Mortgage Loan Modification. Will It Work For Me?

Life was never better than the day that you closed escrow and took possession of your cabin in Big Bear. You have always loved Big Bear and after much effort, you now own the cabin of your dreams. You think back to when you were deciding on what tpe of mortgage you wanted. The 30 year fixed rate was ok, but by getting a adjustable rate mortgage, the payment would be so much lower. Your mortgage broker convinced you that the adjustable rate mortgage was the way to go. Yes, it is true that in the case of your ARM, you will need to refinance in 3 years to avoid the increase that will kick in, but that was nothing more than a passing thought. That is until now. You have had the cabin for almost three years, your mortgage is going to reset in just a few months, and you will not be able to afford the payment when that happens. Now what?

What do you do? The last thing you want is to lose your Big Bear get a way. You tried to refinance the loan but quickly found out that the value of the home has decreased. The value has decreased so much that at this point, you now owe more on the cabin than it is worth! You are feeling like you're stuck between two rocks. You can't afford the new payment. If you make that payment, then you're going to fall behind on other debts.

There is another option that is becoming very popular. The option is called a Mortgage Loan Modification. Simply put, you hire an experienced agent to negotiate new terms for your mortgage. So, instead of hiding from your lender, contact them and ask for assistance. Your mortgage company would rather work with you than commence foreclosure proceedings, which can be quite costly for them.

5 Steps To Negotiating A Loan Modification

1) Make sure that you know the state of your finances before contacting your lender. Determine how much money you're bringing in each month. Sit down and figure out how much you're paying in bills and where you can cut costs. You would be surprised at how much you can cut out of the budget if you take an honest look at your spending habits. Ask a nonprofit counseling service to help you put together this financial analysis for free. The counselor will also help to negotiate with your lender. Consumer Credit Counseling is a good place to start.

2) Contact your lender and have an idea what you need. Tell them what your situation is and what you can offer to help your situation. Don't hide from the lender. Call them, be truthful about your situation and ask for help.

3) Come up with some kind of an answer to the lender's question of how you propose to pay off the loan eventually. You're better off submitting an initial proposal. At least you've opened the door in the negotiation.

4) If you think that your financial strain won't last long, ask the lender for forbearance, or postponement of payments, for a couple of months until your finances recover.

5) If you have an adjustable rate mortgage that reset and you cannot meet the higher monthly payments, request a loan modification from the lender. They will request a complete financial history from you, detailing your income and monthly expenses. Ideally, you should have some cushion in your income to justify a loan modification, if they switched your mortgage to a fixed-rate mortgage. Show them that you can comfortably pay a fixed rate mortgage through extra income from a second job, and you are more likely to get a modification.


A Few Tips To Consider

Call your lender as soon as you discover you will experience some hardship in making your monthly payments.

Once you have received a loan modification, make your payments on time to improve your credit.

If your credit is shaky, do some rebuilding before you refinance your loan.

If your loan is modified, your interest rate may be a little higher due to your shaky credit.
The loan modification is bound to have some effect on your credit scores. But once complete and you're back on tract, your scores will continue to improve as you make your payments on time.

Evolution of the Big Bear Real Estate Market.

PAST

In 2002 the Realtors in Big Bear sold 911 pieces of property and the Real Estate boom was off and running. In two years, the sale of property in Big Bear jumped from 911 units to 1913 units. By 2007, the number of units sold dropped to 797.

In that time span, everyone was getting a loan. Loans ranged from conventional loans where the buyer was putting 20% down to loans that would allow the buyer to finance 100% of the mortgage. Some buyers preferred a 30 year note with a fixed rate. Others were using Adjustable Rate Mortgage's, (ARM). These loans were structures so the buyer would start off with a low interest rate for 3-5 years. After the 3-5 years, the mortgage would reset and you would be paying a much higher rate. At that time, the average turn over on homes in Big Bear was every eighteen months. The home owner would hold on to the cabin for a year to eighteen months, sell the cabin and turn around and buy a nicer cabin with the appreciation. Another loan that we saw was the interest only loan. In these loans, the buyer would pay interest only for 3 to 5 years. Like the ARM, after the 3 to 5 years had passed, the mortgage reset to a much higher rate.

What happened when all of these ARM's matured and reset? So many people who bought in that time frame used the ARM because it gave them the lowest house payment. As it turned out, many of these people could not afford the increase in the house payment once the mortgage reset. Many home owners either didn't think about how the reset would affect them,or they planned to refinance the mortgage before the time came for the reset. Unfortunalty, when these home owners went to the bank to refinance the home, they quickly found out that they now owed more on their home than it was worth! This took away from them the only option that they really had. Now they had to figure out how tomake their house payment. Here is a good example of how this reset can affect the home owner.

