Short Sale, If Allowed, Could Avoid Foreclosure
By Benny L. Kass
Saturday, August 18, 2007; Page F12
Q: We are in financial trouble. Our house will not sell for enough money to pay off the mortgage, let alone a real estate commission. Our real estate agent suggested that we do a "short sale." What is this?
A: A short sale is an arrangement with your lender in which it allows you to sell the property for less than you owe. This is a method of disposing of your home without having the lender foreclose on you.
Why would a lender permit this? First, you should understand that not all lenders do. The decision depends on a number of factors: Where is your house? How much loss will the lender suffer? What is the possibility that an investor would buy the property at a foreclosure sale? Each lender has its own requirements, so I can provide only general information. You will have to consult your lender to determine what it needs to move forward with a short sale.
Let's take this example: You bought the house last year for $500,000, foolishly taking advantage of the mortgage broker's sales pitch and obtaining a 100 percent loan. You lost your job and cannot afford to continue with the monthly mortgage payments. The house will probably sell for only $475,000. You are, unfortunately, what lenders call "upside down."
Your first calls should be to your financial and legal advisers -- not the lender. You don't want to contact the lender until you fully understand the risks involved and are sure you want to do this.
Under federal law, when a debt is forgiven, it can be treated as ordinary income on which tax must be paid. Thus, if your lender allows you to sell the property for $475,000, less a 2 percent commission, you will have a deficit of $34,500. According to many tax professionals, you will have to pay income tax on this amount of forgiven debt, even though you did not receive the money.
Furthermore, make sure that, even should the lender approve the short sale, you will not be obligated to make up this difference, which is called a deficiency. Unfortunately, most lenders will not put their agreement in writing, so your legal advisers will have to satisfy themselves -- and you -- on this matter. In fact, many lenders have been known to use this "forgiveness of debt" issue to dissuade their borrowers from pursuing a short sale.
After you are satisfied that you understand the concept and are prepared to move forward, then you should contact your lender. Ask to speak to the manager of the short-sale department. Typically, a lender has a "loss remediation" department that handles these matters.
Your lender will need a letter of authorization for a lawyer or real estate agent to work on your behalf. Privacy laws prohibit lenders from discussing personal and financial information with a third party without such written permission. This letter will include your name, property address and loan number.
You, or your agent, should then prepare a comprehensive letter explaining why you are requesting the short sale. Emphasize your hardship, without turning it into a sob story. A market analysis showing what houses in your area are selling for will also help. Finally, spell out your request in detail: the price you are asking the lender to approve, the commission the real estate agent can accept and the closing costs associated with the settlement. Keep in mind that in many jurisdictions, there is a recordation and transfer tax, which is typically split between buyer and seller.
Your proposal should be as specific as possible. You don't want to learn at settlement that you still have to come up with a lot of cash because your lender did not authorize certain out-of-pocket expenses.
You should also request from your lender your outstanding mortgage balance. The lender has a legal obligation to provide this on request; the burden is on the lender to provide an accurate accounting. Review this carefully to make sure that no charges have been erroneously added. If you have missed some payments, you will be assessed late fees. When you present your proposal to the lender, try to get these charges deleted from the outstanding mortgage balance.
Your proposal should also include your financial situation. If you lost your job, include proof with the letter.
The more documentation you can provide the lender, the faster the decision will be. However, lenders are swamped with these requests; you are not the only one facing a possible foreclosure. The earlier you can start the process, the better chance you have of getting the short sale approved.
But the lender's approval to proceed with a short sale does not end the process. When you or your real estate agent find a prospective buyer, the contract must state that it is contingent on lender's approval. You have to send the contract to the lender; it would help to include an accounting of all expenses that you will have to pay at settlement, as well as the final number that the lender would receive at settlement.
A HUD-1 settlement statement would expedite the process. Your lender will then review the documentation and may reject certain expenses. For example, if the contract provides that you will give your buyer money toward closing costs, or that you will pay some items that are traditionally the buyer's obligation, such as title search and survey, the lender may not allow such payments.
You want to go to settlement knowing all of the terms and conditions on which your lender will accept the short sale, including whether you will have to come up with money at the settlement table.
You are in financial trouble. If you have missed some payments, your lender may already have notified the credit-reporting companies. You can try to persuade the lender not to report any more delinquencies, but that is at the lender's discretion.
The short-sale process works but is complicated, time-consuming and uncertain. If you can start now, before you are in default, you will be ahead of the game.
Tuesday, August 21, 2007
Michigan foreclosure filings up 39 percent June-July
Michigan foreclosure filings up 39 percent June-July
By ALEX VEIGA, The Associated Press
2007-08-21 21:10:21.0
LOS ANGELES -
The number of foreclosure filings reported in the U.S. last month jumped 93 percent from July of 2006 and rose 9 percent from June, the latest sign that homeowners are having trouble making payments and finding buyers during the national housing downturn.
There were 179,599 foreclosure filings reported during July, up from 92,845 during the same period a year ago, Irvine-based RealtyTrac Inc. said Tuesday. There were 164,644 foreclosure filings reported in June.
The national foreclosure rate in July was one filing for every 693 households, the company said.
