Every day we hear how poorly the economy is performing and how homeowners are being affected. We’ve all heard the term “distressed property sale,” but what is it? A distressed property sale is either a short sale (where the bank allows the homeowner to sell the property for less than is owed) or a foreclosure (where the bank takes the property back from the owner due to non-payment).
There are many factors relating to the credit impact on a short sale versus a foreclosure. However, it can generally be stated that after a short sale, the seller is able to raise his credit score, and purchase another home, much more quickly. The other benefit to a short sale is that often the differential between what was owed and what the bank agrees to accept is forgiven by the bank. In a foreclosure, the bank has the right to pursue this differential.
It is interesting to view some statistics specific to Lake of the Woods as compared to Orange County, Spotsylvania County, and Fredericksburg City (combined as a whole). As a resident and a realtor I am disappointed that our community has experienced the number of foreclosures year-to-date versus short sales, as short sales are typically a better option for the homeowner, and certainly for the community.
According to information gained from the MRIS MLS (Multiple Listing Service) about sales in LOW, (and it must be noted that this information is only as accurate as is reported)
In 2008, there were 6 short sales and no foreclosures out of 133 total sales, accounting for 4.5% of total sales
In 2009, there were 5 short sales and 47 foreclosures out of 145 total sales, accounting for 32.4% of total sales
In 2010, there were 13 short sales and50 foreclosures out of 148 total sales, accounting for 33.8% of total sales
Thus far in 2011 YTD (as of 10/12/2011), there were 9 short sales and 34 foreclosures out of 114, accounting for 29.8% of total sales
In Orange County, Spotsylvania County, and Fredericksburg City combined, the year-to-date statistics are as follows: 1833 total sales, of which short sales (391) are accounting for 21.3%, and foreclosures (498) are accounting for 27.2%,
What does all of this mean? Good news and not-so-good news. These statistics reveal two facts: The good news is that Lake of the Woods is faring better than our neighbors in distressed property sales (37.7% versus 48.5%). The not-so-good news is that Lake of the Woods is experiencing a far greater percentage of foreclosures than short sales than our neighbors (7.9% versus 21.3%). This needs to improve!
Perhaps we are lagging behind on short sales because homeowners who are having difficulty paying their mortgages are not aware of the assistance available, or perhaps it is due to their avoidance of the situation. It is human nature to avoid that which causes us discomfort or stress. In this case, however, being proactive in exhausting all possibilities prior to foreclosure is truly the best course of action. Early intervention with experienced professionals can help minimize the damages a homeowner can suffer. The absolute best time to begin taking action toward a solution is when a homeowner realize that he or she is having difficulty paying the mortgage, NOT after missing payments or making partial payments. Of course, many of us may have a tight month or two—I am referring to the homeowner who, looking forward, believes his or her financial picture will not improve in the near future—a true hardship. In the next article in this series, the resources available to distressed homeowners will be identified and briefly explained. Federal programs such as HAMP and HAFA (makinghomeaffordable.gov) may be great options for homeowners. Stay tuned to the next article to better understand what those programs offer and how they may help you.
by Pat Licata, REALTOR, SFR
The Departments of the Treasury & Housing and Urban Development (HUD) offer a government website, www.makinghomeaffordable.gov which is geared toward homeowners wanting to refinance their mortgage to a lower rate, modify their mortgage, or utilize a short sale. The website offers information based on a homeowner’s particular situation and allows a preliminary determination for which federal program he or she may qualify, some of which are not included in this article. This seems much simpler than it actually is.
HARP is an acronym for Home Affordable Refinance Program. HARP is designed for homeowners to take advantage of the historically low interest rates by refinancing their current mortgage even if there isn’t equity in the home due to fallen value; however, the mortgage cannot exceed 125% of the home’s current market value. The HARP loan would be considered a new loan and requires a loan application, underwriting, and refinance fees. This means that homeowners would still need to financially qualify for the new, lower loan amount. HARP is available to those who are current on their mortgage, and the mortgage is either owned or guaranteed by Fannie Mae or Freddie Mac. However, FHA and VA do offer similar programs.
The company to which mortgage payments are made is the loan servicer, not necessarily the entity that actually “owns” the mortgage loans. The HARP program is offered by many of these servicers, so the homeowner should first determine if his or her servicer participates in HARP. If not, the homeowner may contact other lenders who do participate in the program for eligibility criteria.
HAMP is an acronym for Home Affordable Modification Program. HAMP is geared toward homeowners struggling to meet the monthly mortgage payments for reasons unrelated to unemployment. HAMP is designed to lower the monthly mortgage payment to 31 percent of the homeowner’s verified monthly gross (pre-tax) income. HAMP modifications often result in a 40 percent drop in a monthly mortgage payment, according to the website.