A typical borrower who took out a 2/28 mortgage in 2004 or 2005 has been paying an average interest rate of 7.6% for the first two years. Once that introductory period ends, the interest rate is reset every six months for the remaining 28 years of the loan at a margin over an index. When they do adjust, these loans typically limit the first interest rate increase to around three percentage points. That would bring the monthly rate to 10.1%. Monthly payments for a borrower with a loan of about $150,000 would rise to about $1,315 from $1,000. Assuming interest rates stay around current levels, the rate would jump again to about 11% within six months to a year, bringing the monthly payment to $1,400, or 40% higher than the initial payment.

By 2007, the sale of homes in Big Bear dropped 60% from 2004. We went from a high of 1913 homes sold down to 797 in 2007.

PRESENT

Let's fast forward to the present and take a look at the changes that have taken place in the Big Bear Real Estate market.

Inventory is high. In the past, the number of homes on the market going into winter is much lower than the 1175 homes currently listed.
Many of the homes on the market in Big Bear are REO's (Bank Owned Properties) We have seen that the banks list their homes at much lower prices than the competition. In many cases, the REO stands out as being the best deal on the market. It is very hard for the home owner to sell his home unless he is prepared to compete with the bank owned, REO properties.
There is no such thing as 100% financing or loans with only 5 percent down.

Mortgages are much harder to get in today's market than in the past. Lenders are requiring more down payments and higher credit scores.

I'm a first time buyer. Does this mean that I can't get a mortgage?

If you are a first time buyer and want to buy your home, the first thing I would suggest is to speak to a lender. There are many loan programs are available and a good lender is going to be able to advise you on what is best for you. You also need to know how much you qualify for. There is no sense looking at homes in the $300,000.00 range if you're only approved for $150,000.00. Ask the lender to "PRE APPROVE" you. The lender might tell you that they can give you a Pre Qualify letter. In today's market, with so many homes being REO's, you will find that the"PRE APPROVAL" Letter will make for a much stronger offer.

Let's say that you have found a home in Big Bear that you want to buy and you find out that it is a REO. Do you use your friend who is a Realtor in Newport Beach to represent you? You're best bet is to speak to a qualified Realtor who represents the Big Bea area. The local agent is going to know if you are paying to much for the house. They know the area and know what is a good deal and what is over priced. Once you are in escrow, the local Realtor is going to be able to recommend a good home inspector who is familiar with issues relating to mountain homes.
I had a client come in today to see me and he was surprised to see how many homes we sold this month. With all of the negative news regarding the financial markets, he was shocked to see that we are still selling Real Estate and closing escrows. If you are looking to buy Real Estate in today's market, you will succeed as long as you have the following: 1) 20% of the purchase price for a down payment, 2) 3% of the down payment available now for the good faith deposit, 3) Fico scores at 720 or better.

If you have any questions about how the mortgage crisis has affected your ability to buy a Big Bear cabin, give me a call at 909 229-5326 or send me a email at tony@tonycard.com

Things to keep in mind when you buy a REO property.

I chose to write this blog because of an issue that has come up in one of my escrows. I really didn't give this any thought, until I heard another agent in our office having the same issue. As it appears that this is not a isolated incident, I felt it was worth discussing in my REO Blog.

My clients found the home of their dreams, a REO property in Big Bear City, and after some negotiations with the bank, got an agreement and we went to escrow. As with so many REO's this house needed some repair work. We really didn't know the extent of the work needed until after the home inspection. The repair list wasn't to bad and my clients are still moving towards the close.

Unbeknown to me, the lender asked my client to send them a copy of the home inspection, and it was then that things got a little more complicated. As I mentioned, the home needed some work, work that my clients planned to do once the escrow closed. The lender had other plans. They told me that because this was an REO property, they wanted certain things taken care of through escrow. Knowing that we can't do any work on the property until escrow closes, the lender has asked for bids from licensed contractors to make repairs. They plan on having my client bring in to escrow 1.5 times the amount of these bids. Once escrow closes, they will be asking the contractors to go in and complete the repairs within 30 days. Once the work is complete, any extra funds will be refunded to the buyer.

I understand their thought process in dealing with an REO property, but this is going to cause some other issues. The biggest problem we are going to have to work through is that the cabin needs a roof. Normally, that's not a big issue. You call the roofer and he comes out and replaces the roof. But, when you live in Big Bear, you have to watch the weather reports, especially once we hit October 1st. So, the escrow is set to close on October 10th and the roofer is going to have 30 days to tear the old roof off and install a new one. Roofers don't work when it snows and anytime after October 1st, we can have snow.

The second issue that this has caused is this. My clients knew that the REO that they are buying is going to need work. This is work that they plan to do once the escrow closed and before they move into it. The work that needs to be done is work that my client says he can do. So, why should he have to pay a contractor to do the work that he is qualified to do.