"While 43 states experienced year-over-year increases in foreclosure activity, just five states - California, Florida, Michigan, Ohio and Georgia - accounted for more than half of the nation's total foreclosure filings," RealtyTrac Chief Executive James J. Saccacio said.
The filings include default notices, auction sale notices and bank repossessions.
Some properties included in the survey might have received more than one notice, if the owners have multiple mortgages.
The company did break out individual properties as part of its report for the first six months of this year, when a total of 573,397 properties reported some sort of foreclosure activity.
That represents a 58 percent jump from the 363,672 properties in the first six months of 2006 and a 32 percent increase from the 433,504 in the last six months of 2006, the firm said.
In the July report, Nevada, Georgia and Michigan accounted for the highest foreclosure rates nationwide.
Nevada posted the highest foreclosure rate: one filing for every 199 households, or more than three times the national average. It reported 5,116 filings during the month, an increase of 8 percent from June.
Georgia's foreclosure rate was more than twice the national average, with one filing for every 299 households. The state reported 12,602 foreclosure filings, up 75 percent from June.
Michigan reported 13,979 filings in July, a 39 percent spike from June.
California, Florida and Ohio were among the states with the highest number of foreclosure filings in July, RealtyTrac said.
California cities continued to dominate top metropolitan foreclosure rates.
The state reported 39,013 foreclosure filings last month, the most by any single state. However, the number of filings rose less than 1 percent from June.
The state's foreclosure rate was one filing for every 333 households, RealtyTrac said.
Florida's foreclosure filings dropped 9 percent between June and July to 19,179. The July figure, however, represents a 78 percent jump from the year-ago period.
In recent months, the mortgage industry has been battered by rising defaults and foreclosures, primarily driven by borrowers with subprime loans and adjustable rate mortgages.
Lagging home sales and flat or decreasing home prices have made it more difficult for homeowners who fall behind on payments to sell their homes and clear the debt, spurring the rise in foreclosure activity.
Loan types seeing higher delinquencies and defaults in general are home equity loans or second mortgages used to cover a downpayment, subprime loans to people with shaky credit histories, and Alt-A loans, which can include interest-only and adjustable rate mortgages sold with little or no documentation.
Copyright 2007 The Associated Press. All rights reserved.
By ALEX VEIGA, The Associated Press
2007-08-21 21:10:21.0
LOS ANGELES -
The number of foreclosure filings reported in the U.S. last month jumped 93 percent from July of 2006 and rose 9 percent from June, the latest sign that homeowners are having trouble making payments and finding buyers during the national housing downturn.
There were 179,599 foreclosure filings reported during July, up from 92,845 during the same period a year ago, Irvine-based RealtyTrac Inc. said Tuesday. There were 164,644 foreclosure filings reported in June.
The national foreclosure rate in July was one filing for every 693 households, the company said.
"While 43 states experienced year-over-year increases in foreclosure activity, just five states - California, Florida, Michigan, Ohio and Georgia - accounted for more than half of the nation's total foreclosure filings," RealtyTrac Chief Executive James J. Saccacio said.
The filings include default notices, auction sale notices and bank repossessions.
Some properties included in the survey might have received more than one notice, if the owners have multiple mortgages.
The company did break out individual properties as part of its report for the first six months of this year, when a total of 573,397 properties reported some sort of foreclosure activity.
That represents a 58 percent jump from the 363,672 properties in the first six months of 2006 and a 32 percent increase from the 433,504 in the last six months of 2006, the firm said.
In the July report, Nevada, Georgia and Michigan accounted for the highest foreclosure rates nationwide.
Nevada posted the highest foreclosure rate: one filing for every 199 households, or more than three times the national average. It reported 5,116 filings during the month, an increase of 8 percent from June.
Georgia's foreclosure rate was more than twice the national average, with one filing for every 299 households. The state reported 12,602 foreclosure filings, up 75 percent from June.
Michigan reported 13,979 filings in July, a 39 percent spike from June.
California, Florida and Ohio were among the states with the highest number of foreclosure filings in July, RealtyTrac said.
California cities continued to dominate top metropolitan foreclosure rates.
The state reported 39,013 foreclosure filings last month, the most by any single state. However, the number of filings rose less than 1 percent from June.
The state's foreclosure rate was one filing for every 333 households, RealtyTrac said.
Florida's foreclosure filings dropped 9 percent between June and July to 19,179. The July figure, however, represents a 78 percent jump from the year-ago period.
In recent months, the mortgage industry has been battered by rising defaults and foreclosures, primarily driven by borrowers with subprime loans and adjustable rate mortgages.
Lagging home sales and flat or decreasing home prices have made it more difficult for homeowners who fall behind on payments to sell their homes and clear the debt, spurring the rise in foreclosure activity.
Loan types seeing higher delinquencies and defaults in general are home equity loans or second mortgages used to cover a downpayment, subprime loans to people with shaky credit histories, and Alt-A loans, which can include interest-only and adjustable rate mortgages sold with little or no documentation.
Copyright 2007 The Associated Press. All rights reserved.
U.S. foreclosure rates jump sharply in July
U.S. foreclosure rates jump sharply in July
Alex Veiga
Associated Press
Aug. 21, 2007 12:25 PM
LOS ANGELES - The number of foreclosure filings reported in the U.S. last month jumped 93 percent from July of 2006 and rose 9 percent from June, the latest sign that homeowners are having trouble making payments and finding buyers during the national housing downturn.
