 percent 30-year conventional loan rate.”

“Assuming a $400,000 existing loan amount, homeowners could save $128 a month in principal and interest — $1,536 over the course of a year — by moving out of a 6.5 percent mortgage into a 30-year loan at 6 percent with no settlement costs.”
However, take caution:

“…in the past nine months, most national lenders have tightened underwriting rules and are now extra-cautious about appraisal accuracy, borrower equity and credit scores, especially in areas where prices have been soft or declining, Lipes said. As a result, owners who bought properties with minimal down payments a few years ago may find their appraised values lower and their equity positions insufficient to qualify for refinancing.

Absent appraisal issues, Lipes said, applicants with solid credit histories, documentable income and a lot of equity can readily refinance into fixed-rate mortgages at 5.63 percent to 5.75 percent, with no points and no cash out.

This is great news! Better than I thought it would be as not too long ago it was rather difficult for homeowners to refinance given the banks’ refusal to work with them on restructuring an ARM. But, I think reality has set in for most banks and they are realizing that foreclosing on the homes isnt a good look because they are stuck holding the note and property taxes on the home. So this is indeed a good time to refinance if you know that your ARM will be resetting to a monthly payment that you can’t afford. Avoiding foreclosure is key to protecting your credit and livelihood in this credit based society. So please, take advantage of hte low rates and secure your future.

American Dream Reloaded

Ginger — Wed, 16 Jan 2008 10:00:15 +0000

I came across this article Dispelling The Myth That Home Ownership Is Your Best Investment over at Millionaire Mommy Next Door. Already, I can tell that this blog will be a favorite! She’s challenging some well established views about the road to wealth in America. One of those being that buying a home is the “American Dream”.

Wow! Get ready to be challenged because she kicks a$$!

Don’t get me wrong, I have no regrets in buying our home. However, given the current market trends, especially here in the DC metro area I have started to think about whether or not it was truly a wise financial decision. I love the house, neighborhood and stability of knowing that this is ours and I dont have to answer to a landlord but there are some truths in her main points. I think if we can move away from the emotional aspect of buying a home we will be able to dissect whether or not it is a wise decision. And, of course there are so many variables to consider: current market, market projections, status of the mortgage industry, economy etc etc.

But let’s look at a few of the more salient points:

The Motley Fool, The Worst Investment Ever:

“Think about it for a minute. What characteristics do Fools look for in a great investment? Positive cash flow, low expense ratios, low transaction fees, and historically proven returns. Using these criteria, the average house falls well short of the all-time best.”

We typically think of our homes as investment vehicles which will take get us on the path to wealth. But I would caution this line of thinking especially in a market like today’s. I think five years ago many of us were singing a different tune given the incredible real estate boom we experienced here in DC. However, when you factor in home inspection fees, Realtor fees (you should know that the buyer is really paying this!), closing cost fees, HOA fees, maintenance, taxes etc etc it really chomps away at your bottom line. I’m not advocating going out and selling your house, but think about what you are putting into it financially and how much you stand to make when you do sell.

Homeowners typically only thinking about profit in terms of purchase price-resale price=profit. Not so fast. You’ll need to add in all of the above to really determine if you’re making a profit. Again, this is specific to local markets and individual situations. I just want you to be well informed.

Wall Street Journal, Your Home Isnâ€™t the Nest Egg That You May Think It Is:

“Mortgage interest is rent that you pay to your lender for the use of its money rather than to a landlord for the use of his house.”

“the costs of owning a home — buying it with a long-term mortgage and then paying taxes on it, insuring it, repairing it, renovating it — sap most of what most homeowners think they make in price appreciation.”

This hurt when I read it. Think about it, you don’t truly own your house until you pay the last dime on your mortgage. When you do pay off your mortgage you’re paying back a ridiculous amount of interest when you could be paying yourself first instead of the bank. When you consider that if you borrow $100,000 for 30 years at 8% you will end up paying the lender over $264,000 ($100,000 principal loan amount and $164,000 in interest). Isn’t that amazing? We’ve never been challenged to think otherwise!Â Just that buying a home=American Dream. If one were to take the same mortgage payment and invest in lets say the stock market which Ive read has average returns of around 7-10%, we could be paying ourselves that interest over 30 years. Of course Im not taking into consideration taxes and the like but I’m sure whatever you pay in taxes is less than the annual property taxes, insurance and maintenance on a home.Â This really revolutionizes Pay Yourself First school of thought.

“It may be late for a lot of homeowners to read this, but here it goes anyway: It’s risky and bad planning to have too much of your net worth in your principal residence. No prudent stock-market player would put 60% or 70% of a portfolio in just one stock, but millions will hold that much or more of their total net worth in just one house.”

Gosh I’m being slayed here. With the little I do know about investing, I know that you never put all your eggs in the same basket. so why do we do that in the case of our homes? We are often advised to DIVERSIFY our portfolios so as to avoid losing everything should one part of the portfolio tank. Right now I know so many homeowners are feeling the bite as the market slumps and the value of their homes depreciate.

OK. BREATHE!

What’s the lesson here? Think through each and every major financial decision and decide whether or not it will net a significant profit given your individual situation. The American Dream is great in that you feel invested in the economy’s growth and being a part of something larger, however will it truly take you on the path to wealth? If so, know when to jump ship. Right now I’m sure many wish they’d jumped ship 18 months ago and must wait for this slump to pull through. If you’re thinking about buying, ascertain what this will mean for you? Is it simply the achievement of buying a home or are you banking on the fact that your home’s value will increase and net a profit when you sell? Consider what you will put into the home after the purchase: taxes, insurance, maintenance, upkeep etc etc. I don’t know the answer as I’m still reviewing our own situation because I’m in total moneymaker mode right now. But, this isn’t to dissuade anyone from buying a house. Like the original author of this article, I am only here to impart information and hopefully educate in the process. Make the right decision for you, not one based solely on the “Dream”.

Have you bought into the American Dream?

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ACORN changes

Ginger — Thu, 03 Jan 2008 13:00:35 +0000

I talked with our former ACORN representative today to get up to date information on how the housing crunch has affected their program. Prior to the recent sub prime issues ACORN had a pretty decent program, here are the details in a snapshot:

Now the program has been stripped to:

3% down
620 credit score (Wasn’t credit score driven prior to this change)
74k income limits (Limit was 106k prior to the change)

What does this mean for you?

SAVE SAVE SAVE!

For instance, if you are considering purchasing a 250k home, you will need at least a $7500 downpayment and funds towards closing costs and other items such as earnest money, home inspection, taxes etc.

Debt reduction and clean up is a must!

Let’s face it, debt isn’t hot at all. Owing thousands on various credit cards with nothing to show for it means you are throwing your money away and not steadily building for a secure future.

Lower your utilization rates and cut the credit card spending to a minimum. What’s the minimum? If you can’t pay it off by the end of the month then you can’t afford it and shouldn’t spend it. Idally they should be less than 30%
Pay off your balances on time
Pay more than the minimum payment each month.
If you have a decent FICO/VANTAGE score then transfer your balance to a low/no interest credit card and pay it off within that period.

The banks are tightening their belts and so should you. Let 2008 be the year that you get your act together and take it to the road! Your goal may not be to purchase a home this year, but it can be to save more, spend less and pay down debt!

Make it happen!