Home Ownership 411

I remember when I was a young girl, and my mother would tell me horror stories of the Great Depression; banks closing, money lost, no work and food shortages.  It never seemed quite real to me as a baby boomer, and I always wondered how things ever got to such a desperate state.

Well, I don’t think we’re on the verge of a depression, but I think it’s hard to deny that we’re in a recession. And more so now then at any time in our history, the declining housing and mortgage markets are playing a major role in this economic downward spiral.

The demise of Indymac was a wake-up call for many as it was all too reminiscent of those depression stories or the savings and loan crisis of the ‘80s and early ‘90s.  The difference now of course, is that we (the government) actually did learn from those debacles and unless you were foolish enough to have over $100,000 in deposits at Indymac, your money is safe.

But what about Fannie Mae and Freddie Mac?  Last Friday’s scare had many of you writing me to learn just what that might mean to you and your home loan.  And the bottom line is probably nothing at all.

Fannie Mae, The Federal National Mortgage Association (FNMA), was originally created as a government agency back in 1938 to provide a secondary market for FHA loans, which were also new at that time.  In 1968 Fannie Mae was re-chartered and became a publicly held organization, and in 1972 began buying conventional loans, (those not insured or guaranteed by the federal government – non FHA or VA).

Freddie Mac, the Federal home Loan Mortgage Corporation (FHLMC), didn’t come on the scene until it was created by the Emergency Home Finance Act of 1970.  It is a Government Sponsored Enterprise that is stock-holder owned.  Freddie Mac is authorized to make loans and loan guarantees. Freddie Mac buys mortgages on the secondary market, pools them, and sells them as mortgage-backed securities to investors on the open market.

What is critical about Fannie and Freddie is that they are the largest investors in home mortgages in the country.  Without Fannie and Freddie there would be little money avaialbe to lenders to make home loans, thus thier stability is critical to the economy.  Although both organizations have lost money over the past year, both have reserves above the government required minimums and neither is in danger of being taken over by the Federal Government.

So what does this scare really mean?  I’m no economist, but as a mortgage broker I see two probable results:  1) In order to deliver only the highest quality loans for re-sale on the secondary market both organizations are likely to tighten their lending guidelines, which although spurring investor confidence may limit the number of people who are able to purchase or refinance; and 2) As a result of tightening guidelines in the conventional loan marketplace, we’re likey to see continued growth in the numbers of FHA loans.

My advice?  If you are thinking about making a home purchase or refinancing and not sure if you’d qualify for a conventional loan, don’t overlook FHA as there are several aspects to the program that just might open doors you thought were closed, such as low credit scores and high loan-to-value ratios.  Please drop me an email at marti@kilby.com  if you’d like to know more.

Given the current lending market which has become much more stringent, I know that many are facing challenges when trying to refinance.  If you are unable to refinance for any number of reasons, a loan modification might work for you.

A loan modification is when the lender modifies your current mortgage in order to work with you and make your mortgage payments more affordable.  This is usually accomplished by lowering the interest rate and locking it at that new rate for a certain number of years. In the past this was only used when a borrower was delinquent but now it is being used before someone is delinquent to give them relief from a future interest rate adjustment on an ARM.  If there is a delinquency, payment on the delinquent amount is often deferred or stretched out over a longer period of time.

My suggestion has always been to talk to your lender as soon as you feel that you’re headed for trouble.  Over 50% of foreclosures could be avoided if borrowers contacted their lenders and tried to work something out before it becomes too late. Unfortunately, lenders today are overwhelmed and unresponsive and as many borrowers discover, just getting through to the appropriate person or department is next to impossible.

The current need for so many to modify their loans in order to save their homes has unfortunately bred a whole new pack of scam artists.  Many of these companies charge huge upfront fees, as much as $7500 to negotiate a loan modification on your behalf with your lender, promising to return half of your fee if they are unsuccessful.  They make one phone call, report to you that the lender won’t budge, return $3750 to you and pocket the balance for doing absolutely nothing!  You’re short $3750 and still have no loan relief!  The scam takes several forms, but you get the idea.

There is however, legitimate help available.  If you are personally unable to make any progress with your lender, I would suggest working with a real estate attorney.  Once they legally represent you, the lender is required to respond and work with them within a 60-day dispute time-frame.  The key is to finding an attorney who is experienced in loan modification and has a thorough understanding of how to use the Truth in Lending Act and the Real Estate Settlement Procedures Act to get the lenders to cooperate.

After much investigation, I have found a law firm that I would be happy to refer.  They charge a flat fee and will not accept a fee unless they feel that your loan can be modified to lower your payments.  If you are facing foreclosure, they might also be able to help protect your assets and your credit.  They work in all 50 states and would be happy to discuss your situation at no charge.  If you are interested in speaking with them, please give me a call or drop me an email at marti@kilby.com.

It is always very frustrating to me when I can’t do a loan for someone, so I hope this information is useful.

In my post last week, I mentioned that I had made an offer on behalf of my client on a foreclosure, versus a short-sale.  The property listed on June 11 and we made a full price offer on the 23rd.  Too late!  We learned today that the bank accepted an earlier offer. 

I knew this was a steal of a deal…about $30K below market, so I’m not surprised that it was snatched-up so quickly.  But I do have a bit of a gripe with the listing company.  Some of these companies seem to be nothing more than listing mills.  I was never able to actually speak to the listing agent and was continually directed to assistants, who basically wasted my time.  The assistants seem to have been out of the loop, and didn’t even know that the bank had accepted the earlier offer and thus still had us complete a bunch of additional REO forms.  Had I know we were only submitting a back-up, I wouldn’t have wasted time, and would have had my buyer out there looking at more properties.  Sigh.

So we hit the streets again this Thursday.  My buyer is in a situation where she needs to buy and close in July, so we can’t waste any time.  Instead of waiting for the weekend, I’m pushing my clients to take time and get out there during the week if there is a hot property they need to see. I’ll keep you posted.