There were 179,599 foreclosure filings reported during July, up from 92,845 during the same period a year ago, Irvine-based RealtyTrac Inc. said Tuesday. There were 164,644 foreclosure filings reported in June.
The national foreclosure rate in July was one filing for every 693 households, the company said.
"While 43 states experienced year-over-year increases in foreclosure activity, just five states - California, Florida, Michigan, Ohio and Georgia - accounted for more than half of the nation's total foreclosure filings," RealtyTrac Chief Executive James J. Saccacio said.
The filings include default notices, auction sale notices and bank repossessions.
Some properties included in the survey might have received more than one notice, if the owners have multiple mortgages.
The company did break out individual properties as part of its report for the first six months of this year, when a total of 573,397 properties reported some sort of foreclosure activity.
That represents a 58 percent jump from the 363,672 properties in the first six months of 2006 and a 32 percent increase from the 433,504 in the last six months of 2006, the firm said.
In the July report, Nevada, Georgia and Michigan accounted for the highest foreclosure rates nationwide.
Nevada posted the highest foreclosure rate: one filing for every 199 households, or more than three times the national average. It reported 5,116 filings during the month, an increase of 8 percent from June.
Georgia's foreclosure rate was more than twice the national average, with one filing for every 299 households. The state reported 12,602 foreclosure filings, up 75 percent from June.
Michigan reported 13,979 filings in July, a 39 percent spike from June.
California, Florida and Ohio were among the states with the highest number of foreclosure filings in July, RealtyTrac said.
California cities continued to dominate top metropolitan foreclosure rates.
The state reported 39,013 foreclosure filings last month, the most by any single state. However, the number of filings rose less than 1 percent from June.
The state's foreclosure rate was one filing for every 333 households, RealtyTrac said.
Florida's foreclosure filings dropped 9 percent between June and July to 19,179. The July figure, however, represents a 78 percent jump from the year-ago period.
In recent months, the mortgage industry has been battered by rising defaults and foreclosures, primarily driven by borrowers with subprime loans and adjustable rate mortgages.
Lagging home sales and flat or decreasing home prices have made it more difficult for homeowners who fall behind on payments to sell their homes and clear the debt, spurring the rise in foreclosure activity.
Loan types seeing higher delinquencies and defaults in general are home equity loans or second mortgages used to cover a downpayment, subprime loans to people with shaky credit histories, and Alt-A loans, which can include interest-only and adjustable rate mortgages sold with little or no documentation.
Alex Veiga
Associated Press
Aug. 21, 2007 12:25 PM
LOS ANGELES - The number of foreclosure filings reported in the U.S. last month jumped 93 percent from July of 2006 and rose 9 percent from June, the latest sign that homeowners are having trouble making payments and finding buyers during the national housing downturn.
There were 179,599 foreclosure filings reported during July, up from 92,845 during the same period a year ago, Irvine-based RealtyTrac Inc. said Tuesday. There were 164,644 foreclosure filings reported in June.
The national foreclosure rate in July was one filing for every 693 households, the company said.
"While 43 states experienced year-over-year increases in foreclosure activity, just five states - California, Florida, Michigan, Ohio and Georgia - accounted for more than half of the nation's total foreclosure filings," RealtyTrac Chief Executive James J. Saccacio said.
The filings include default notices, auction sale notices and bank repossessions.
Some properties included in the survey might have received more than one notice, if the owners have multiple mortgages.
The company did break out individual properties as part of its report for the first six months of this year, when a total of 573,397 properties reported some sort of foreclosure activity.
That represents a 58 percent jump from the 363,672 properties in the first six months of 2006 and a 32 percent increase from the 433,504 in the last six months of 2006, the firm said.
In the July report, Nevada, Georgia and Michigan accounted for the highest foreclosure rates nationwide.
Nevada posted the highest foreclosure rate: one filing for every 199 households, or more than three times the national average. It reported 5,116 filings during the month, an increase of 8 percent from June.
Georgia's foreclosure rate was more than twice the national average, with one filing for every 299 households. The state reported 12,602 foreclosure filings, up 75 percent from June.
Michigan reported 13,979 filings in July, a 39 percent spike from June.
California, Florida and Ohio were among the states with the highest number of foreclosure filings in July, RealtyTrac said.
California cities continued to dominate top metropolitan foreclosure rates.
The state reported 39,013 foreclosure filings last month, the most by any single state. However, the number of filings rose less than 1 percent from June.
The state's foreclosure rate was one filing for every 333 households, RealtyTrac said.
Florida's foreclosure filings dropped 9 percent between June and July to 19,179. The July figure, however, represents a 78 percent jump from the year-ago period.
In recent months, the mortgage industry has been battered by rising defaults and foreclosures, primarily driven by borrowers with subprime loans and adjustable rate mortgages.
Lagging home sales and flat or decreasing home prices have made it more difficult for homeowners who fall behind on payments to sell their homes and clear the debt, spurring the rise in foreclosure activity.
Loan types seeing higher delinquencies and defaults in general are home equity loans or second mortgages used to cover a downpayment, subprime loans to people with shaky credit histories, and Alt-A loans, which can include interest-only and adjustable rate mortgages sold with little or no documentation.
