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CBS
News
SPECIAL REPORT
Short Sales A Viable Alternative To
Foreclosure!
WATCH NOW!
Broadcast Date June 21, 2007
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July 7, 2011
Feel like you are drowning under your mortgage? Millions of Americans are “underwater” on their home loan, meaning that they owe more than the home is worth. Here are six options for dealing with an upside down mortgage:
Option 1: Stay And Pay
If you can afford your payments, you may want to hang in there. But if you have little breathing room in your budget, or if your circumstances change, you may be at risk of defaulting in the future.
Key Questions:
Is budget so tight that you are at risk of defaulting if anything goes wrong? How long will it take to return to positive equity?
Tax Consequences: None
Credit Damage: None
Option 2: Refinance
Yes, you may be able to refinance an underwater home under the Home Affordable Refinance Program, provided the new first mortgage totals no more than 125% of the value of your home.
Key Questions:
Will the refi lower payments enough to make your home affordable, or put you in a stable loan long-term?
Tax Consequences: None
Credit Damage: None
Option 3: Loan Modification
Lenders may be willing to modify your loan to reduce the interest rate, extend the term or even reduce principal. But many borrowers report extreme frustration trying to get a loan mod approved. And successful loan modifications usually involve a reduction in the principal loan balance, but those are few and far between.
Key Questions:
Does modified loan offer a long-term solution or just a temporary fix?
Tax Consequences: May owe taxes if principal is reduced.
Credit Damage: May be severe but temporary since negative notations are often removed when modification becomes permanent.
Option 4: Short Sale
With a short sale, the lender agrees to let you sell your home for less than you owe. It’s important to make sure you won’t still owe a large balance (a “deficiency”). if you have a second mortgage, you’ll need to negotiate a settlement on that loan too. Get a real estate agent and attorney to guide you through the process.
Key Questions:
Will you be responsible for a deficiency and/or taxes on the forgiven debt? If so, you may need to file for bankruptcy.
Tax Consequences: May owe taxes if principal is forgiven.
Credit Damage: Will likely be severe and equivalent to foreclosure.
Option 5: Walk Away / Foreclosure
If your efforts to save your home fail, or if you decide it’s not worth it to stay in a deeply underwater home, you may go into foreclosure. In non-judicial states, foreclosures can happen quickly, while in judicial states, they can take months or years. In the meantime, homeowners may stay rent-free.
Key Questions:
After foreclosure, will you be responsible for a deficiency (common with recourse loans) or be able to truly walk away (non-recourse loans)?
Will you owe taxes?
Tax Consequences: May owe taxes if home is worth less than amount owed.
Credit Damage: Will likely be severe. If sued for a deficiency, the judgment can be reported separately.
Option 6: Bankruptcy
Bankruptcy won’t reduce the amount owed on a first mortgage for your principal residence, but it may be used to eliminate an underwater second mortgage, catch up on payments on delinquent loan, and/or force lender to modify the loan. Can also be used in conjunction with foreclosure or short sale to eliminate deficiencies and/or tax liability.
Key Questions:
Can it help you reduce or eliminate an underwater home equity loan? Is the mortgage affordable in the long run or is it better to truly walk away and get a fresh start?
Tax Consequences: No taxes due on debts discharged in bankruptcy.
Credit Damage: Severe.
More Information
May 22, 2011
As Lenders Hold Homes in Foreclosure, Sales Are Hurt - The New York Times
EL MIRAGE, Ariz. — The nation’s biggest banks and mortgage lenders have steadily amassed real estate empires, acquiring a glut of foreclosed homes that threatens to deepen the housing slump and create a further drag on the economic recovery.
All told, they own more than 872,000 homes as a result of the groundswell in foreclosures, almost twice as many as when the financial crisis began in 2007, according to RealtyTrac, a real estate data provider. In addition, they are in the process of foreclosing on an additional one million homes and are poised to take possession of several million more in the years ahead.
Five years after the housing market started teetering, economists now worry that the rise in lender-owned homes could create another vicious circle, in which the growing inventory of distressed property further depresses home values and leads to even more distressed sales. With the spring home-selling season under way, real estate prices have been declining across the country in recent months.
“It remains a heavy weight on the banking system,” said Mark Zandi, the chief economist of Moody’s Analytics. “Housing prices are falling, and they are going to fall some more.”
Over all, economists project that it would take about three years for lenders to sell their backlog of foreclosed homes. As a result, home values nationally could fall 5 percent by the end of 2011, according to Moody’s, and rise only modestly over the following year. Regions that were hardest hit by the housing collapse and recession could take even longer to recover — dealing yet another blow to a still-struggling economy.
Although sales have picked up a bit in the last few weeks, banks and other lenders remain overwhelmed by the wave of foreclosures. In Atlanta, lenders are repossessing eight homes for each distressed home they sell, according to March data from RealtyTrac. In Minneapolis, they are bringing in at least six foreclosed homes for each they sell, and in once-hot markets like Chicago and Miami, the ratio still hovers close to two to one.