Preliminary eligibility criteria for HAMP includes, but is not limited to: the home is the primary residence and the mortgage was obtained on or before January 1, 2009; the mortgage is less than $729,750, and the payment is more than 31% of the monthly gross (pre-tax) income; the homeowner has either fallen behind or is already delinquent due to financial hardship; the homeowner can qualify for the modified payment through standard underwriting guidelines; the homeowner has not been convicted within the last 10 years of felony larceny, theft, fraud or forgery, money laundering or tax evasion, in connection with a mortgage or real estate transaction. Since these criteria are guidelines, the homeowner should contact his or her mortgage servicer for more details.
HAFA is an acronym for Home Affordable Foreclosure Alternative. This program is available for mortgages that are owned or guaranteed by Fannie Mae and Freddie Mac or serviced by over 100 participating servicers. HAFA offers two options: short sale or deed-in-lieu of foreclosure. In a short sale, the mortgage loan servicer agrees to accept the net proceeds from the sale without regard to the deficiency in amount owed. In a deed-in-lieu of foreclosure, the mortgage loan servicer accepts the property from the homeowner, which is voluntarily transferred. Often however, the servicer requires that the homeowner has attempted to sell the property first.
Preliminary eligibility criteria for HAFA includes, but is not limited to: the homeowner living, or has lived, in the home in the last 12 months and has not purchased a new home within the last 12 months; the mortgage was less than $729,750 and obtained on or before January 1, 2009; the homeowner has not been convicted within the last 10 years of felony larceny, theft, fraud or forgery, money laundering or tax evasion, in connection with a mortgage or real estate transaction. Since these criteria are guidelines, the homeowner should contact his or her mortgage servicer for more details.
Please visit www.makinghomeaffordable.gov for additional information. It is important to note that loan servicers are required to consider eligibility for mortgage holders of Fannie Mae and Freddie Mac loans. From the “Get Assistance” tab at the top of the website homepage, click on the “Loan Look Up” link. Links are provided to Fannie Mae and Freddie Mac so that a homeowner can determine which entity “owns” his or her loan.
If a homeowner prefers to speak with a counselor, the toll free number is 888/995-HOPE (4673) and is answered 24 hours/day, 7 days/week.
The website encourages callers to Be Prepared Before You Call. In order to assist you, the housing expert will need to gather some information from you. Have the following documents handy:
- Information about your first mortgage, such as your monthly mortgage statement.
- Information about any second mortgage or home equity line of credit on the house.
- Information about the monthly gross (before tax) income of all household members contributing to the mortgage payment, including recent pay stubs if you receive them or documentation of income you receive from other sources.
- Information about your savings and other assets.
- Account balances and minimum monthly payments due on all of your credit cards.
- Account balances and monthly payments on all your other debts such as student loans and car loans.
- Your most recent income tax return.
- It may also be helpful to have a letter describing any circumstances that caused your income to be reduced or expenses to be increased (job loss, divorce, illness, etc.), if applicable.
The next article in this series will focus specifically on the many facets of a short sale.
Although Lucy gave it a truly valiant effort, she passed away in the care of a swan technician in Boston, VA, over the weekend. I am so sad that she didn’t make it…and I’m concerned about the future of swans on our lake, as the numbers have dwindled. Did you know that mute swans are viewed as evasive and are being removed (killed) from the Chesapeake Bay? This makes me sick! While I can’t control what happens, I’d like to be in position to help any little animal in need. If anyone is interested in being part of a wildlife rescue team, please let me know. I’ve already thought of the name…FOWL (Friends of Wildlife at the Lake) and have a rehabilitator who will assist! Let’s care about the wildlife at Lake of Woods in addition to each other! Please contact me!
I am simply amazed by the concern shared by so many residents who have heard about Lucy, the injured swan! I am truly grateful that we are fortunate to live in a community so rich in compassion. Thanks to you, Lucy isn’t the only “lucky” one–we all are!
This evening began uneventfully–until I received the call. For about three hours prior, I had been feverishly engrossed in writing the second article in a series for Lake Currents on distressed properties. I needed a break! And boy, the adventure began, definitely taking me away from my task! The call was from Sue Benton, a fabulous neighbor I hadn’t yet met! She had been given my name by Kayley, a wildlife rehabilitator, who knew of my affinity for wildlife, especially swans.
Sue was crying…having desperately been trying to find some assistance for an injured swan on the lake. After countless phone calls trying to find a crate large enough to house a swan but small enough to fit in my car, finding the owners of the home where Sue last saw the swan from across the lake, came the question: how do you capture a swan???
The end result, after many hours on the rescue mission, was that Sue, her husband, and I were able to capture her, in the dark I might add! It certainly is helpful that swans are white! To be honest, it was much easier than I anticipated, unfortunately because the poor swan can’t walk more than a few steps without collapsing! Thanks to Jodi, Joann, Lois, Wayne, and the Hardings (from whose yard we captured the bird), and of course, the Bentons, for their part in this collaborative effort. The swan, named Lucky Lucy by Sue, is now in a crate in my bedroom as I write this post. Tomorrow, Lucky Lucy is off to see Kayley for her thoughtful care. Everyone, please wish Lucky Lucy well and hope for the best!
Until next time, “It’s another beautiful day at the lake!”