Don't mess with mortgage economics
Don't mess with mortgage economics
August 19, 2007
The No. 1 key to a capitalist society is that failure, foreclosure and bankruptcy are good for the economy, by making the value of homes come down and weeding out predatory lenders.
Now there is a glut of affordable homes for sale, along with many used items still of value, that the economy will absorb at reduced rates that make it stronger and more profitable over time. Real estate investors can pick up rental homes and other items at discount rates that make them more profitable.
The pandering by U.S. Sens. Chris Dodd, D-Conn., and Charles Schumer, D-N.Y., or state Sen. Hansen Clarke, D-Detroit, that government should prevent a natural revaluation of the real estate market is preposterous and misleads consumers into thinking subprime lenders did something wrong, when, in fact, the federal government kept long-term interest rates low until it could pass the bankruptcy reform act.
To blame licensed lenders for the bubble popping in the housing market is ignorant and does not consider all of the economic factors that happen naturally.
Tom Baker
Sterling Heights
More cooperation needed
Before I can recommend federal aid to help the lenders, I would like them to show a bit more effort to assist in preventing the continuation of the crisis ("Foreclose this crisis; Federal policy can save some homes and help prevent another mortgage mess," Aug. 12).
Hopefully, by now you have seen the success that our first-in-the-nation mortgage/deed task force has achieved in Wayne County. In 2005, I funded staff from the sheriff and Wayne County prosecutor to join my staff in the register's office; 100% of their combined investigative effort is directed to stop this fraudulent criminal activity, much of which leads to foreclosure. Thus far, we have opened 345 cases, returned 80 properties to rightful owners who had them stolen, and placed criminals in prison, attaining a 100% conviction rate.
In July, I was infuriated to be rebuffed by a large California lender who refused to identify a local appraiser, a title company representative or a local lender representative. I asked for these loan team members who were instrumental in closing a loan of $2 million on a Grosse Pointe property they confirmed was a first-payment default.
Until I see more cooperation from the industry, I hope our tax money is not sent to correct their bad business decisions.
Bernard J. Youngblood
Wayne County register of deeds
Detroit
August 19, 2007
The No. 1 key to a capitalist society is that failure, foreclosure and bankruptcy are good for the economy, by making the value of homes come down and weeding out predatory lenders.
Now there is a glut of affordable homes for sale, along with many used items still of value, that the economy will absorb at reduced rates that make it stronger and more profitable over time. Real estate investors can pick up rental homes and other items at discount rates that make them more profitable.
The pandering by U.S. Sens. Chris Dodd, D-Conn., and Charles Schumer, D-N.Y., or state Sen. Hansen Clarke, D-Detroit, that government should prevent a natural revaluation of the real estate market is preposterous and misleads consumers into thinking subprime lenders did something wrong, when, in fact, the federal government kept long-term interest rates low until it could pass the bankruptcy reform act.
To blame licensed lenders for the bubble popping in the housing market is ignorant and does not consider all of the economic factors that happen naturally.
Tom Baker
Sterling Heights
More cooperation needed
Before I can recommend federal aid to help the lenders, I would like them to show a bit more effort to assist in preventing the continuation of the crisis ("Foreclose this crisis; Federal policy can save some homes and help prevent another mortgage mess," Aug. 12).
Hopefully, by now you have seen the success that our first-in-the-nation mortgage/deed task force has achieved in Wayne County. In 2005, I funded staff from the sheriff and Wayne County prosecutor to join my staff in the register's office; 100% of their combined investigative effort is directed to stop this fraudulent criminal activity, much of which leads to foreclosure. Thus far, we have opened 345 cases, returned 80 properties to rightful owners who had them stolen, and placed criminals in prison, attaining a 100% conviction rate.
In July, I was infuriated to be rebuffed by a large California lender who refused to identify a local appraiser, a title company representative or a local lender representative. I asked for these loan team members who were instrumental in closing a loan of $2 million on a Grosse Pointe property they confirmed was a first-payment default.
Until I see more cooperation from the industry, I hope our tax money is not sent to correct their bad business decisions.
Bernard J. Youngblood
Wayne County register of deeds
Detroit
Michigan foreclosures still on the rise
Michigan foreclosures still on the rise
August 21, 2007
By GRETA GUEST
FREE PRESS BUSINESS WRITER
Michigan continued its rapid foreclosure pace in July, ranking third nationwide, according to figures released this morning.
Wayne County topped the list of major metropolitan areas, with a 70% jump in foreclosure activity in July compared with a year ago, according to RealtyTrac Inc., an Irvine, Calif.-based online foreclosure firm. The county reported 8,683 foreclosure filings in July, or one filing for every 97 households.
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Michigan ranked third with 13,979 foreclosure filings in July, up 39% from June and a 130% increase from July 2006. That's a rate of one foreclosure for every 320 households, compared to one for every 693 households nationwide, RealtyTrac said.
"While 43 states experienced year-over-year increases in foreclosure activity, just five states -- California, Florida, Michigan, Ohio and Georgia -- accounted for more than half of the nation's total foreclosure filings," said James Saccacio, chief executive officer of RealtyTrac.