Before the housing implosion, the inflow and outflow figures were typically one-to-one.
The reasons for the backlog include inadequate staffs and delays imposed by the lenders because of investigations into foreclosure practices. The pileup could lead to $40 billion in additional losses for banks and other lenders as they sell houses at steep discounts over the next two years, according to Trepp, a real estate research firm.
“These shops are under siege; it’s just a tsunami of stuff coming in,” said Taj Bindra, who oversaw Washington Mutual’s servicing unit from 2004 to 2006 and now advises financial institutions on risk management. “Lenders have a strong incentive to clear out inventory in a controlled and timely manner, but if you had problems on the front end of the foreclosure process, it should be no surprise you are having problems on the back end.”
A drive through the sprawling subdivisions outside Phoenix shows the ravages of the real estate collapse. Here in this working-class neighborhood of El Mirage, northwest of Phoenix, rows of small stucco homes sprouted up during the boom. Now block after block is pockmarked by properties with overgrown shrubs, weeds and foreclosure notices tacked to the doors. About 116 lender-owned homes are on the market or under contract in El Mirage, according to local real estate listings.
But that’s just a small fraction of what is to come. An additional 491 houses are either sitting in the lenders’ inventory or are in the foreclosure process. On average, homes in El Mirage sell for $65,300, down 75 percent from the height of the boom in July 2006, according to the Cromford Report, a Phoenix-area real estate data provider. Real estate agents and market analysts say those ultra-cheap prices have recently started attracting first-time buyers as well as investors looking for several properties at once.
Read more from The New York Times
02/26/2011
Life After Short Sales
The typical questions about ethics and blame were not what three Huffington Post writers had in mind last year when they asked readers, "Are you considering walking away? Have you already walked away from an underwater mortgage?"
Nearly one in four American mortgages is worth more than the home it's tied to. That's about 10.8 million mortgages. Borrowers of 58 of those mortgages responded to the reporters. In the ensuing year, 10 homeowners lost touch with The Huffington Post but 48 stayed in contact and reported on their experiences. Today, just eight are still in their homes.
Read more and watch a video...
04/26/2010
Fannie sweetens offer to avoid foreclosure
WASHINGTON – April 26, 2010 – Struggling borrowers who give up their homes through a "deed in lieu of foreclosure" or a short sale will be able to obtain a new Fannie Mae loan in two years. Currently, these owners must wait at least four years.
The new policy, which takes effect in July, is designed to make foreclosure alternatives more attractive. The policy applies only to Fannie Mae's willingness to approve a mortgage, however. Homeowners' credit scores will still take a hit following a short sale or deed in lieu of foreclosure.
To qualify for a mortgage after the two year wait, Fannie Mae says borrowers must make a 20 percent downpayment; but those who lost a job or have other extenuating circumstances will be able to make a 10 percent downpayment.
Freddie Mac – which, with Fannie Mae, insures over half the mortgages in the U.S. – currently makes homeowners wait four years after a short sale or deed in lieu of foreclosure before it will back a new mortgage. Owners who go through a foreclosure wait five years. For both Fannie Mae and Freddie Mac, the waits can be shorter in some cases if borrowers show extenuating circumstances.
Source: http://www.floridarealtors.org/NewsAndEvents/article.cfm?id=238494
07/06/2007
Florida Foreclosure Future Shock
By Les Christie, CNNMoney.com staff writer
CNN
NEW YORK (CNNMoney.com) -- A tidal wave of
foreclosures may be heading toward Florida, if you judge
by the number of homeowners looking to get rid of their
homes as fast as they can.
Duane LeGate, president of House Buyer Network,
arranges quick sales for home owners in distress. He claims
he can predict where markets will go bad by looking at the
traffic on his Web site.
"We can tell you what's going to happen
nine months from now," he said. His most endangered
market right now is Orange County, Florida, home of Disney
World.
Adam and Sunny Gardner bought a house in Nevada
two years ago. They would like to move, but with prices
falling, they probably can’t.
Home prices declined from a year earlier in
about half of all metropolitan areas in the fourth quarter,
the National Association of Realtors reported.
Toledo blade.com Staff Home foreclosures in
Michigan occurred last month at a rate nearly 2½
times that of a year ago, according to RealtyTrac.
U.S. Foreclosure Filings Up 42 Percent From
2005 Colorado, Georgia, Nevada Post Highest Foreclosure
Rates
IRVINE, Calif. – Jan. 25, 2007 – RealtyTrac™
(www.realtytrac.com), the leading online marketplace for
foreclosure properties, today released year-end data from
its 2006 U.S. Foreclosure Market Report, which shows more
than 1.2 million foreclosure filings were reported nationwide
during the year, up 42 percent from 2005 and a foreclosure
rate of one foreclosure filing for every 92 U.S. households.
Wall Street Journal, P. D1; Simon, Ruth Moody's
Economy.com and Equifax Inc.
report a jump in mortgage delinquencies to 2.51 percent
in the fourth quarter of
2006 from 2.33 percent during the previous three-month period.