It doesn't matter if you are a buyers agent or a buyer. I think this is something that you need to know and consider when you buy a REO property. Not all lenders are the same and they might not all be asking for money to be held in escrow for repairs. But again, please keep it in mind when you are ready to purchase a REOproperty and be prepared for it.

As your Big Bear REO Specialist, I can assist you with the purchase of any REO home in Big Bear. For more information on REO properties in Big Bear, please give me a call at 909 229-5326 or send me an email is tony@tonycard.com.

Current List Of REO Properties in Big Bear

The number of REO properties currently for sale in the Big Bear Valley has almost doubled since June of 2008. Back in June, there were 35 REO properties for sale in the Big Bear MLS and today there are 66. Yesterday, there were 8 new listings posted in the Big Bear MLS and 6 of those were REO's. The REO properties are selling well in the Big Bear market. Of the 19 homes that went into escrow last week, 6 of them were REO's. When the banks list these properties, they are pricing them at some remarkable prices. As a result, it is not unusual to see multiple offers on the properties, days on market at a week to ten days, and these homes selling for over asking price. That being said, the REO's are generally a very good investment.
There are some good deals on the market right now that are not REO's. If a home owner wants to sell his property, he must understands that his competition is the REO market. If he is able to grasps this and he prices his home accordingly, then he has a good shot at selling the property.
If you have any questions about any REO propertiesin Big Bear, please contract me either by phone, 909 229-5326 or email at tony@tonycard.com

My Home Is Not What It Is Worth. Can I Short Sale It?

The question, My home is not worth what I owe, can I short sale it is asked quite frequently in today's market. In the past, most home owners had a tremendous amount of equity in their homes. Things would come up and they pulled the money out for one reason or another. Many of them are now in a situation where they owe much more on their home than it is worth in the current market. But just because you owe more on the home than it is worth, that alone does NOT automatically qualify you to short sale your home.
What is a Short Sale?

A short sale is when a bank or mortgage lender agrees to discount a loan balance due to an economic or financial hardship on the part of the mortgagor. This negotiation is all done through communication with a bank's Loss mitigation department. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender in full satisfaction of the debt. In such instances, the lender would have the right to approve or disapprove of a proposed sale.
As you can see from the definition of a short sale, the key to the whole process is there being a economical or financial hardship. Just owing the banks more than the home is worth is not going to be enough to qualify you for the short sale. There must be a economic or financial hardship in order to qualify for a short sale.

How do I start the process of a Short Sale?
The first step you want to take if you find that you are going to have to sell your home as a Short Sale is to find an experienced Real Estate Agent who specializes in the Short Sale Process. Your Real Estate agent will be able to negotiate with the bank or lender on your behalf. An experienced Short Sale agent will give you a much better chance of a successful short sale.
An experienced Short sale agent will tell you what you need to do to get the house ready for sale. Don't get to worried about the price he places on the home. There is a reason for that. Short Sales can go as long as four months and you want a buyer who is willing to stick around through a long escrow.

You will want to get all of the documentation together for the bank. From my experience, every bank has their own requirements, so you want to talk to the loss mitigation department. They will send you a Short Sale package. In that package, the bank will be wanting a hardship letter explaining your financial hardship. They will want to see your bank statements, tax returns, and pay stubs from your current employer. They may want to see your current budget as well a financial statement. The bank may have you send all the information in to them, or they may ask you to give it to your Real Estate agent. If the later is the case, then the Real Estate agent will submit all of your information with the offer. In some cases a release of second trust deed may be required. This normally comes into play if you have a second mortgage and that loan is not with the lender who holds the first.

As I mentioned earlier, don't get to worried about the price that your Real Estate agent places on the house. If he is an experienced Short Sale Specialist, he has done his homework and he knows where the home needs to be priced. His goal is to price the home so that it stands out against the competition as being a great value, but is still a price that he can support with comparable sales.
The first thing the bank is going to do it to order a BPO (Brokers Price Opinion) and so it is important that the price can be supported by the comparable sales.

If the BPO comes back to the bank at a price that is very close to the offer, it is normally accepted. But both the buyer and seller needs to be aware that the back doesn't pay the fees that are considered normal and customary. An example of this is a bank may only offer $1,000.00 towards any second mortgage and that is all they will pay. Another fee the banks don't normally pay for is the buyers home warranty. I know, this is only a few hundred dollars but the bank is taking a loss and won't pay for anything that they don't have to.

If you find that you are having a financial hardship holding on to your home and it is located in the Big Bear Valley, I can help you. Simply email me at tony@tonycard.com or call me at 909 229-5326. I will be happy to assist you with the sale of your Big Bear property.
If you are a buyer or investor looking to take advantage of the the short sales or bank owned, REO properies in the Big Bear Valley, please give me a call or send me a quick email. There are some great deals in the Big Bear valley and I would be happy to help you with them.