RealtyTrac data, which has been criticized for inflating foreclosure filings, includes numbers for default notices, auction sale notices and bank repossessions in the total foreclosure filing numbers. In Michigan, the 13,979 filings breaks down into 2,293 default notices, 6,947 auction sale notices and 4,739 bank repossessions.
August 21, 2007
By GRETA GUEST
FREE PRESS BUSINESS WRITER
Michigan continued its rapid foreclosure pace in July, ranking third nationwide, according to figures released this morning.
Wayne County topped the list of major metropolitan areas, with a 70% jump in foreclosure activity in July compared with a year ago, according to RealtyTrac Inc., an Irvine, Calif.-based online foreclosure firm. The county reported 8,683 foreclosure filings in July, or one filing for every 97 households.
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Michigan ranked third with 13,979 foreclosure filings in July, up 39% from June and a 130% increase from July 2006. That's a rate of one foreclosure for every 320 households, compared to one for every 693 households nationwide, RealtyTrac said.
"While 43 states experienced year-over-year increases in foreclosure activity, just five states -- California, Florida, Michigan, Ohio and Georgia -- accounted for more than half of the nation's total foreclosure filings," said James Saccacio, chief executive officer of RealtyTrac.
RealtyTrac data, which has been criticized for inflating foreclosure filings, includes numbers for default notices, auction sale notices and bank repossessions in the total foreclosure filing numbers. In Michigan, the 13,979 filings breaks down into 2,293 default notices, 6,947 auction sale notices and 4,739 bank repossessions.
Thursday, August 9, 2007
Lenders curtail no-money-down mortgages
No cash? No home loans for many.
Lenders curtail no-money-down mortgages
Dina ElBoghdady / The Washington Post
WASHINGTON -- Home buyers again need their own money to close a deal.
Lenders faced with growing piles of bad loans, even to borrowers once considered good credit risks, have clamped down on the no-money-down mortgage. The abrupt shift threatens to dash the hopes of millions of potential buyers, especially those shopping for their first homes.
Four out of 10 first-time buyers used no-down-payment mortgages in 2005 and 2006, according to surveys by the National Association of Realtors. But some lenders are now scrapping such loans completely. Others are pickier about who gets them. All figure that the more cash borrowers put down, the less likely they are to default.
"No-down-payment loans are just about near impossible to get right now," said Jennifer Bridges, a real estate agent in Woodbridge, Va., at ERA Blue Diamond Realty. "We'll have someone all lined up and then without warning, the lender will say: 'It's gone.' It's terribly depressing."
National City Home Equity, a division of National City Bank, one of the nation's big home lenders, stopped funding some types of zero-down loans this month, said Ken Carter, the division's executive vice president.
"When home prices were appreciating and interest rates were declining, that product made sense," Carter said. "Today, we're on the opposite side of that coin, and it's not prudent to be stretching."
Washington Mutual, another big lender, in March stopped offering such loans to subprime borrowers, typically people with poor credit. It also reduced the size of loans to other borrowers.
"It used to be that we would finance a loan up to $1 million with no down payment for a first-time home buyer," said Daniel H. Aminoff, a senior loan consultant at Washington Mutual Home Loans in Alexandria, Va. "But as of March, we will only finance a loan of $417,000 with no down payment."
Concerns about mortgages and credit continued to roil financial markets last week. And American Home Mortgage Investment of New York cut most of its staff of more than 7,000 employees, effective Friday.
Changes in lending policies will most affect people who lack great credit, steady income or cash reserves. These changes made it difficult for Robert Rebellino while he was trying to get a mortgage for a newly built townhouse in Gainesville, Va.
Rebellino, 58, was preapproved for a no-down-payment loan by lender EquiFirst in mid-July. When he signed a contract three days later, EquiFirst had eliminated that type of loan, he and his mortgage broker said.
The next-best loan required a 5 percent down payment -- in his case, $21,000. Rebellino and his wife, Stephanie, put up the cash and recently settled on the house.
"We were really upset, but there was not a lot we could do," said Rebellino, an Army civilian who was transferred to Alexandria, Va., from Ohio. "We needed a place in a certain time frame, and it looked like the loan terms would only get worse."
Many years ago, a 20 percent down payment for a home was the norm. But as prices escalated, fewer people could afford that. After all, 20 percent of $500,000 -- the cost of a middle-class suburban house in the Washington, D.C., area -- is $100,000.
No-down-payment mortgages came into play about a decade ago, at first for wealthy borrowers with stellar credit. The idea was to give those borrowers loans that allowed them to buy houses without having to liquidate other investments, said Sean O'Boyle, a vice president at SunTrust Mortgage in Chevy Chase, Md.
"But the model deteriorated, and it became available to just about anybody in recent years," he said.
In part, that was because lenders assumed that as long as home prices kept climbing, borrowers who could not afford future mortgage payments could sell or refinance. But once home prices dropped in many parts of the country, that option evaporated. Delinquencies and foreclosures surged. With urging from federal regulators, lenders tightened their policies.
SunTrust boosted the credit-score requirements for no-down-payment loans, Boyle said. It also started requiring borrowers to have six months of payments in reserve, up from two months, he said.
Many lenders now place more emphasis on job stability and low debt when writing no-down-payment loans. Almost all verify a borrower's income and employment, which was not the case during the housing boom.
Justin Johnson, 28, met all those requirements, which he assumes is why he recently secured 100 percent financing from his lender to buy a townhouse in Frederick County, Md.
"We really wanted to buy a house, and we don't have a lot of savings to be able to put a down payment," Johnson said. "The only way we could afford it is to get 100 percent financing from the lender. We were informed that it would be very hard to go this route."
Like many cash-strapped borrowers, Johnson applied for a "piggyback" mortgage, meaning he took out two loans. The first covered 80 percent of the cost of the home, and the second was a home-equity line of credit that covered the remaining 20 percent, at higher interest.
The arrangement enabled him to avoid paying the mortgage insurance required by lenders if a loan exceeds 80 percent of a home's value. But the second, smaller mortgage is risky for lenders. If Johnson loses his house, proceeds from its sale would go toward paying off the first mortgage. Typically, there would be little or no money left to cover the second.
Piggyback loans were one of the main reasons that Countrywide Financial, the nation's largest mortgage lender, took a big hit to its second-quarter profit. That announcement helped trigger the stock market's tumble last week.
Countrywide said that even people with good credit were defaulting on home-equity lines, largely because of unforeseen events such as illness, divorce or job loss.
The California-based lender plans to eliminate home-equity lines for subprime borrowers. Executives also said they would curtail 100 percent financing for more creditworthy prime borrowers and impose more restrictions on first-time home buyers.
Without the piggyback option, many first-time buyers who want 100 percent financing may find themselves priced out of the market because they would have to pay mortgage insurance, said Eric D. Gates, a mortgage broker at Apex Home Loans in Bethesda, Md. "That will make the monthly payments much higher," he said.
For Reggie Watson, insurance added $125 a month. Still, he considers himself lucky. Watson and his wife, Kisha, both 26, paid low rent when they were in college. When they moved to the Washington area, they were flabbergasted by home prices. But they found a no-down-payment loan in June and closed on a townhouse in Ashburn, Va., last month.
"I've finally gotten over sticker shock, and I think once we make that first payment, we'll be all right," Watson said. "I'm definitely relieved because it's been so stressful looking for a home."
Lenders curtail no-money-down mortgages
Dina ElBoghdady / The Washington Post
WASHINGTON -- Home buyers again need their own money to close a deal.
Lenders faced with growing piles of bad loans, even to borrowers once considered good credit risks, have clamped down on the no-money-down mortgage. The abrupt shift threatens to dash the hopes of millions of potential buyers, especially those shopping for their first homes.
Four out of 10 first-time buyers used no-down-payment mortgages in 2005 and 2006, according to surveys by the National Association of Realtors. But some lenders are now scrapping such loans completely. Others are pickier about who gets them. All figure that the more cash borrowers put down, the less likely they are to default.
"No-down-payment loans are just about near impossible to get right now," said Jennifer Bridges, a real estate agent in Woodbridge, Va., at ERA Blue Diamond Realty. "We'll have someone all lined up and then without warning, the lender will say: 'It's gone.' It's terribly depressing."
National City Home Equity, a division of National City Bank, one of the nation's big home lenders, stopped funding some types of zero-down loans this month, said Ken Carter, the division's executive vice president.
"When home prices were appreciating and interest rates were declining, that product made sense," Carter said. "Today, we're on the opposite side of that coin, and it's not prudent to be stretching."
Washington Mutual, another big lender, in March stopped offering such loans to subprime borrowers, typically people with poor credit. It also reduced the size of loans to other borrowers.
"It used to be that we would finance a loan up to $1 million with no down payment for a first-time home buyer," said Daniel H. Aminoff, a senior loan consultant at Washington Mutual Home Loans in Alexandria, Va. "But as of March, we will only finance a loan of $417,000 with no down payment."
Concerns about mortgages and credit continued to roil financial markets last week. And American Home Mortgage Investment of New York cut most of its staff of more than 7,000 employees, effective Friday.
Changes in lending policies will most affect people who lack great credit, steady income or cash reserves. These changes made it difficult for Robert Rebellino while he was trying to get a mortgage for a newly built townhouse in Gainesville, Va.
Rebellino, 58, was preapproved for a no-down-payment loan by lender EquiFirst in mid-July. When he signed a contract three days later, EquiFirst had eliminated that type of loan, he and his mortgage broker said.
The next-best loan required a 5 percent down payment -- in his case, $21,000. Rebellino and his wife, Stephanie, put up the cash and recently settled on the house.
"We were really upset, but there was not a lot we could do," said Rebellino, an Army civilian who was transferred to Alexandria, Va., from Ohio. "We needed a place in a certain time frame, and it looked like the loan terms would only get worse."
Many years ago, a 20 percent down payment for a home was the norm. But as prices escalated, fewer people could afford that. After all, 20 percent of $500,000 -- the cost of a middle-class suburban house in the Washington, D.C., area -- is $100,000.
No-down-payment mortgages came into play about a decade ago, at first for wealthy borrowers with stellar credit. The idea was to give those borrowers loans that allowed them to buy houses without having to liquidate other investments, said Sean O'Boyle, a vice president at SunTrust Mortgage in Chevy Chase, Md.
"But the model deteriorated, and it became available to just about anybody in recent years," he said.
In part, that was because lenders assumed that as long as home prices kept climbing, borrowers who could not afford future mortgage payments could sell or refinance. But once home prices dropped in many parts of the country, that option evaporated. Delinquencies and foreclosures surged. With urging from federal regulators, lenders tightened their policies.
SunTrust boosted the credit-score requirements for no-down-payment loans, Boyle said. It also started requiring borrowers to have six months of payments in reserve, up from two months, he said.
Many lenders now place more emphasis on job stability and low debt when writing no-down-payment loans. Almost all verify a borrower's income and employment, which was not the case during the housing boom.
Justin Johnson, 28, met all those requirements, which he assumes is why he recently secured 100 percent financing from his lender to buy a townhouse in Frederick County, Md.
"We really wanted to buy a house, and we don't have a lot of savings to be able to put a down payment," Johnson said. "The only way we could afford it is to get 100 percent financing from the lender. We were informed that it would be very hard to go this route."
Like many cash-strapped borrowers, Johnson applied for a "piggyback" mortgage, meaning he took out two loans. The first covered 80 percent of the cost of the home, and the second was a home-equity line of credit that covered the remaining 20 percent, at higher interest.
The arrangement enabled him to avoid paying the mortgage insurance required by lenders if a loan exceeds 80 percent of a home's value. But the second, smaller mortgage is risky for lenders. If Johnson loses his house, proceeds from its sale would go toward paying off the first mortgage. Typically, there would be little or no money left to cover the second.
Piggyback loans were one of the main reasons that Countrywide Financial, the nation's largest mortgage lender, took a big hit to its second-quarter profit. That announcement helped trigger the stock market's tumble last week.
Countrywide said that even people with good credit were defaulting on home-equity lines, largely because of unforeseen events such as illness, divorce or job loss.
The California-based lender plans to eliminate home-equity lines for subprime borrowers. Executives also said they would curtail 100 percent financing for more creditworthy prime borrowers and impose more restrictions on first-time home buyers.
Without the piggyback option, many first-time buyers who want 100 percent financing may find themselves priced out of the market because they would have to pay mortgage insurance, said Eric D. Gates, a mortgage broker at Apex Home Loans in Bethesda, Md. "That will make the monthly payments much higher," he said.
For Reggie Watson, insurance added $125 a month. Still, he considers himself lucky. Watson and his wife, Kisha, both 26, paid low rent when they were in college. When they moved to the Washington area, they were flabbergasted by home prices. But they found a no-down-payment loan in June and closed on a townhouse in Ashburn, Va., last month.
"I've finally gotten over sticker shock, and I think once we make that first payment, we'll be all right," Watson said. "I'm definitely relieved because it's been so stressful looking for a home."
Foreclosure hot line gets 1,008 calls from Mich. residents
Foreclosure hot line gets 1,008 calls from Mich. residents
August 7, 2007
BY MARGARITA BAUZA
FREE PRESS BUSINESS WRITER
A national hot line that counsels homeowners on avoiding foreclosure received 1,008 calls from Michigan residents in the last three months. Michigan ranked ninth among the states that placed the most calls to the Homeownership Preservation Foundation’s national foreclosure hot line.
Those were call figures for foundation’s second quarter, which ended June 30.
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The Homeownership Preservation Foundation is a nonprofit dedicated to reducing foreclosures among American homeowners. It runs a free counseling hot line: 888-995-4673.
Ohio homeowners placed the highest number of calls with 3,288. California ranked second with 2,357 calls and Georgia ranked third with 2,206 calls.
Counselors fielded more than 30,000 calls in the second quarter of 2007, six times the number it received during the same period last year.
August 7, 2007
BY MARGARITA BAUZA
FREE PRESS BUSINESS WRITER
A national hot line that counsels homeowners on avoiding foreclosure received 1,008 calls from Michigan residents in the last three months. Michigan ranked ninth among the states that placed the most calls to the Homeownership Preservation Foundation’s national foreclosure hot line.
Those were call figures for foundation’s second quarter, which ended June 30.
Advertisement
The Homeownership Preservation Foundation is a nonprofit dedicated to reducing foreclosures among American homeowners. It runs a free counseling hot line: 888-995-4673.
Ohio homeowners placed the highest number of calls with 3,288. California ranked second with 2,357 calls and Georgia ranked third with 2,206 calls.
Counselors fielded more than 30,000 calls in the second quarter of 2007, six times the number it received during the same period last year.
Mortgage delinquencies, defaults spreading
Mortgage delinquencies, defaults spreading: AIG
Thursday August 9, 2:02 pm ET
NEW YORK (Reuters) - American International Group (NYSE:AIG - News), one of the biggest U.S. mortgage lenders, warned on Thursday that mortgage defaults are spreading.
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While saying most of its mortgage insurance and residential loans were safe, AIG made a presentation to analysts and investors that showed delinquencies are becoming more common among borrowers in the category just above subprime.
Although acknowledging the "significant declines" in subprime securities, Chief Executive Martin Sullivan said AIG's tight underwriting standards had minimized losses and he was "poised to take advantage of opportunities" in the mortgage market.
But it was clear the overall market was getting worse.
"We are experiencing stress in the Midwest markets where jobs have been lost and we are now seeing it in Florida and California," said William Nutt Jr., chief executive of AIG's mortgage insurance arm.
AIG shares were at $65.60, down 88 cents, or 1.32 percent, in afternoon trading on the New York Stock Exchange. The Standard & Poor's insurance index (^GSPINSC - News) was down 2 percent.
'PANIC MODE'
"The market's in a panic mode because the subprime crisis is spreading into other areas of the economy," said Bill Hackney, a managing partner of Atlanta Capital Management.
But Hackney said he was keeping AIG as one of his largest holdings because it had "the size and diversity to weather it."
On Wednesday, AIG reported second quarter earnings that included a pretax operating loss of $78 million in its mortgage insurance unit and a decline in earnings at its consumer finance division, which originates and invests in real estate loans.
But higher premiums in life and property insurance offset the drop, and net earnings rose by more than a third to $4.28 billion, or $1.64 a share.
AIG said delinquency rates for first mortgages had risen to 3.98 percent in June from 3.56 percent in April and a low of 3.08 percent in July 2005. First mortgages represent 90 percent of AIG's domestic mortgage business.
"You never have credit problems isolated to just one area," said Paul Newsome, an analyst with A.G. Edwards.
The loss ratio for first mortgages, which represents claims and expenses as a percentage of premiums, more than tripled in the second quarter to 84 percent from 26 percent a year ago. The total loss ratio -- including second mortgages -- nearly quadrupled to 130 percent.
'WHISTLING IN THE DARK'
AIG divided its mortgage portfolio into three categories: subprime, for borrowers with credit scores below 620; "nonprime," for borrowers with credit scores between 620 and 659, and prime, for borrowers with credit ratings above 660.
As of June 30, AIG's consumer finance arm had delinquencies of 3.68 percent in subprime, 2.13 percent in nonprime, and 0.81 percent in prime.
AIG, the world's largest insurer, said total delinquencies in its $25.9 billion mortgage insurance portfolio were 2.5 percent, but it did not give year-ago figures.
It said 10.8 percent of subprime mortgages and 4.6 percent in the category with credit scores just above subprime were 60 days overdue.
"Problems in July have gone beyond the subprime market," said Bill Bergman, an analyst with Morningstar. "Maybe not AIG, but some of these lenders have been whistling in the dark."
(Reporting by Ed Leefeldt)
Thursday August 9, 2:02 pm ET
NEW YORK (Reuters) - American International Group (NYSE:AIG - News), one of the biggest U.S. mortgage lenders, warned on Thursday that mortgage defaults are spreading.
ADVERTISEMENT
While saying most of its mortgage insurance and residential loans were safe, AIG made a presentation to analysts and investors that showed delinquencies are becoming more common among borrowers in the category just above subprime.
Although acknowledging the "significant declines" in subprime securities, Chief Executive Martin Sullivan said AIG's tight underwriting standards had minimized losses and he was "poised to take advantage of opportunities" in the mortgage market.
But it was clear the overall market was getting worse.
"We are experiencing stress in the Midwest markets where jobs have been lost and we are now seeing it in Florida and California," said William Nutt Jr., chief executive of AIG's mortgage insurance arm.
AIG shares were at $65.60, down 88 cents, or 1.32 percent, in afternoon trading on the New York Stock Exchange. The Standard & Poor's insurance index (^GSPINSC - News) was down 2 percent.
'PANIC MODE'
"The market's in a panic mode because the subprime crisis is spreading into other areas of the economy," said Bill Hackney, a managing partner of Atlanta Capital Management.
But Hackney said he was keeping AIG as one of his largest holdings because it had "the size and diversity to weather it."
On Wednesday, AIG reported second quarter earnings that included a pretax operating loss of $78 million in its mortgage insurance unit and a decline in earnings at its consumer finance division, which originates and invests in real estate loans.
But higher premiums in life and property insurance offset the drop, and net earnings rose by more than a third to $4.28 billion, or $1.64 a share.
AIG said delinquency rates for first mortgages had risen to 3.98 percent in June from 3.56 percent in April and a low of 3.08 percent in July 2005. First mortgages represent 90 percent of AIG's domestic mortgage business.
"You never have credit problems isolated to just one area," said Paul Newsome, an analyst with A.G. Edwards.
The loss ratio for first mortgages, which represents claims and expenses as a percentage of premiums, more than tripled in the second quarter to 84 percent from 26 percent a year ago. The total loss ratio -- including second mortgages -- nearly quadrupled to 130 percent.
'WHISTLING IN THE DARK'
AIG divided its mortgage portfolio into three categories: subprime, for borrowers with credit scores below 620; "nonprime," for borrowers with credit scores between 620 and 659, and prime, for borrowers with credit ratings above 660.
As of June 30, AIG's consumer finance arm had delinquencies of 3.68 percent in subprime, 2.13 percent in nonprime, and 0.81 percent in prime.
AIG, the world's largest insurer, said total delinquencies in its $25.9 billion mortgage insurance portfolio were 2.5 percent, but it did not give year-ago figures.
It said 10.8 percent of subprime mortgages and 4.6 percent in the category with credit scores just above subprime were 60 days overdue.
"Problems in July have gone beyond the subprime market," said Bill Bergman, an analyst with Morningstar. "Maybe not AIG, but some of these lenders have been whistling in the dark."
(Reporting by Ed Leefeldt)
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